<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number:
June 30, 1997 33-61516
THE ROBERT MONDAVI CORPORATION
Incorporated under the laws I.R.S. Employer Identification:
of the State of California 94-2765451
Principal Executive Offices:
7801 St. Helena Highway
Oakville, CA 94562
Telephone: (707) 259-9463
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
X
--------
As of September 15, 1997 there were issued and outstanding (i) 7,527,174 shares
of the Registrant's Class A Common Stock and (ii) 7,676,012 shares of the
Registrant's Class B Common Stock. The aggregate market value of the
Registrant's voting stock held by non-affiliates was $406,305,396 as of
September 15, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's annual report to security holders for the fiscal
year ended June 30, 1997 are incorporated by reference into Part II of this
report. Portions of the registrant's definitive proxy statement dated September
29, 1997 are incorporated by reference into Part III of this report.
<PAGE> 2
PART I
ITEM 1. BUSINESS
INTRODUCTION
The Company is a leading producer of premium table wines. The Company
markets wines worldwide under the following labels: Robert Mondavi Napa Valley,
Robert Mondavi Coastal, Woodbridge, Vichon Mediterranean, La Famiglia di Robert
Mondavi, Byron, Opus One, Luce and Caliterra.
The Company's products are available through all principal retail
channels for premium table wine, including fine restaurants, hotels, specialty
shops, supermarkets and club stores in all fifty states and 90 countries
throughout the world. Sales of the Company's products outside the United States
accounted for approximately 8% of net revenues in fiscal 1997.
The Robert Mondavi Winery was incorporated under the laws of California
in 1966, and the Company was incorporated under the laws of California in 1981
as a holding company for the various business interests of the Robert Mondavi
Winery. The Company's principal executive offices are located at 7801 St. Helena
Highway, Oakville, California 94562. Its telephone number is (707) 259-9463. As
used herein, unless the context indicates otherwise, the "Company" shall mean
The Robert Mondavi Corporation and its consolidated subsidiaries.
INDUSTRY BACKGROUND
"Table" wines are those with 7%-14% alcohol by volume and which are
traditionally consumed with food. Other wine products, such as sparkling wines,
wine coolers, pop wines and fortified wines, are not sold in commercial
quantities by the Company. To have a vintage date, a table wine must be made at
least 95% from grapes harvested, crushed and fermented in the calendar year
shown on the label and must use an appellation of origin (e.g., Napa Valley).
Table wines that retail at less than $3.00 per 750 ml. bottle are generally
considered to be generic or "jug" wines, while those that retail at $3.00 or
more per bottle are considered premium wines. The Company produces and sells
only premium table wines. The premium category is generally divided by the trade
into three segments: popular premium wines that retail at $3.00 to $7.00 per
bottle; super premium wines that retail at $7.01 to $14.00 per bottle; and ultra
premium wines that retail at over $14.00 per bottle. The Company also recognizes
a fourth segment, not generally recognized by the trade, consisting of
super-ultra premium wines that retail at above $20.00 per bottle. The Company
sells wines in each price segment of the premium table wine market.
PRODUCT LINES
The Company's business began in 1966 at the Robert Mondavi Winery in
Oakville where the Company produces its flagship products, the Robert Mondavi
Napa Valley reserve, district and varietal wines. The Napa Valley wines are
marketed under the prestigious "Robert Mondavi" label. The principal Napa Valley
offerings include Cabernet Sauvignon, Pinot Noir, Chardonnay and Fume Blanc.
In May 1994 the Robert Mondavi Coastal line of wines was introduced in
California. Distribution has since been expanded to additional markets and the
Coastal wines now include Cabernet Sauvignon, Merlot, Pinot Noir, Zinfandel,
Chardonnay and Sauvignon Blanc.
2
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The Woodbridge Winery, located in the Northern San Joaquin Valley in
Acampo, California, produces popular premium wines for sale under the
"Woodbridge" label. Although competitively priced, Woodbridge wines are made in
the Robert Mondavi tradition of quality, including oak barrel aging of its
Cabernet Sauvignon, Zinfandel, Chardonnay and Sauvignon Blanc wines. All of the
Woodbridge wines are vintage-dated and sold under varietal names, including
Cabernet Sauvignon, Chardonnay, Sauvignon Blanc and red and white Zinfandel.
During fiscal 1997, Vichon began sourcing all of its wines from the
Languedoc region of France, selling them under the new Vichon Mediterranean
line. The initial release included Cabernet Sauvignon, Chardonnay, Merlot and
Sauvignon Blanc, as well as three traditional Mediterranean varietals: Viognier,
Chasan and Syrah.
La Famiglia di Robert Mondavi, introduced in limited quantities
beginning in 1995, offers Italian-style, California-grown varietal wines.
The Company purchased the Byron Winery located near Santa Maria in
1990. Byron Pinot Noir and Chardonnay are made in the traditional Burgundian
style of winemaking. To date, the Byron wines have been offered in only a few
prominent markets due to limited supply. The Company intends to broaden
distribution as production capacity increases. Construction of a new 32,000
square foot winery at Byron was completed in August 1996.
The Opus One Winery, located in Oakville across from the original
Robert Mondavi Winery, is a joint venture between the Company and a corporation
owned by members of the family of Baron Philippe de Rothschild, the owners of
Chateau Mouton-Rothschild, one of the first-growth wines of Bordeaux, France. At
Opus One, the Company and its partner employ unique production techniques that
balance the newest technology with traditional methods in a manner designed to
minimize mechanical handling of the grapes and the finished wine.
In June 1997 the Company and its Italian partners, Marchesi de'
Frescobaldi, introduced Luce to the international wine trade. Luce is grown,
produced and bottled in the Montalcino region of Italy. The 1993 and 1994
vintages are available in small quantities in select U.S. and European markets.
In March 1996 the Company and the Chadwick family of Chile formed a
joint venture, Vina Caliterra S.A., to produce and market the Caliterra brand of
Chilean premium wines. The Company also acts as the exclusive United States
importer of the Caliterra wines and the Chadwick family's Errazuriz brand.
MARKETING AND DISTRIBUTION
The Company sells its products through a wide variety of "on-sale"
retail establishments (meaning the wine is consumed on the premises), and
"off-sale" retail establishments (meaning the wine is purchased for consumption
off the premises). On-sale retailers include restaurants and hotels and off-sale
retailers include bottle shops, grocery stores, supermarkets and club stores.
Substantially all of the Company's wines are sold through a three-tier
system: the Company sells to wholesalers for resale to retailers, such as
restaurants and supermarkets, who sell the products to the consumer. Domestic
sales of the Company's wines are made through more than 100 independent wine and
spirits distributors. International sales are made through independent importers
and brokers.
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The Company's wines are distributed in California, Florida,
Pennsylvania and Southern Nevada by Southern Wine and Spirits, a large national
beverage distributor. Sales to Southern Wine and Spirits nationwide represented
approximately 29%, 28% and 29% of the Company's net revenues for the fiscal
years ended June 30, 1997, 1996 and 1995, respectively. Sales to the Company's
15 largest distributors represented 66% of the Company's net revenues in fiscal
1997. The Company's distributors also offer table wines of other companies that
directly compete with the Company's products.
Sales of the Company's wines in California accounted for approximately
22%, 22% and 23% of the Company's net revenues for the fiscal years ended June
30, 1997, 1996 and 1995, respectively. Other major domestic markets include New
York, New Jersey, Texas, Pennsylvania, Florida and Massachusetts where annual
sales represented 30% of the Company's net revenues in each of the same fiscal
periods.
GRAPE SUPPLY
In fiscal 1997, approximately 10% of the Company's total grape supply
came from Company-owned or leased vineyards, including approximately 36% of the
grape supply for wines produced at the Robert Mondavi Winery in Oakville. The
Company owns and leases vineyards throughout California as described in the
table below.
<TABLE>
<CAPTION>
APPROXIMATE 1997
PLANTABLE ACREAGE
-----------------
LOCATION (1) PLANTED FALLOW TOTAL
- ------------ ----- ----- -----
<S> <C> <C> <C>
NAPA VALLEY 694 302 996
CARNEROS 452 -- 452
MENDOCINO 260 170 430
MONTEREY 549 618 1,167
SAN JOAQUIN 93 -- 93
SAN LUIS OBISPO 434 -- 434
SANTA BARBARA 1,295 300 1,595
----- ----- -----
Total 3,777 1,390 5,167
===== ===== =====
</TABLE>
(1) Excludes vineyards owned by the Opus One, Twin Oaks, Caliterra and Luce
joint ventures, in each of which the Company owns a 50% interest.
Includes 1,370 acres held pursuant to long-term leases.
In addition to the grapes it grows in its own vineyards, the Company
purchases grapes in California from approximately 300 independent growers,
including approximately 100 growers in Napa Valley. The grower contracts range
from one-year spot market purchases to intermediate and long-term agreements.
4
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WINEMAKING
The Company's winemaking philosophy is to make wines in the traditional
manner by starting with high quality fruit and handling it as gently and
naturally as possible all the way to the bottle. Each of the Company's wineries
is equipped with modern equipment and technology that is appropriate for the
style and scale of the wines being produced. Examples include barrel
fermentation and aging and handling methods that allow the Company to produce
wines with elegance, body and complexity at high volumes.
The Company emphasizes traditional barrel aging as a cornerstone of its
winemaking approach. The Company has approximately 100,000 French and American
oak barrels in its statewide barreling system. The barrels vary in terms of age,
forest source and "toast" level. The Company views its barrels as key winemaking
assets and its substantial annual investment in new oak barrels enables it to
consistently produce premium quality wines and to accomplish both its economic
and stylistic objectives within its statewide system of wineries.
EMPLOYEES
As of June 30, 1997, the Company had 890 employees, 870 of whom were
full-time employees and 20 of whom were part-time. In addition, a significant
number of seasonal hourly employees are hired during each autumn harvest. None
of the Company's employees is represented by a labor union and the Company
believes that its relationship with its employees is good.
TRADEMARKS
The Company has federal trademark registrations for wine of the marks
"ROBERT MONDAVI," "WOODBRIDGE," "LA FAMIGLIA DI ROBERT MONDAVI" and the "Arch
and Tower" motif used on the Robert Mondavi Napa Valley label. Through its
wholly-owned subsidiaries, the Company has also federally registered the
trademarks "VICHON and design" and "BYRON" for wine. The Company also has
foreign registrations of the trademarks "MONDAVI," "ROBERT MONDAVI," and
"WOODBRIDGE" for goods covering wine in those countries it considers to be the
major winemaking countries of the world. The Opus One joint venture has federal
trademark registrations for wine of the mark "OPUS ONE" and the "Silhouette
Logo" used on the Opus One label. Opus One also has foreign registrations of the
trademarks "OPUS" and/or "OPUS ONE" for goods covering wine in those countries
it considers to be the major winemaking countries of the world. The Luce and
Caliterra partnerships have registered their respective marks in the United
States and certain other jurisdictions. Each of the United States trademark
registrations is renewable indefinitely so long as the Company is making a bona
fide usage of the trademark.
5
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ITEM 2. PROPERTIES
The Company operates five wineries, including Opus One, which is
co-managed with the owners of Chateau Mouton-Rothschild. The current available
annual production capacity is up to 500,000 cases at the Robert Mondavi Winery
in Oakville, 6.0 million cases at Woodbridge, 80,000 cases at the former Vichon
facility in Oakville, 80,000 cases at Byron and 30,000 cases at Opus One. The
Woodbridge winery serves as a central warehouse and distribution point for all
of the Company's wines. For information regarding the Company's vineyards, see
"Grape Supply" under Item 1 above.
The Company also leases approximately 426,000 square feet of
administrative and warehouse space under various leases expiring between
January 1998 and September 2012. The Company believes that its current
facilities, leased and owned, are adequate for their current uses.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to litigation in the ordinary course of its
business. In the opinion of management, the ultimate outcome of existing
litigation will not have a material adverse effect on the Company's consolidated
financial condition or the results of its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the Company's fourth quarter ended June 30, 1997.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information required by this item is incorporated by reference from
page 40, "Common Stock Information," of the registrant's annual report to
security holders for the fiscal year ended June 30, 1997, furnished to the
Securities and Exchange Commission pursuant to Rule 14a-3(b).
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The information required by this item is incorporated by reference from
page 18, "Selected Consolidated Financial and Operating Data," of the
registrant's annual report to security holders for the fiscal year ended June
30, 1997, furnished to the Securities and Exchange Commission pursuant to Rule
14a-3(b).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference from
pages 19-23, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," of the registrant's annual report to security holders
for the fiscal year ended June 30, 1997, furnished to the Securities and
Exchange Commission pursuant to Rule 14a-3(b).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated by reference from
page 29, "Fair Value of Financial Instruments" and "Derivative Financial
Instruments," of the registrant's annual report to security holders for the
fiscal year ended June 30, 1997, furnished to the Securities and Exchange
Commission pursuant to Rule 14a-3(b).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from
pages 24-39, "Consolidated Financial Statements," of the registrant's annual
report to security holders for the fiscal year ended June 30, 1997, furnished to
the Securities and Exchange Commission pursuant to Rule 14a-3(b).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
7
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from
pages 2-4 of the registrant's definitive proxy statement dated September 29,
1997, as filed with the Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
pages 7-11 of the registrant's definitive proxy statement dated September 29,
1997, as filed with the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
pages 5-6 of the registrant's definitive proxy statement dated September 29,
1997, as filed with the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
page 12 of the registrant's definitive proxy statement dated September 29, 1997,
as filed with the Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
PAGE IN
ANNUAL
1) FINANCIAL STATEMENTS: REPORT*
Report of Independent Accountants 39
Consolidated Balance Sheets as of June 30, 1997 and 1996 24
Consolidated Statements of Income for the
years ended June 30, 1997, 1996 and 1995 25
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
June 30, 1997, 1996 and 1995 26
Consolidated Statements of Cash Flows for the years
ended June 30, 1997, 1996 and 1995 27
Notes to Consolidated Financial Statements 28-38
- --------------------------------------------------------------------------------
* Incorporated by reference to the indicated pages of the registrant's annual
report to security holders for the fiscal year ended June 30, 1997, furnished to
the Securities and Exchange Commission pursuant to Rule 14a-3(b).
8
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2) FINANCIAL STATEMENT SCHEDULES: PAGE
Schedule II Valuation and Qualifying Accounts 11
3) EXHIBITS:
(1) Exhibit 3.1 Restated Articles of Incorporation
(2) Exhibit 3.2 Certificate of Amendment of
Articles of Incorporation filed on
June 4, 1993.
(2) Exhibit 3.3 Restated Bylaws.
(1) Exhibit 10.1 Form of Registrant's Indemnification
Agreement for Directors and Officers
(1) Exhibit 10.2 Stock Buy-Sell Agreement between
Registrant and the holders of Class
B Common Stock, dated as of
March 1, 1982
(1) Exhibit 10.3 First Amendment to Stock Buy-Sell
Agreement between Registrant and the
holders of Class B Common Stock,
dated as of March 8, 1993
(1) Exhibit 10.4 Registration Rights Agreement between
Registrant and the holders of Class B
Common Stock, dated as
of February 26, 1993
(1) Exhibit 10.7 1993 Employee Stock Purchase Plan,
and form of plan offering
document thereunder
(1) Exhibit 10.8 Second Amended and Restated Executive
Incentive Compensation Plan, dated
July 1, 1988, as amended effective
June 30, 1992 and April 20, 1993
(1) Exhibit 10.9 Retirement Restoration Plan, effective
as of April 1, 1992
(1) Exhibit 10.11 Form of Supplemental Long Term Disability
Income Plan for certain Executive
Officers of Registrant
(1) Exhibit 10.12 Personal Services Agreement, dated as of
February 26, 1993, between Registrant and
Robert Mondavi
(1) Exhibit 10.14 Grape Purchase Agreement, dated
August 7, 1992, between Registrant and
Frank E. Farella
(1) Exhibit 10.20 $9,400,000 Promissory Note, Deed of
Trust, Security Agreement and Fixture
Filing, with Assignment of Rents
as amended and Agreement Concerning
Special Requirements, dated
December 15, 1989, between
Registrant and John Hancock Mutual
Life Insurance Company
(1) Exhibit 10.21 $4,900,000 Promissory Note, Deed of
Trust, Security Agreement and Fixture
Filing, with Assignment of Rents
as amended and Agreement Concerning
Special Requirements between Registrant
and John Hancock Mutual Life
Insurance Company
9
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(1) Exhibit 10.24 $5,600,000 Promissory Note, Deed of
Trust, Security Agreement and Fixture
Filing, with Assignment of Rents
as amended and Agreement Concerning
Special Requirements, dated December
29, 1989, between Registrant and
John Hancock Mutual Life Insurance Company
(1) Exhibit 10.28 Third Restatement of Joint Venture
Agreement of Opus One dated
January 1, 1991, between Robert
Mondavi Investments and B.Ph.R.
(California), Inc.
(3) Exhibit 10.34 Note Agreement dated December 1, 1994.
(4) Exhibit 10.36 Amended and Restated 1993 Non-Employee
Directors' Stock Option Plan.
(4) Exhibit 10.37 Note Agreement dated July 8, 1996.
Exhibit 10.38 Amended and Restated 1993 Equity
Incentive Plan.
Exhibit 11 Statement re Computation of Per Share
Earnings
Exhibit 13 Those portions of the Registrant's Annual
Report to Security Holders for the Fiscal
Year Ended June 30, 1997 that are
incorporated by reference into this Annual
Report on Form 10-K
(1) Exhibit 21 Subsidiaries of the Registrant
Exhibit 23 Consent of Price Waterhouse LLP
Exhibit 27 Financial Data Schedule
(1) Incorporated by reference to Registration Statement on Form
S-1 filed on April 23, 1993.
(2) Incorporated by reference to Amendment No. 3 to Registration
Statement on Form S-1 filed on June 7, 1993.
(3) Incorporated by reference to Quarterly Report on Form 10-Q for
the quarterly period ended December 31, 1994.
(4) Incorporated by reference to Annual Report on Form 10-K for
the annual period ended June 30, 1996.
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
10
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ROBERT MONDAVI CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995:
Allowance for uncollectible accounts $ 200 $ 127 $ -- $ 27(1) $ 300
Inventory reserves for
write down to net realizable value 932 348 -- 535 745
YEAR ENDED JUNE 30, 1996:
Allowance for uncollectible accounts 300 219 -- 19(1) 500
Inventory reserves for
write down to net realizable value 745 755 -- 402 1,098
YEAR ENDED JUNE 30, 1997:
Allowance for uncollectible accounts 500 45 -- 45(1) 500
Inventory reserves for
write down to net realizable value 1,098 402 -- 338 1,162
</TABLE>
Notes:
(1) Balances written off as uncollectible.
11
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE ROBERT MONDAVI CORPORATION
By /s/ GREGORY M. EVANS
---------------------------
Gregory M. Evans,
Senior Vice President and
Chief Financial Officer
Pursuant to the Requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ ROBERT G. MONDAVI
- ------------------------
Robert G. Mondavi Chairman of the Board September 29, 1997
/s/ R. MICHAEL MONDAVI
- ------------------------
R. Michael Mondavi President and Director
(Principal Executive Officer) September 29, 1997
/s/ TIMOTHY J. MONDAVI
- ------------------------
Timothy J. Mondavi Managing Director, Winegrower and Director September 29, 1997
/s/ GREGORY M. EVANS
- ------------------------
Gregory M. Evans Chief Financial Officer
(Principal Financial and Accounting Officer) September 29, 1997
/s/ CLIFFORD S. ADAMS
- ------------------------
Clifford S. Adams Director September 29, 1997
/s/ JAMES L. BARKSDALE
- ------------------------
James L. Barksdale Director September 29, 1997
/s/ MARCIA MONDAVI BORGER
- ------------------------
Marcia Mondavi Borger Director September 29, 1997
/s/ FRANK E. FARELLA
- ------------------------
Frank E. Farella Director September 29, 1997
/s/ PHILIP GREER
- ------------------------
Philip Greer Director September 29, 1997
/s/ BARTLETT R. RHOADES
- ------------------------
Bartlett R. Rhoades Director September 29, 1997
</TABLE>
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REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of The Robert Mondavi Corporation
Our audits of the consolidated financial statements referred to in our report
dated July 25, 1997 appearing on page 39 of the 1997 Annual Report to
Shareholders of The Robert Mondavi Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
San Francisco, CA
July 25, 1997
13
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EXHIBIT 10.38
THE ROBERT MONDAVI CORPORATION
AMENDED AND RESTATED
1993 EQUITY INCENTIVE PLAN
1. PURPOSE.
(a) The purpose of this Plan is to provide a means by which selected
key Employees of and Consultants to the Company and its Affiliates may be given
an opportunity to benefit from increases in value of the stock of the Company
through the granting of Stock Awards including (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Performance Grants, (iv) Stock Bonuses and (v)
Restricted Stock or Restricted Stock Units, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees of or Consultants to the Company or its
Affiliates, to secure and retain the services of new Employees and Consultants,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company and its Affiliates.
(c) In the discretion of the Committee to which responsibility for
administration of the Plan is delegated pursuant to Section 3, an Employee or
Consultant may be granted any Stock Award permitted under the provisions of the
Plan, and more than one Stock Award may be granted to a participant. Stock
Awards may be granted as alternatives to or replacements of Stock Awards
outstanding under the Plan or any other awards outstanding under another plan or
arrangement of the Company or an Affiliate. All Stock Awards which are granted
as Options shall be separately designated Incentive Stock Options or
Nonstatutory Stock Options at the time of grant, and a separate certificate or
certificates will be issued for shares purchased on exercise of each type of
Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation, subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code or a partnership, joint venture or other
entity in which the Company owns a substantial equity interest.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means the Compensation Committee of the Board of
Directors or another committee appointed by the Board in accordance with
subsection 3(c) of the Plan.
(e) "COMPANY" means The Robert Mondavi Corporation, a California
corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render services and who is compensated for such
services, provided that the term "Consultant" shall not include Directors who
are paid only a director's fee by the Company or who are not compensated by the
Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means the
employment or the relationship as a Consultant is not interrupted or terminated.
The Committee, in its sole discretion, may determine whether Continuous Status
as an Employee or Consultant shall be considered interrupted in the case of (i)
any approved leave of absence, including sick leave, military leave, or any
other personal
<PAGE> 2
leave, or (ii) transfers between locations of the Company or between the Company
and its Affiliates or their successors.
(h) "DIRECTOR" means a member of the Board.
(i) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(j) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(k) "EXCHANGE ACT" means the Securities and Exchange Act of 1934, as
amended from time to time.
(l) "FAIR MARKET VALUE" means the value of the Company's Class A
Common Stock as determined from time to time in good faith by the Committee.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(o) "OFFICER" means a person who is an "executive officer" of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(r) "OPTIONED SHARES" means that number of shares of Class A Common
Stock of the Company subject to an Option.
(s) "OPTIONEE" means an Employee or Consultant who holds an
outstanding Option.
(t) "PERFORMANCE CRITERIA" means the various business criteria set
forth in Section 8(b).
(u) "PERFORMANCE GRANT" means a grant of shares of Class A Common
Stock or of a right to receive shares of Class A Common Stock (or their cash
equivalent or a combination of both) based on such performance goals, factors or
other conditions, restrictions or contingencies as may be fixed by the Committee
and as set forth herein.
(v) "PLAN" means this 1993 Equity Incentive Plan.
(w) "RESTRICTED STOCK" AND "RESTRICTED STOCK UNITS" means Optioned
Shares awarded and held subject to the restrictions set forth in Section 9, and
rights to receive Restricted Stock, respectively. In lieu of Restricted Stock,
the Company may grant Restricted Stock Units.
2
<PAGE> 3
(x) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3 as in effect when discretion is being exercised with
respect to the Plan.
(y) "STOCK APPRECIATION RIGHT" or "SAR" means the right of a
participant to receive, in cash, Class A Common Stock or Optioned Shares, the
excess of (A) the Fair Market Value of a specified number of shares of Class A
Common Stock at the time of exercise, over (B) an exercise price established by
the Committee.
(z) "STOCK AWARD" means any right granted under the Plan, including
any Option, Stock Appreciation Right, Performance Grant, any Stock Bonus, an
award of Restricted Stock or Restricted Stock Units, and any other
incentive-based awards adopted pursuant to Section 15 of this Plan.
(aa) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(bb) "STOCK BONUS" means current or deferred Optioned Shares granted
pursuant to Section 9.
3. ADMINISTRATION.
(a) The Plan shall be administered by a Committee, unless the Board,
in its discretion, assumes administration of the Plan, whereupon the Board shall
have all powers herein conferred on the Committee.
(b) The Committee shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; the provisions of each such Stock Award (which need not
be identical); and the number of shares with respect to which Stock Awards shall
be granted to each such person. The maximum number of Optioned Shares that may
be covered by Options, Stock Appreciation Rights, Performance Grants, Stock
Bonuses and Restricted Stock granted to any one individual shall be 100,000
shares during any single calendar year.
(2) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Committee, in the exercise of this power, may correct
any defect, omission or inconsistency in the Plan or in any Stock Award in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(3) Generally, to exercise such powers and to perform such
acts as the Committee deems necessary or expedient to promote the best
interests of the Company.
(c) The Committee shall consist of not fewer than two (2) members of
the Board. The Committee's powers enumerated above shall be subject to such
resolutions, not inconsistent with the provisions of the Plan, as may be adopted
from time to time by the Board.
(d) All judgments, determinations, and actions of every kind and
nature with respect to the Plan and its administration undertaken by the
Committee or the Board shall be made in the sole discretion of the Committee or
Board as the case may be.
3
<PAGE> 4
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 14 below, the maximum number
of Optioned Shares that may be issued to participants and their beneficiaries
under the Plan shall not exceed in the aggregate two million five hundred eighty
five thousand two hundred ninety four (2,585,294). If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the Optioned Shares not acquired shall revert to and
again become available for issuance under the Plan. In the event of payment for
Optioned Shares or settlement of an SAR by delivery to the Company of other
shares of its Class A Common Stock, only the net shares issued shall be
considered toward the maximum number of Optioned Shares. In the event of an
exercise of an SAR for cash, or payment of cash for Restricted Stock Units, no
Optioned Shares shall be deemed to have been utilized.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to key Employees.
Stock Awards other than Incentive Stock Options may be granted only to key
Employees or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates, unless the exercise price of such Incentive Stock Option is
at least one hundred ten percent (110%) of the Fair Market Value of such stock
at the date of grant and the Incentive Stock Option is not exercisable after the
expiration of five (5) years from the date of grant.
6. OPTION PROVISIONS.
An Option represents the right to purchase a specified number of
shares during a specified period at a price per share that is no less than that
required by Section 6(b). Each Option shall be in such form and shall contain
such terms and conditions as the Committee shall deem appropriate. The
provisions of separate Options need not be identical, but each Option shall
include (through incorporation of provisions hereof by reference in the Option
Agreement or otherwise) the substance of each of the following provisions:
(a) No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option shall be not less than fifty percent (50%) of the
Fair Market Value of the stock subject to the Option on the date the Option is
granted. The foregoing not withstanding, the Committee may provide that the date
of grant of any Nonstatutory Stock Option is the date on which the Optionee was
hired or promoted (or similar event) if the grant of the Option occurs not more
than 90 days after the date of such hiring, promotion or other event. The
exercise price of each Option shall be specified in the Option Agreement.
(c) The purchase price of stock acquired pursuant to an Option shall
be paid, to the extent permitted by applicable statutes and regulations, either
(i) in cash at the time the Option is exercised, or (ii) at the discretion of
the Committee, exercised either at the time of the grant or exercise of the
Option,
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<PAGE> 5
(A) by delivery to the Company (including by attestation) of other Class A
Common Stock of the Company, (B) according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other Class A Common Stock of the Company) with the person
to whom the Option is granted or to whom the Option is transferred pursuant to
subsection 6(d), (C) by cashless exercise methods which are permitted by law,
including, without limitation, methods whereby a broker sells the Optioned
Shares to which the exercise relates or holds them as collateral for a margin
loan, delivers the Option Price to the Company, and delivers the remaining
proceeds to the Optionee (and in connection therewith, the Company may establish
a cashless exercise program including a program where the commissions on the
sale of Optioned Shares to which the exercise relates are paid by the Company),
or (D) in any other form of legal consideration that may be acceptable to the
Committee. In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) Except as may be permitted by the Committee in any particular
Option Agreement, an Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the person to whom the Option is granted only by such person.
(e) The total number of Optioned Shares may, but need not, be allotted
in periodic installments (which may, but need not, be equal). The Option
Agreement may provide that from time to time during each of such installment
periods, the Option may become exercisable ("vest") with respect to some or all
of the shares allotted to that period, and may be exercised with respect to some
or all of the shares allotted to such period and/or any prior period as to which
the Option became vested but was not fully exercised. During the remainder of
the term of the Option (if its term extends beyond the end of the installment
periods), the Option may be exercised from time to time with respect to any
Optioned Shares then remaining subject to the Option. The provisions of this
subsection 6(e) are subject to any Option provisions in the Option Agreement
governing the minimum number of shares as to which an Option may be exercised.
(f) In the event an Optionee's Continuous Status as an Employee or
Consultant terminates (other than upon Disability or death), the Optionee may
exercise his or her Option, but only within such period of time as is determined
by the Committee and specified in the Option Agreement (but in no event later
than the expiration of the term of such Option as set forth in the Option
Agreement).
(g) In the event an Optionee's Continuous Status as an Employee or
Consultant terminates as a result of Disability, the Optionee may exercise his
or her Option, but only within such period of time as is determined by the
Committee and specified in the Option Agreement (but in no event later than the
expiration of the term of such Option as set forth in the Option Agreement).
(h) In the event an Optionee's Continuous Status as an Employee or
Consultant terminates as a result of death, the Option may be exercised, but
only within such period of time as is determined by the Committee and specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Option Agreement), by the Optionee's estate
or by a person who acquired the right to exercise the Options by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the time of death.
(i) The Option Agreement may, but need not, include a provision whereby
the Optionee may elect at any time while an Employee or Consultant to exercise
the Option as to any part or all of the shares subject to the Option prior to
the full vesting of the Option. Any unvested shares so purchased may be
5
<PAGE> 6
subject to a repurchase right in favor of the Company or to any other
restriction the Committee determines to be appropriate.
7. STOCK APPRECIATION RIGHTS ("SARs").
(a) A Stock Appreciation Right or SAR is a right to receive a
payment, in cash, Class A Common Stock, Optioned Shares or a combination of the
foregoing, equal to the excess of the Fair Market Value at time of exercise of a
specified number of shares over the aggregate exercise price of the SARs being
exercised. The aggregate exercise price of SARs shall not be less than fifty
percent (50%) of the Fair Market Value of the specified number of shares subject
to the SARs. Subject to the other applicable provisions of the Plan, the
Committee shall have the authority to grant SARs to a Plan participant either
separately or in tandem with other Stock Awards. The exercise of a tandem Stock
Award shall result in an immediate cancellation of its corresponding SAR, and
the exercise of a tandem SAR shall cause an immediate cancellation of its
corresponding Stock Award. SARs shall be subject to such other terms and
conditions as the Committee may specify.
(b) Upon the exercise of an SAR, the participant shall be entitled to
receive an amount equal to the difference between the Fair Market Value of a
share of Class A Common Stock of the Company on the date of exercise and the
exercise price of the SAR. The Committee shall decide whether such payment shall
be in cash, Class A Common Stock, Optioned Shares or in a combination thereof.
8. PERFORMANCE GRANTS.
(a) A Performance Grant is a grant, subject to the attainment of the
Performance Criteria, of shares of stock or of the right to receive shares of
stock (or their cash equivalent or a combination of both) in the future. Subject
to the other applicable provisions of the Plan, Performance Grants may be
awarded to Employees or Consultants at any time and from time to time as
determined by the Committee. The Committee shall have complete discretion in
determining the size and composition of Performance Grants so issued to a
participant and the appropriate period over which performance is to be measured
("performance cycle").
(b) The value of each Performance Grant may be fixed or it may be
permitted to fluctuate based on the Performance Criteria selected by the
Committee. The Committee shall establish Performance Criteria that, depending on
the extent to which they are met, will determine the ultimate value of the
Performance Grant or the portion of such Performance Grant earned by
participants, or both. The Committee shall establish performance goals and
objectives for each performance cycle and shall identify one or more of the
following business criteria or objectives that is to be monitored during the
performance cycle in determining the Performance Grant: return on assets,
operating ratios, cash flow, shareholder return, revenue growth, net income,
earnings per share, debt reduction, return on investment, revenue and attainment
of budgets.
(c) The Committee shall determine the portion of each Performance
Grant that is earned by a participant on the basis of the achievement of the
Performance Criteria during the performance cycle in relation to the performance
goals for such cycle. The earned portion of a Performance Grant may be paid out
in restricted or non-restricted shares, cash or a combination of both as the
Committee may determine.
(d) A participant must be an Employee or Consultant of the Company at
the end of the performance cycle in order to be entitled to payment of a
Performance Grant issued in respect of such cycle; provided, however, that,
except as otherwise determined by the Committee, if a participant ceases to be
an Employee or Consultant of the Company upon the occurrence of his or her
death, retirement, Disability or other reasons determined by the Committee prior
to the end of the performance cycle, the
6
<PAGE> 7
participant shall earn a proportionate portion of the Performance Grant based
upon the elapsed portion of the performance cycle and the Company's performance
over that portion of such cycle.
9. STOCK BONUSES AND RESTRICTED STOCK.
The Committee may at any time and from time to time award a Stock
Bonus, Restricted Stock or Restricted Stock Units to such participants and in
such amounts as it determines. An award of Restricted Stock or Restricted Stock
Units may specify, in the Stock Award Agreement, the applicable restrictions, if
any, on the shares subject thereto, the duration of such restrictions, and the
time or times at which the restrictions shall lapse with respect to all or part
of the shares that are part of the award. Each Stock Bonus or Stock Award
Agreement shall be in such form and shall contain such terms and conditions as
the Committee shall deem appropriate. The terms and conditions of Stock Bonuses
or grants of Restricted Stock or Restricted Stock Units may change from time to
time, and the terms and conditions of separate agreements need not be identical,
but each Stock Bonus or Stock Award Agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:
(a) The Committee may determine that eligible participants in the Plan
may be awarded Optioned Stock pursuant to a Stock Bonus in consideration for
past services actually rendered to the Company or for its benefit.
(b) Except as permitted by the Committee in any particular Stock Award
Agreement, no rights under a Stock Bonus or Stock Award Agreement shall be
transferable except by will or by the laws of descent and distribution so long
as Optioned Shares awarded under such agreement remain subject to the terms of
the agreement.
(c) The purchase price of Optioned Shares acquired pursuant to a Stock
Award Agreement shall be paid either: (i) in cash at the time of purchase; (ii)
at the discretion of the Committee, according to a deferred payment or other
arrangement with the person to whom the stock is sold; or (iii) in any other
form of legal consideration that may be acceptable to the Committee in its
discretion.
10. CANCELLATION AND RE-GRANT OF OPTIONS.
The Committee shall have the authority to effect, at any time and from
time to time, with the consent of the affected holders of Options (i) the
repricing of any outstanding Options under the Plan and/or (ii) the cancellation
of any outstanding Options under the Plan and the grant in substitution therefor
of new Options under the Plan covering the same or different numbers of shares
of stock but having an exercise price per share of not less than fifty percent
(50%) of the Fair Market Value (one hundred percent (100%) of the Fair Market
Value in the case of an Incentive Stock Option or, in the case of a 10%
stockholder (as described in subsection 5(c)), not less than one hundred ten
percent (110%) of the Fair Market Value) per share of stock on the new grant
date.
11. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of Stock Awards; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act of 1933 (the "Securities Act") either the Plan, any Stock Awards
or any stock
7
<PAGE> 8
issued or issuable pursuant to any such Stock Awards. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of
Stock Awards unless and until such authority is obtained.
12. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
13. MISCELLANEOUS.
(a) The Committee shall have the power to accelerate the time at which
a Stock Award may first be exercised, or the time during which a Stock Award or
any part thereof will vest, notwithstanding the vesting conditions of the
original grant.
(b) Neither a Plan participant nor any person to whom a Stock Award may
be transferred under the applicable restrictions of the Plan shall be deemed to
be the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Option pursuant to its terms or the
reservations, conditions and contingencies applicable to each other form of
Stock Award shall have been satisfied.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant hereto shall confer upon any Employee, Consultant, Optionee or other
holder of Stock Awards any right to continue in the employ or service of the
Company or any Affiliate or shall affect the right of the Company or any
Affiliate to terminate the employment or relationship as a Consultant of any
Employee, Consultant, Optionee or other holder of Stock Awards with or without
cause.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options granted
after 1986 are exercisable for the first time by any Optionee during any
calendar year under all plans of the Company and its Affiliates exceeds one
hundred thousand dollars ($100,000), the Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
(e) The Company may require any recipient of a Stock Award, or any person to
whom a Stock Award is transferred in accordance with the applicable terms of the
Plan, as a condition of exercising any such Stock Award, (1) to give written
assurances satisfactory to the Company as to such person's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters, and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Stock Award, and (2) to give written assurances
satisfactory to the Company stating that such person is acquiring the stock
subject to the Stock Award for such person's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise of or
acquisition of stock under the Stock Award has been registered under a then
currently effective registration statement under the Securities Act, or (ii) as
to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under
8
<PAGE> 9
the Plan as such counsel deems necessary or appropriate in order to comply
with applicable securities laws, including, but not limited to, legends
restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise of or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) withholding from compensation; (2) tendering a cash payment; (3)
authorizing the Company to withhold shares from the shares of Class A Common
Stock otherwise issuable to the participant as a result of the exercise of or
acquisition of stock under the Stock Award; or (4) delivering to the Company
owned and unencumbered shares of the Class A Common Stock of the Company owned
by such person.
14. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan or subject
to any Stock Award (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Plan and outstanding Stock Awards will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding Stock Awards.
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the company is the surviving
corporation but the shares of the Company's Class A Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (4) any
other capital reorganization in which more than fifty percent (50%) of the
shares of the Company entitled to vote are exchanged, then at the sole
discretion of the Committee and to the extent permitted by applicable law: (i)
any surviving corporation shall assume any Stock Awards outstanding under the
Plan or shall substitute similar Stock Awards for those outstanding under the
Plan, (ii) the time during which such Stock Award may be exercised shall be
accelerated and the Stock Awards terminated if not exercised prior to such
event, or (iii) such Stock Awards shall continue in full force and effect.
15. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan in
any manner. However, except as provided in Section 14 relating to adjustments
upon changes in stock, no amendment shall be effective unless approved by the
shareholders of the Company within twelve (12) months before or after the
adoption of the amendment where the amendment will:
(1) Increase the number of shares reserved for Stock Awards under
the Plan;
(2) Modify the requirements as to eligibility for participation in
the Plan (to the extent such modification requires shareholder approval in
order for the Plan to satisfy the requirements of Section 162(m) or Section 422
of the Code); or
(3) Modify the Plan in any other way if such modification
requires shareholder approval in order for the Plan to satisfy the requirements
of Section 162(m) or Section 422 of the Code, of Rule 16b-3 under the Exchange
Act, or of the Nasdaq National Market or any exchange on which the Company's
shares may be listed.
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<PAGE> 10
(b) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible Employees
or Consultants with the maximum benefits provided or to be provided under the
provisions of the Code and the regulations promulgated thereunder relating to
Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options
granted under it into compliance therewith; provided, however, shares covered by
any Stock Awards in excess of the maximum number of Optioned Shares provided for
in Section 4(a) above shall be deemed awarded on the date of the Initial Stock
Award if shareholders approve the increase pursuant to this Section 15.
(c) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
16. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on February 25, 2003. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except with the consent of the person to whom the Stock Award was
granted.
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<PAGE> 1
EXHIBIT 11
THE ROBERT MONDAVI CORPORATION
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COMPUTATION OF PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Weighted average number of common shares
outstanding during the year 15,057 14,613 12,749
Common Stock equivalents considered to be
outstanding for years presented:
Options 613 590 38
Preferred shares -- -- --
------- ------- -------
15,670 15,203 12,787
======= ======= =======
Net Income $28,225 $24,438 $17,820
======= ======= =======
Primary earnings per share $ 1.80 $ 1.61 $ 1.39
======= ======= =======
</TABLE>
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Weighted average number of common shares
outstanding during the year 15,057 14,613 12,749
Common Stock equivalents considered to be
outstanding for years presented:
Options 715 668 370
Preferred shares -- -- --
------- ------- -------
15,772 15,281 13,119
======= ======= =======
Net Income $28,225 $24,438 $17,820
======= ======= =======
Fully Dilutive earnings per share $ 1.79 $ 1.60 $ 1.36
======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 13
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Gross revenues .............................. $315,998 $253,540 $210,361 $176,236 $177,748
Less excise taxes ........................... 15,224 12,710 10,892 9,209 9,608
-------------------------------------------------------------------------
Net revenues ................................ 300,774 240,830 199,469 167,027 168,140
Cost of goods sold .......................... 165,988 122,385 97,254 88,102 92,979
-------------------------------------------------------------------------
Gross profit ................................ 134,786 118,445 102,215 78,925 75,161
Operating expenses .......................... 79,831 70,707 64,160 56,198 52,191
-------------------------------------------------------------------------
Operating income ............................ 54,955 47,738 38,055 22,727 22,970
Other income (expense):
Interest .................................. (10,562) (8,814) (8,675) (6,698) (7,486)
Other ..................................... 1,880 1,543 215 (305) (1,020)
-------------------------------------------------------------------------
Income before income taxes .................. 46,273 40,467 29,595 15,724 14,464
Provision for income taxes .................. 18,048 16,029 11,775 6,212 5,801
-------------------------------------------------------------------------
Net income .................................. $ 28,225 $ 24,438 $ 17,820 $ 9,512 $ 8,663
=========================================================================
Earnings per share .......................... $ 1.80 $ 1.61 $ 1.39 $ .75 $ .83
=========================================================================
Weighted average number of common
shares and equivalents outstanding(1) ..... 15,670 15,203 12,787 12,731 10,385
=========================================================================
BALANCE SHEET DATA
Working capital ............................. $185,910 $152,757 $116,899 $ 59,493 $ 90,075
Long-term debt, less current portion ........ 158,067 123,713 113,017 55,902 84,203
Total debt .................................. 173,607 127,828 119,088 107,409 95,237
Total liabilities ........................... 223,754 172,940 157,752 137,884 127,558
Shareholders' equity(2) ..................... 221,171 188,255 124,562 106,352 96,775
Total assets ................................ 444,925 361,195 282,314 244,236 224,333
OPERATING DATA (UNAUDITED)
Cases sold(3) ............................... 6,450 5,437 4,550 3,873 3,991
Average net selling price(4) ................ $ 46.22 $ 43.86 $ 43.42 $ 42.70 $ 41.73
</TABLE>
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing earnings per share.
(2) The Company has never paid or declared dividends on its common stock.
(3) Case information based on industry standard 9-liter case.
(4) Average net selling price is reported on a per-case basis and represents
net revenues, excluding net revenues from bulk wine and grape sales,
divided by the total number of cases sold during the period.
ROBERT MONDAVI
18
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
INTRODUCTION The Company was founded in 1966 to make quality premium table wines
that would compete with the finest wines of the world. The Company's strategy is
to sell its wines across all principal price segments of the premium wine
market.
Fiscal 1997 was an outstanding year for Robert Mondavi. Despite an industry-wide
shortage of premium wine grapes, the Company achieved record sales and earnings
which reflect the quality and strength of its brands. The revenue growth in
fiscal 1997 reflects strong consumer demand for the Company's brands which
helped offset the cost impact of the California grape shortage.
Although the Company expects the grape shortage to continue during fiscal 1998,
the Company has already begun to see the results of steps it has taken to
improve its global wine supply. During fiscal 1997, the Company introduced its
first imported wines: Caliterra, produced by the Company's joint venture in
Chile; and Vichon Mediterranean, wines sourced from the Languedoc-Roussillon
region of France. Sales of these imported wines accounted for 27.4% of the sales
volume growth for the fiscal year. In addition, the Company continued to
increase its vineyard and land holdings, adding more than 1,000 acres during the
fiscal year, and the Company continues to evaluate new opportunities to improve
its long-term wine supply.
FORWARD-LOOKING STATEMENTS This discussion, the President's letter printed above
and other information provided from time to time by the Company contain
historical information as well as forward-looking statements about the Company,
the premium wine industry and general business and economic conditions. Such
forward-looking statements include, for example, projections or predictions
about the Company's future growth, consumer demand for its wines, including new
brands and brand extensions, margin trends, the premium wine grape market and
the Company's anticipated future investment in vineyards and other capital
projects. Actual results may differ materially from the Company's present
expectations. Among other things, reduced consumer spending or a change in
consumer preferences could reduce demand for the Company's wines. Similarly,
competition from numerous domestic and foreign vintners could affect the
Company's ability to sustain volume and revenue growth. The price of grapes, the
Company's single largest product cost, is beyond the Company's control and
higher grape costs may put more pressure on the Company's gross profit margin
than is currently forecast. Interest rates and other business and economic
conditions could increase significantly the cost and risks of projected capital
spending. For these and other reasons, no forward-looking statement by the
Company can nor should be taken as a guarantee of what will happen in the
future.
KEY ACCOUNTING MATTERS The Company uses the last-in, first-out (LIFO) method of
valuing its wine inventories. The LIFO method attempts to match the most current
inventory cost with sales for the period. LIFO adjustments can increase or
decrease the Company's cost of goods sold as determined under alternative
valuation methods, and such variances can be significant and unpredictable since
LIFO adjustments depend on many interrelated factors not all of which are within
the Company's control. In the premium wine business, the difference between LIFO
and FIFO (first-in, first-out) inventory costs can be significant due to the
extended period of time that wines remain in inventory, typically from one to
three years or longer depending on the style and variety of wine. The use of the
LIFO method has led, and will continue to lead, to volatility in quarterly and
annual financial results. For example, the Company's LIFO provision resulted in
an increase in FIFO cost of goods sold of approximately $16.2 million in fiscal
1997 and reductions in FIFO cost of goods sold of approximately $545,000 and
$9.2 million in fiscal 1996 and 1995, respectively.
The Company's joint venture interests are accounted for as investments under the
equity method. Accordingly, the Company's share of their results is reflected in
"equity in net income of joint ventures" and "investments in joint ventures" on
the Consolidated Statements of Income and Consolidated Balance Sheets,
respectively. The Company also imports wines under importing and marketing
agreements with certain of its joint ventures and their affiliates. Under the
terms of these agreements the Company purchases wine for resale in the United
States. Revenues and expenses related to importing and selling these wines are
included in the appropriate sections of the Consolidated Statements of Income.
ROBERT MONDAVI
19
<PAGE> 3
SEASONALITY AND QUARTERLY RESULTS The Company has historically experienced and
expects to continue experiencing seasonal and quarterly fluctuations in its net
revenues, cost of goods sold, and net income. Sales volume tends to increase in
advance of holiday periods, before price increases go into effect, and during
promotional periods, which generally last for one month. Sales volume tends to
decrease if distributors begin a quarter with larger than standard inventory
levels. The timing of releases for certain wines, such as Cabernet Sauvignon
Reserve futures, which may be shipped in either the third or fourth fiscal
quarter, depending on the aging requirements of the vintage, also can have a
significant impact on quarterly results. Additionally, the Company may schedule
price increases on July 1, which, when combined with June promotions and
intensive sales force efforts to meet fiscal year goals, can result in increased
sales in the Company's fourth fiscal quarter and lower than average sales in the
Company's first fiscal quarter. Significant fluctuations in quarterly financial
results have also historically resulted and are expected to continue to result
from adjustments that are required by the Company's LIFO method of valuing
inventories.
The following table sets forth certain information regarding the Company's net
revenues and net income for each of the last eight fiscal quarters:
<TABLE>
<CAPTION>
Fiscal 1997 Quarter Ended Fiscal 1996 Quarter Ended
------------------------- -------------------------
Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $59.0 $87.2 $70.9 $83.7 $45.5 $70.8 $58.4 $66.1
% of annual net revenues 19.6% 29.0% 23.6% 27.8% 18.9% 29.4% 24.3% 27.4%
Net income $ 5.3 $ 9.2 $ 6.3 $ 7.4 $ 4.5 $ 8.1 $ 5.9 $ 5.9
% of annual net income 18.8% 32.6% 22.3% 26.3% 18.4% 33.2% 24.2% 24.2%
</TABLE>
Seasonal cash requirements increase just after harvest in the fall as a result
of contract grape payments and, to a lesser degree, due to the large seasonal
work force employed in both the vineyards and wineries during harvest. Also,
many grape contracts include a deferral of a portion of the payment obligations
until April 1st of the following calendar year, resulting in significant cash
payments on March 31 of each year. As a result of harvest costs and the timing
of its contract grape payments, the Company's borrowings, net of cash, generally
peak during December and March of each year. Cash requirements also fluctuate
depending on the level and timing of capital spending and joint venture
investments. The following table sets forth the Company's total borrowings, net
of cash, at the end of each of its last eight fiscal quarters:
<TABLE>
<CAPTION>
Fiscal 1997 Quarter Ended Fiscal 1996 Quarter Ended
------------------------- -------------------------
Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total borrowings,
net of cash $134.1 $152.8 $174.6 $173.5 $ 81.4 $105.1 $134.1 $128.2
</TABLE>
ROBERT MONDAVI
20
<PAGE> 4
PERIOD TO PERIOD COMPARISON The following table sets forth, for the periods
indicated, selected income statement data expressed as a percentage of net
revenues:
<TABLE>
<CAPTION>
As a Percentage of Net Revenues
for the Year Ended June 30,
-----------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Gross revenues 105.1% 105.3% 105.5%
Less excise taxes 5.1 5.3 5.5
----- ----- -----
Net revenues 100.0 100.0 100.0
Cost of goods sold 55.2 50.8 48.8
----- ----- -----
Gross profit 44.8 49.2 51.2
Operating expenses 26.5 29.4 32.1
----- ----- -----
Operating income 18.3 19.8 19.1
Other income (expense):
Interest (3.5) (3.6) (4.3)
Other 0.6 0.6
----- ----- -----
Income before income taxes 15.4 16.8 14.8
Provision for income taxes 6.0 6.7 5.9
----- ----- -----
Net income 9.4% 10.1% 8.9%
===== ===== =====
</TABLE>
THREE YEARS ENDED JUNE 30, 1997
GROSS REVENUES Gross revenues increased by 24.6% to $316.0 million in fiscal
1997 from fiscal 1996, and by 20.5% to $253.5 million in fiscal 1996 from $210.4
million in fiscal 1995. In fiscal 1997, sales volume increased by 18.6% to
6,450,000 cases from fiscal 1996, and by 19.5% to 5,437,000 cases in fiscal 1996
from 4,550,000 cases in fiscal 1995. The increase in gross revenues in fiscal
1997 and 1996 was primarily attributable to the increase in sales volume,
particularly in the Woodbridge and Robert Mondavi Coastal wines. In addition,
the introduction of Caliterra and Vichon Mediterranean wines during fiscal 1997
accounted for 27.4% of the total sales volume growth. During the past three
fiscal years, many of the Company's wines were in limited supply, resulting in
wines being allocated to customers. The Company expects many of its wines will
remain on allocation during fiscal 1998.
EXCISE TAXES The Company's federal and state excise taxes increased by 19.8% to
$15.2 million in fiscal 1997 from fiscal 1996, and by 16.5% to $12.7 million in
fiscal 1996 from $10.9 million in fiscal 1995. The dollar increase in excise
taxes in fiscal 1997 and 1996 generally correlates to an increase in domestic
sales volume, since the excise tax is assessed on a per gallon basis and the
excise tax rate remained unchanged during these periods. Excise taxes as a
percentage of net revenues decreased in the 1997 and 1996 periods as a result of
higher net average selling prices per case during these periods.
NET REVENUES As a result of the above factors, net revenues increased by 24.9%
to $300.8 million in fiscal 1997 from fiscal 1996, and by 20.7% to $240.8
million in fiscal 1996 from $199.5 million in fiscal 1995. Net revenues per case
increased by 5.4% to $46.22 per case in fiscal 1997 from fiscal 1996, and by
1.0% to $43.86 per case in fiscal 1996 from $43.42 per case in fiscal 1995.
COST OF GOODS SOLD Cost of goods sold increased by 35.6% to $166.0 million in
fiscal 1997 from fiscal 1996, and by 25.8% to $122.4 million in fiscal 1996 from
$97.3 million in fiscal 1995. The increase in fiscal 1997 reflects increased
sales volume and increased grape and bulk wine prices. The increase in fiscal
1996 reflects increased sales volume, increasing grape and bulk wine prices and
lower grape yields on the Company's vineyards. If inventories valued at LIFO
cost had been valued at FIFO cost, then cost of goods sold would have been $16.2
million lower in fiscal 1997 and $545,000 and $9.2 million higher in fiscal 1996
and 1995, respectively. The Company expects the trend of increasing grape and
bulk wine costs to continue in fiscal 1998.
ROBERT MONDAVI
21
<PAGE> 5
GROSS PROFIT As a result of the factors discussed above, gross profit increased
by 13.8% to $134.8 million in fiscal 1997 from fiscal 1996, and by 15.9% to
$118.4 million in fiscal 1996 from $102.2 million in fiscal 1995. The Company's
gross profit margins were 44.8%, 49.2% and 51.2% of net revenues for fiscal
1997, 1996 and 1995, respectively.
OPERATING EXPENSES Operating expenses increased by 12.9% to $79.8 million in
fiscal 1997 from fiscal 1996, and by 10.1% to $70.7 million in fiscal 1996 from
$64.2 million in fiscal 1995. The ratio of operating expenses to net revenues
was 26.5% in fiscal 1997, 29.4% in fiscal 1996 and 32.1% in fiscal 1995. The
dollar increase in operating expenses in fiscal 1997 and 1996 was primarily
attributable to an increase in sales and marketing expenses and employee
compensation associated with increased sales volume and improved profitability.
The decrease in operating expense ratio in fiscal 1997 was due to economies of
scale in personnel and overhead costs achieved as a result of increased net
revenues. The decrease in operating expense ratio in fiscal 1996 was due to an
8.0% decrease in the average promotional dollars spent per case combined with
economies of scale in personnel and overhead costs achieved as a result of
increased net revenues.
OPERATING INCOME As a result of the factors discussed above, operating income
increased by 15.1% to $55.0 million in fiscal 1997 from fiscal 1996, and by
25.2% to $47.7 million in fiscal 1996 from $38.1 million in fiscal 1995.
Operating income constituted 18.3% of net revenues in fiscal 1997, 19.8% in
fiscal 1996, and 19.1% in fiscal 1995.
INTEREST Interest expense increased by 19.8% to $10.6 million in fiscal 1997
from fiscal 1996, and by 1.1% to $8.8 million in fiscal 1996 from $8.7 million
in fiscal 1995. The Company's average interest rates were 7.83%, 8.61% and 8.60%
in fiscal 1997, 1996 and 1995, respectively. The increase in interest expense in
fiscal 1997 was primarily attributable to increases in the Company's average
borrowing levels that were partially offset by an increase in capitalized
interest and a decrease in the Company's average interest rate.
OTHER "Other" primarily consists of the Company's equity income in its joint
ventures and miscellaneous non-operating income and expense items.
In fiscal 1997, "Other" was $1.9 million compared to $1.5 million in fiscal 1996
and $215,000 in fiscal 1995. The improvement in "Other" in fiscal 1997 compared
to fiscal 1996 was mainly due to increased income from the Caliterra and Opus
One joint ventures. The improvement in "Other" in fiscal 1996 compared to fiscal
1995 was mainly due to tax refunds.
INCOME BEFORE INCOME TAXES As a result of the factors discussed above, income
before income taxes increased by 14.3% to $46.3 million in fiscal 1997 from
fiscal 1996, and by 36.8% to $40.5 million in fiscal 1996 from $29.6 million in
fiscal 1995.
PROVISION FOR INCOME TAXES The provision for income taxes and the Company's
effective tax rates were $18.0 million and 39.0%, $16.0 million and 39.6%, and
$11.8 million and 39.8% in fiscal 1997, 1996 and 1995, respectively.
NET INCOME AND EARNINGS PER SHARE As a result of the above factors, net income
increased by 15.5% to $28.2 million in fiscal 1997 from fiscal 1996, and by
37.1% to $24.4 million in fiscal 1996 from $17.8 million in fiscal 1995.
Earnings per share were $1.80, $1.61 and $1.39 in fiscal 1997, 1996 and 1995,
respectively. Fiscal 1997 and 1996 earnings per share reflect the dilutive
impact of the increase in the weighted average shares outstanding resulting from
the Company's second public offering of stock in August 1995. During February
1997, Statement of Accounting Standards No. 128 (SFAS 128), Earnings Per Share,
was issued. For a further discussion of the impact of SFAS 128 upon the
Company's results of operations, see Note 1 of Notes to Consolidated Financial
Statements.
ROBERT MONDAVI
22
<PAGE> 6
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of June 30, 1997, was $185.9 million compared to $152.8
million at June 30, 1996. The $33.1 million increase in working capital was
primarily attributable to a $26.0 million increase in inventories. Borrowings
under the Company's credit lines totaled $58.8 million at June 30, 1997,
compared to $40.0 million at June 30, 1996. The Company had a cash balance of
$150,000 at June 30, 1997, compared to a book overdraft of $403,000 at June 30,
1996.
The Company has historically financed its growth through increases in borrowings
and cash flow from operations. In addition, the Company received $32.3 million
in net proceeds from its initial public offering of stock in June 1993 and an
additional $35.3 million in net proceeds from its second public offering of
stock in August 1995. During fiscal 1997, the Company's primary uses of capital
have been to finance the following: a $42.6 million increase in property, plant
and equipment (including vineyard development and land acquisitions, expansion
of the Woodbridge facility and purchases of new oak barrels), a $26.0 million
increase in inventories, $23.0 million in repayments of term debt and a $19.7
million increase in accounts receivable. The primary sources of funds during
fiscal 1997 were from the following: $50.0 million in new term debt, $28.2
million in net income, as well as the non-cash impact on pre-tax income of $12.5
million in depreciation and amortization and $18.8 million in net additions
under the Company's credit lines.
Management expects that the Company's working capital needs will grow
significantly to support expected future growth in sales volumes. Due to the
lengthy aging and processing cycles involved in premium wine production,
expenditures for inventory and fixed assets need to be made one to three years
or more in advance of anticipated sales. The Company currently expects its
fiscal 1998 capital spending requirements will be at least equal to the fiscal
1997 level.
The Company currently has credit lines that provide both short-term and
long-term borrowings. The short-term credit lines expire on December 26, 1997,
and have maximum credit available of $41.2 million. The long-term credit lines
expire on December 31, 1999, and have maximum credit available of $50.0 million.
The annual interest rates on these lines are based on various bank programs and
ranged from 5.69% to 8.50% during fiscal 1997.
The Company anticipates that current capital combined with cash from operating
activities and the availability of cash from additional borrowings will be
sufficient to meet its liquidity and capital expenditure requirements at least
through the end of fiscal 1998.
ROBERT MONDAVI
23
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
June 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash $ 150 $ --
Accounts receivable -- trade, net 59,222 39,495
Inventories 167,695 142,565
Prepaid income taxes -- 2,370
Deferred income taxes 1,677 570
Prepaid expenses and other current assets 5,593 840
-------- --------
Total current assets 234,337 185,840
Property, plant and equipment, net 186,990 156,754
Investments in joint ventures 19,212 17,100
Other assets 4,386 1,501
-------- --------
Total assets $444,925 $361,195
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Book overdraft $ -- $ 403
Notes payable to banks 8,750 --
Accounts payable -- trade 14,769 13,733
Employee compensation and related costs 10,608 10,322
Other accrued expenses 5,446 2,828
Current portion of long-term debt 6,790 4,115
Deferred revenue 2,064 1,682
-------- --------
Total current liabilities 48,427 33,083
Long-term debt, less current portion 158,067 123,713
Deferred income taxes 10,848 8,944
Deferred executive compensation 5,395 6,098
Other liabilities 1,017 1,102
-------- --------
Total liabilities 223,754 172,940
======== ========
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred Stock: Authorized -- 5,000,000 shares
Issued and outstanding -- no shares -- --
Class A Common Stock, without par value: Authorized -- 25,000,000 shares
Issued and outstanding -- 7,499,024 and 7,281,529 shares 76,138 73,402
Class B Common Stock, without par value: Authorized -- 12,000,000 shares
Issued and outstanding -- 7,676,012 shares 12,324 12,324
Paid-in capital 3,289 1,334
Retained earnings 129,420 101,195
-------- --------
221,171 188,255
-------- --------
Total liabilities and shareholders' equity $444,925 $361,195
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
ROBERT MONDAVI
24
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Gross revenues $ 315,998 $ 253,540 $ 210,361
Less excise taxes 15,224 12,710 10,892
--------- --------- ---------
Net revenues 300,774 240,830 199,469
Cost of goods sold 165,988 122,385 97,254
--------- --------- ---------
Gross profit 134,786 118,445 102,215
Selling, general and administrative expenses 79,831 70,707 64,160
--------- --------- ---------
Operating income 54,955 47,738 38,055
Other income (expense):
Interest (10,562) (8,814) (8,675)
Equity in net income of joint ventures 2,510 1,751 1,547
Other (630) (208) (1,332)
--------- --------- ---------
Income before income taxes 46,273 40,467 29,595
Provision for income taxes 18,048 16,029 11,775
--------- --------- ---------
Net income $ 28,225 $ 24,438 $ 17,820
========= ========= =========
Earnings per share: $ 1.80 $ 1.61 $ 1.39
========= ========= =========
Weighted average number of common shares
and equivalents outstanding 15,670 15,203 12,787
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
ROBERT MONDAVI
25
<PAGE> 9
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Class A Class B Total
Common Common Paid-in Retained Shareholders'
Stock Stock Capital Earnings Equity
----------------------------------------------------------------------------------
Shares Amount Shares Amount
--------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 4,408 $ 34,050 8,327 $ 13,365 $ -- $ 58,937 $106,352
Net income 17,820 17,820
Conversion of Class B
Common Stock to Class A
Common Stock 1 1 (1) (1)
Exercise of Class A Common
Stock Options 18 208 208
Issuance of Class A Common
Stock through Employee
Stock Purchase Plan 22 182 182
-------- -------- -------- -------- -------- -------- --------
Balance at June 30, 1995 4,449 34,441 8,326 13,364 -- 76,757 124,562
Net income 24,438 24,438
Conversion of Class B
Common Stock to Class A
Common Stock 650 1,040 (650) (1,040)
Exercise of Class A Common
Stock Options including
related tax benefits 215 2,401 1,334 3,735
Issuance of Class A Common
Stock through public offering 1,955 35,323 35,323
Issuance of Class A Common
Stock through Employee
Stock Purchase Plan 13 197 197
-------- -------- -------- -------- -------- -------- --------
Balance at June 30, 1996 7,282 73,402 7,676 12,324 1,334 101,195 188,255
Net income 28,225 28,225
Exercise of Class A Common
Stock Options including
related tax benefits 207 2,447 1,955 4,402
Issuance of Class A Common
Stock through Employee
Stock Purchase Plan 10 289 289
-------- -------- -------- -------- -------- -------- --------
Balance at June 30, 1997 7,499 $ 76,138 7,676 $ 12,324 $ 3,289 $129,420 $221,171
======== ======== ======== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
ROBERT MONDAVI
26
<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 28,225 $ 24,438 $ 17,820
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Deferred income taxes 797 (489) 710
Depreciation and amortization 12,534 10,263 8,854
Equity in net income of joint ventures (2,510) (1,751) (1,547)
Other 213 178 687
Changes in assets and liabilities:
Accounts receivable -- trade (19,727) (6,894) (501)
Inventories (26,030) (29,319) (17,230)
Prepaid income taxes 1,036 (1,036) --
Other assets (4,753) 148 (353)
Accounts payable -- trade and accrued expenses 3,830 6,239 6,625
Income taxes payable 3,399 (1,160) 733
Deferred revenue 382 189 (366)
Deferred executive compensation (703) 259 516
Other liabilities (85) 437 (29)
-------- -------- --------
Net cash provided by (used in) operating activities (3,392) 1,502 15,919
-------- -------- --------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (42,552) (40,084) (27,823)
Distributions from joint ventures 1,657 4,102 482
Contributions to joint ventures (359) (7,530) (458)
-------- -------- --------
Net cash used in investing activities (41,254) (43,512) (27,799)
-------- -------- --------
Cash flows from financing activities:
Book overdraft (403) 403 --
Net additions (repayments) under notes payable to banks 8,750 -- (18,050)
Proceeds from issuance of long-term debt 60,000 40,368 43,547
Principal repayments of long-term debt (22,971) (37,572) (13,818)
Proceeds from issuance of Class A Common Stock 289 35,520 182
Exercise of Class A Common Stock options 2,447 2,401 208
Other (3,316) (10) 318
-------- -------- --------
Net cash provided by financing activities 44,796 41,110 12,387
-------- -------- --------
Net increase (decrease) in cash 150 (900) 507
Cash at the beginning of the year -- 900 393
-------- -------- --------
Cash at the end of the year $ 150 $ -- $ 900
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
ROBERT MONDAVI
27
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Robert Mondavi Corporation (RMC) and its consolidated subsidiaries (the
Company) are primarily engaged in the production and sale of premium table wine.
The Company also sells wine under importing and marketing agreements.
The Company sells its products principally to distributors for resale to
restaurants and retail outlets in the United States. A substantial part of the
Company's wine sales is concentrated in California and, to a lesser extent, the
states of New York, New Jersey, Texas, Pennsylvania, Florida and Massachusetts.
Export sales account for approximately 8% of net revenues, with major markets in
Canada, Europe and Asia.
A summary of significant accounting policies follows:
BASIS OF PRESENTATION The consolidated financial statements include the accounts
of RMC and all its subsidiaries. All significant intercompany transactions and
balances have been eliminated. Investments in joint ventures are accounted for
using the equity method. Certain fiscal 1996 and 1995 balances have been
reclassified to conform with current year presentation.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
INVENTORIES Inventories are valued at the lower of cost or market. Wine
inventory costs are determined using the dollar value last-in, first-out (LIFO)
method, applying the double extension pricing method to natural business units.
Inventory costs for bottling and other supplies are determined using the
first-in, first-out (FIFO) method. Costs associated with growing crops are
recorded as inventory and are recognized as wine inventory costs in the year in
which the related crop is harvested.
In accordance with the general practice in the wine industry, wine inventories
are included in current assets, although a portion of such inventories may be
aged for periods longer than one year.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost.
Maintenance and repairs are expensed as incurred. Costs incurred in developing
vineyards, including related interest costs, are capitalized until the vineyards
become commercially productive.
Depreciation and amortization is computed using the straight-line method, with
the exception of barrels which are depreciated using an accelerated method, over
the estimated useful lives of the assets amounting to 20 years for vineyards, 45
years for buildings and 3 to 12 years for machinery and equipment. Leasehold
improvements are amortized over the estimated useful lives of the improvements
or the terms of the related lease, whichever is shorter.
OTHER ASSETS Other assets include goodwill, loan fees and label design costs.
Goodwill, loan fees and label design costs are amortized on a straight-line
basis over 40 years, the terms of the related loans, and 5 years, respectively.
ADVERTISING COSTS Advertising costs are expensed as incurred. Advertising
expense totaled $2,180,000, $3,073,000 and $451,000, respectively, for the year
ended June 30, 1997, 1996 and 1995.
INCOME TAXES Deferred income taxes are computed using the liability method.
Under the liability method, taxes are recorded based on the future tax effects
of the difference between the tax and financial reporting bases of the Company's
assets and liabilities. In estimating future tax consequences, all expected
future events are considered, except for potential income tax law or rate
changes.
MAJOR CUSTOMERS The Company sells the majority of its wines through distributors
in the United States and through brokers and agents in export markets. There is
a common ownership in several distributorships in different states that, when
considered to be one entity, represented 29%, 28% and 29%, respectively, of
gross revenues for the year ended June 30, 1997, 1996 and 1995. Trade accounts
receivable from these distributors at June 30, 1997 and 1996 totaled $12,549,000
and $11,498,000, respectively.
ROBERT MONDAVI
28
<PAGE> 12
WINE FUTURES PROGRAM The Company has a wine futures program whereby contracts to
buy cased wine are sold to distributors prior to the time the wine is available
for shipment. The agreement to deliver the wine in the future is recorded when
the Company receives the distributor's deposit representing the total purchase
price. Revenue relating to this program is deferred and recognized when the wine
is shipped.
STOCK-BASED COMPENSATION During July 1996, the Company adopted Statement of
Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based
Compensation, which allows companies either to measure compensation cost in
connection with their employee stock compensation (options) plans using a fair
value based method or to continue to use an intrinsic value based method. The
Company will continue to use the intrinsic value based method in accordance with
Accounting Principles Board Opinion No. 25 (APB25) and its related
Interpretations, which generally does not result in compensation cost. The
Company's stock option plans are discussed in Note 9.
EARNINGS PER SHARE Earnings per share have been computed by dividing net income
by the sum of the weighted average number of Class A and Class B common shares
outstanding plus the dilutive effect, if any, of common share equivalents for
stock option awards.
During February 1997, Statement of Financial Accounting Standards No. 128 (SFAS
128), Earnings per Share was issued. This statement supersedes Accounting
Principles Board Opinion No. 15, Earnings per Share, and its related
Interpretations and establishes new accounting standards for the computation and
manner of presentation of the Company's earnings per share. The Company is
required to adopt SFAS 128 for the quarter ending December 31, 1997. Early
adoption is not permitted. When adopted, the Company will be required to restate
previously reported earnings per share for all periods presented. The table
below reflects the proforma impact to earnings per share to conform with SFAS
128 for the following periods:
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Earnings per share as previously reported $1.80 $1.61 $1.39
Proforma earnings per share
Basic 1.87 1.67 1.40
Diluted 1.80 1.61 1.39
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Company's notes
payable to banks and long-term debt is estimated based on the current market
rates available to the Company for debt of the same remaining maturities. At
June 30, 1997, the carrying amount and estimated fair value of notes payable to
banks and long-term debt are $173,607,000 and $176,856,000, respectively. At
June 30, 1996, the carrying amount and estimated fair value of notes payable to
banks and long-term debt are $127,828,000 and $132,141,000, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS The Company has only a limited involvement with
derivative financial instruments and does not use them for trading purposes.
Forward exchange contracts are used to manage exchange rate risks on certain
purchase commitments denominated in foreign currencies. Gains and losses
relating to firm purchase commitments are deferred and are recognized as
adjustments of carrying amounts or in income when the hedged transaction occurs.
At June 30, 1997, the Company has outstanding forward exchange contracts to
purchase 25,213,000 French Francs through September 1997 for the U.S. dollar
equivalent of $4,635,000. Using exchange rates outstanding as of June 30, 1997,
the U.S. dollar equivalent of the contracts is $4,287,000.
ROBERT MONDAVI
29
<PAGE> 13
NOTE 2 -- INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
---------------------------
1997 1996
--------- ---------
<S> <C> <C>
Wine in production $ 127,922 $ 95,747
Bottled wine 53,734 46,247
Crop costs and supplies 14,793 13,097
Inventories stated at FIFO cost 196,449 155,091
Reserve for LIFO valuation method (28,754) (12,526)
--------- ---------
$ 167,695 $ 142,565
========= =========
</TABLE>
Wine inventory costs are determined using the LIFO method, which attempts to
match the most current inventory cost with sales for the period. Information
related to the FIFO method may be useful in comparing operating results to those
of companies not on LIFO. If inventories valued at LIFO cost had been valued at
FIFO cost, net income would have increased by approximately $9,899,000 and
decreased by approximately $329,000 and $5,537,000, respectively, for the year
ended June 30, 1997, 1996 and 1995.
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
The cost and accumulated depreciation of property, plant and equipment consist
of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
---------------------------
1997 1996
--------- ---------
<S> <C> <C>
Land $ 42,405 $ 38,235
Vineyards 31,413 29,716
Machinery and equipment 112,884 99,211
Buildings 38,105 31,739
Vineyards under development 19,738 7,461
Construction in progress 22,447 21,429
--------- ---------
266,992 227,791
Less -- accumulated depreciation (80,002) (71,037)
--------- ---------
$ 186,990 $ 156,754
========= =========
</TABLE>
Included in property, plant and equipment are assets leased under capital leases
with cost and accumulated depreciation totaling $6,514,000 and $1,590,000,
respectively, at June 30, 1997 and $6,514,000 and $673,000, respectively, at
June 30, 1996. Depreciation expense for machinery and equipment under capital
leases was $917,000, $793,000 and $366,000 for the year ended June 30, 1997,
1996 and 1995, respectively.
Included in property, plant and equipment is $1,343,000, $532,000 and $687,000
of interest capitalized for the year ended June 30, 1997, 1996 and 1995,
respectively.
ROBERT MONDAVI
30
<PAGE> 14
NOTE 4 -- INVESTMENTS IN JOINT VENTURES
During March 1996, the Company and Vina Errazuriz S.A. (Errazuriz), Santiago,
Chile, completed the formation of Vina Caliterra S.A. (Caliterra), a 50/50 joint
venture created to produce and market wines from Chile.
During April 1996, the Company and Marchesi de' Frescobaldi S.P.A., Florence,
Italy, completed the formation of Solaria S.R.L., a 50/50 joint venture created
to produce and market wines from Italy. The joint venture changed its name to
Luce during fiscal 1997.
Investments in joint ventures are summarized below (in thousands). The Company's
interest in income and losses for each joint venture is stated within
parentheses.
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1997 1996
------- -------
<S> <C> <C>
Opus One (50%) $ 9,749 $ 9,238
Caliterra (50%) 7,582 6,010
Luce (50%) 1,339 1,365
Other 542 487
------- -------
$19,212 $17,100
======= =======
</TABLE>
The condensed combined balance sheets and statements of operations of the joint
ventures, along with the Company's proportionate share, are summarized as
follows (in thousands):
BALANCE SHEETS
<TABLE>
<CAPTION>
COMBINED PROPORTIONATE SHARE
------------------ ------------------
JUNE 30, JUNE 30,
------------------ ------------------
1997 1996 1997 1996
------------------ ------------------
<S> <C> <C> <C> <C>
Current assets $27,072 $22,136 $13,530 $11,038
Other assets 35,628 33,440 17,713 16,623
------- ------- ------- -------
Total assets $62,700 $55,576 $31,243 $27,661
======= ======= ======= =======
Current liabilities $ 8,147 $ 6,084 $ 4,074 $ 3,042
Other liabilities 16,612 16,057 8,306 8,029
Venturers' equity 37,941 33,435 18,863 16,590
------- ------- ------- -------
Total liabilities and venturers' equity $62,700 $55,576 $31,243 $27,661
======= ======= ======= =======
</TABLE>
The Company's investments in joint ventures differ from the amount that would be
obtained by applying the Company's ownership interest to the venturers' equity
of these entities due to preferred capital accounts and capital account
differences specified in the joint venture agreements.
ROBERT MONDAVI
31
<PAGE> 15
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
COMBINED PROPORTIONATE SHARE
----------------------------- -----------------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
----------------------------- -----------------------------
1997 1996 1995 1997 1996 1995
----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $28,271 $17,171 $11,773 $14,089 $ 8,511 $ 5,887
Cost of goods sold 11,479 7,179 4,017 5,740 3,590 2,009
----------------------------- -----------------------------
Gross profit 16,792 9,992 7,756 8,349 4,921 3,878
Other expenses 9,753 6,588 5,101 4,784 3,184 2,550
----------------------------- -----------------------------
Net income $ 7,039 $ 3,404 $ 2,655 $ 3,565 $ 1,737 $ 1,328
============================= =============================
</TABLE>
NOTE 5 -- EMPLOYEE COMPENSATION AND RELATED COSTS
The Company has a tax-qualified defined contribution retirement plan (the Plan)
which covers substantially all of its employees. Company contributions to the
Plan are 7% of eligible compensation paid to participating employees. Company
contributions to the Plan were $2,108,000, $1,925,000 and $1,797,000 for the
year ended June 30, 1997, 1996 and 1995, respectively. Contributions to the Plan
are limited by the Internal Revenue Code. The Company has a non-qualified
supplemental executive retirement plan to restore contributions limited by the
Plan. This plan is administered on an unfunded basis. The unfunded liability
relating to this plan totaled $839,000 and $623,000 at June 30, 1997 and 1996,
respectively.
The Company has a deferred executive incentive compensation plan with certain
present and past key officers. Under the provisions of this plan, units are
awarded to participants at the discretion of the Board of Directors. The units
each earn a percentage of Company profits as defined by the plan over a five
year vesting period. In February 1993, the Board of Directors determined that no
future units will be awarded under the plan; however, the plan remains in place
with respect to existing units. Subject to participant election for deferral of
payments and payment terms for participants no longer in the plan, the accrued
amounts are distributable in cash when fully vested. The compensation earned on
the units and accumulated interest on fully vested amounts not distributed, are
accrued but unfunded. The current portion of this liability is $1,950,000 and
$1,400,000 at June 30, 1997 and 1996, respectively.
NOTE 6 -- LONG-TERM DEBT AND NOTES PAYABLE TO BANKS
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1997 1996
--------- ---------
<S> <C> <C>
Long-term unsecured credit lines $ 50,000 $ 40,000
Fixed rate secured term loans;
interest rates 6.33% to 10.00% at June 30, 1997;
principal and interest payable monthly; due 1997 -- 2005 19,917 41,380
Fixed rate unsecured term loans;
interest rate 8.92% at June 30, 1997;
principal and interest payable quarterly; due 2004 39,033 40,000
Fixed rate unsecured term loans;
interest rate 7.39% at June 30, 1997;
interest payable semiannually through January 8, 1998;
principal and interest payable semiannually from July 8, 1998; due 2006 50,000 --
Capitalized lease obligations;
interest rates 6.96% to 8.00% at June 30, 1997;
principal and interest payable monthly; due 2002 -- 2010 5,907 6,448
--------- ---------
164,857 127,828
Less -- current portion (6,790) (4,115)
--------- ---------
$ 158,067 $ 123,713
========= =========
</TABLE>
ROBERT MONDAVI
32
<PAGE> 16
Aggregate annual maturities of long-term debt at June 30, 1997 are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
--------
<S> <C>
1998 $ 6,790
1999 60,166
2000 9,458
2001 9,309
2002 14,967
Thereafter 64,167
--------
$164,857
========
</TABLE>
The Company has unsecured credit lines with two banks that provide for both
short-term and long-term borrowings. The short-term credit lines expire on
December 26, 1997, and have maximum credit available of $41,150,000. The
long-term credit lines expire on December 31, 1999, and have maximum credit
available of $50,000,000. The credit lines bear interest, which is payable
monthly, at rates determined under various bank interest programs, ranging from
6.18% to 8.50% at June 30, 1997. At June 30, 1997, there was $8,750,000
outstanding under the Company's short-term credit lines. There were no
borrowings outstanding under the Company's short-term credit lines as of June
30, 1996.
On July 8, 1996, the Company entered into unsecured term loans totaling
$50,000,000 that bear interest, payable semiannually, at a fixed rate of 7.39%.
Semiannual principal payments commence on July 8, 1998. The proceeds from these
loans were used to refinance secured term loans that matured in July 1996 and to
pay down long-term credit line borrowings. The fixed rate secured term loans
totaling $18,856,000 that were refinanced during July 1996 are classified as
long-term at June 30, 1996.
Property, plant and equipment with a net book value of approximately $35,000,000
at June 30, 1997 is pledged as collateral for long-term debt. The terms of the
unsecured credit lines and certain long-term debt agreements include covenants
that require the maintenance of various minimum financial ratios and other
covenants. The most restrictive of these covenants requires the ratio of net
tangible assets to debt maturing in excess of one year to be 1.75 to 1 or
greater. The Company was in compliance with all such covenants during the year
ended June 30, 1997.
NOTE 7 -- INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 14,763 $ 14,760 $ 9,182
State 2,488 1,758 1,883
-------- -------- --------
17,251 16,518 11,065
-------- -------- --------
Deferred:
Federal 768 (824) 874
State 29 335 (164)
-------- -------- --------
797 (489) 710
-------- -------- --------
$ 18,048 $ 16,029 $ 11,775
======== ======== ========
</TABLE>
ROBERT MONDAVI
33
<PAGE> 17
Income tax expense differs from the amount computed by multiplying the statutory
federal income tax rate times income before taxes, due to the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 3.8 3.4 4.6
Permanent differences 0.4 0.5 0.7
Other (0.2) 0.7 (0.5)
---- ---- ----
39.0% 39.6% 39.8%
==== ==== ====
</TABLE>
The approximate effect of temporary differences and carryforwards that give rise
to deferred tax balances at June 30, 1997 and 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
1997 1996
-------- --------
<S> <C> <C>
GROSS DEFERRED TAX ASSETS
Liabilities and accruals $ (1,735) $ (1,388)
Deferred compensation (3,679) (3,797)
Inventories (1,228) --
Tax credits (692) (45)
-------- --------
Gross deferred tax assets (7,334) (5,230)
-------- --------
GROSS DEFERRED TAX LIABILITIES
Property, plant and equipment 13,602 11,431
Retirement plans 625 583
Receivables 350 --
Inventories -- 340
Investments in joint ventures 1,620 1,144
State taxes 308 106
-------- --------
Gross deferred tax liabilities 16,505 13,604
-------- --------
Net deferred tax liability $ 9,171 $ 8,374
======== ========
</TABLE>
The Company has foreign tax credits at June 30, 1997, that can be carried
forward five years.
During the year ended June 30, 1997, the Company recognized certain tax benefits
related to stock option plans in the amount of $1,955,000. These benefits were
recorded as a decrease in income taxes payable and an increase in paid-in
capital.
NOTE 8 -- SHAREHOLDERS' EQUITY
The authorized capital stock of the Company consists of Preferred Stock, Class A
Common Stock and Class B Common Stock.
On July 17, 1995, 649,769 shares of Class B Common Stock, owned by a major
shareholder, were converted into 649,769 shares of Class A Common Stock. The
conversion of the shares represents a non-cash financing activity for purposes
of the consolidated statement of cash flows.
On August 3, 1995, the Company completed a public offering of 1,955,000 shares
of Class A Common Stock, resulting in net proceeds to the Company of
$35,323,000.
ROBERT MONDAVI
34
<PAGE> 18
Each share of Class A Common Stock is entitled to one vote and each share of
Class B Common Stock is entitled to ten votes on all matters submitted to a vote
of the shareholders. The holders of the Class A Common Stock, voting as a
separate class, elect 25% of the total Board of Directors of the Company and the
holders of the Class B Common Stock, voting as a separate class, elect the
remaining directors.
All shares of common stock share equally in dividends, except that any stock
dividends are payable only to holders of the respective class. If dividends or
distributions payable in shares of stock are made to either class of common
stock, a pro rata and simultaneous dividend or distribution payable in shares of
stock must be made to the other class of common stock. Upon liquidation,
dissolution or winding up of the Company, after distributions as required to the
holders of outstanding Preferred Stock, if any, all shares of Class A and Class
B Common Stock share equally in the remaining assets of the Company available
for distribution.
The holders of the outstanding shares of Class B Common Stock and the Company
are parties to a Stock Buy-Sell Agreement. Subject to the provisions of the
Buy-Sell Agreement, each share of Class B Common Stock is convertible at the
option of the holder into Class A Common Stock on a share-for-share basis. The
Class A Common Stock is not convertible.
Included in retained earnings at June 30, 1997, is $3,500,000 of undistributed
income from joint ventures that has been accounted for using the equity method.
NOTE 9 -- STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
The Company has stock option plans and an employee stock purchase plan that are
described below. The Company applies APB 25 and related Interpretations in
accounting for its plans and no compensation cost has been recognized for its
stock option plans or its employee stock purchase plan. Had compensation cost
for the Company's stock option plans and employee stock purchase plan been
determined based on the fair value at the grant date for awards under those
plans, consistent with the method prescribed under SFAS 123, the effect on the
Company's net income and earnings per share would not have been material.
STOCK OPTION PLANS The Company has two stock option plans: the 1993 Equity
Incentive Plan for key employees and the 1993 Non-Employee Directors' Stock
Option Plan for non-employee members of the Company's Board of Directors (the
Board).
EQUITY INCENTIVE PLAN Under the Equity Incentive Plan, the Company is
authorized to grant both incentive stock options and non-qualified
stock options for up to 1,835,294 shares of Class A Common Stock.
Incentive stock options may not be granted for less than the fair
market value of the Class A Common Stock at the date of grant.
Non-qualified stock options may not be granted for less than 50% of the
fair market value of the Class A Common Stock at the date of grant. The
stock options are exercisable over a period determined by the Board at
the time of grant, but no longer than ten years after the date they are
granted.
NON-EMPLOYEE DIRECTOR'S STOCK OPTION PLAN Under the Non-Employee
Directors' Stock Option Plan the Company is authorized to grant options
for up to 100,000 shares of Class A Common Stock. These options may not
be granted for less than the fair market value of the Class A Common
Stock at the date of grant. Non-employee directors are granted options
when they are elected for the first time to the Board. These options
become exercisable over five years from the date of grant and expire
ten years after the date of grant. Incumbent non-employee directors are
granted options annually on the date of the Annual Meeting of
Shareholders. These options vest in twelve equal monthly installments
and expire ten years after the date of grant.
ROBERT MONDAVI
35
<PAGE> 19
A summary of the Company's stock option plans is presented below:
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1996
--------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 1,287,188 $ 12.86 1,388,825 $ 11.28
Granted 212,172 29.10 120,345 27.89
Exercised (207,151) 11.81 (215,182) 11.16
Forfeited (12,375) 10.40 (6,800) 10.24
--------- -------- --------- -------
Outstanding at
end of year 1,279,834 $ 15.74 1,287,188 $ 12.86
========= ======== ========= =======
Options exercisable
at year end 969,709 $ 15.31 859,398 $ 13.81
</TABLE>
The following table summarizes information about stock options outstanding at
June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- --------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE PRICES OPTIONS CONTRACTUAL LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE
--------------- --------------------------- -------------- --------------------------
<S> <C> <C> <C> <C> <C>
$15.01 to $38.00 332,517 9.0 years $ 28.67 218,761 $ 28.19
11.01 to 15.00 750,642 5.7 years 12.04 652,542 12.06
7.00 to 11.00 196,675 7.2 years 8.04 98,406 8.20
- ---------------- --------- --------- -------- ------- --------
7.00 to 38.00 1,279,834 6.8 years $ 15.74 969,709 $ 15.31
================ ========= ========= ======== ======= ========
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN Under the Employee Stock Purchase Plan the Board
will from time to time grant rights to eligible employees to purchase Class A
Common Stock. Under this plan, the Company is authorized to grant rights to
purchase up to 300,000 shares of Class A Common Stock. The purchase price is the
lower of 85% of the fair market value on the date the Company grants the right
to purchase or 85% of the fair market value on the date of purchase. Employees,
through payroll deductions of no more than 15% of their base compensation, may
exercise their rights to purchase for the period specified in the related
offering. During the year ended June 30, 1997, 1996 and 1995, shares totaling
10,344, 12,725 and 22,258, respectively, were issued under the Employee Stock
Purchase Plan at average prices of $27.98, $15.47 and $8.13, respectively.
ROBERT MONDAVI
36
<PAGE> 20
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
The Company leases some of its office space, warehousing facilities, vineyards
and equipment under non-cancelable leases accounted for as operating leases.
Certain of these leases have options to renew. Rental expense amounted to
$2,739,000, $2,126,000 and $1,781,000, respectively, for the year ended June 30,
1997, 1996 and 1995. The Company also leases land, machinery and equipment under
capital leases. The minimum rental payments under non-cancelable operating and
capital leases at June 30, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
JUNE 30, LEASES LEASES
----------- ------- ---------
<S> <C> <C>
1998 $ 1,011 $ 2,014
1999 1,011 1,635
2000 1,011 1,254
2001 1,011 975
2002 1,011 697
Thereafter 3,786 7,602
------ -------
8,841 $14,177
=======
Less amount representing interest (2,934)
-------
Present value of minimum lease payments $ 5,907
=======
</TABLE>
Interest expense on capital lease obligations was $470,000, $176,000 and $50,000
for the year ended June 30, 1997, 1996 and 1995, respectively.
The Company has contracted with various growers and certain wineries to supply a
large portion of its future grape requirements and a smaller portion of its
future bulk wine requirements. While most of these contracts call for prices to
be determined by market conditions, several long-term contracts provide for
minimum grape or bulk wine purchase prices.
The Company is subject to litigation in the ordinary course of business. In the
opinion of management, the ultimate outcome of existing litigation will not have
a material adverse effect on the Company's consolidated financial condition or
the results of its operations.
NOTE 11 -- SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized, was $8,974,000, $7,999,000
and $8,614,000 for the year ended June 30, 1997, 1996 and 1995, respectively.
Cash paid for income taxes was $14,771,000, $20,048,000 and $10,322,000 for the
year ended June 30, 1997, 1996 and 1995, respectively.
Non-cash investing activities not included in the statements of cash flows
include capital lease obligations incurred during the year ended June 30, 1996
and 1995, totaling $5,944,000 and $570,000, respectively.
Non-cash financing activities not included in the statements of cash flows
include the conversions of stock in fiscal 1996 (Note 8) and the tax benefits
related to stock option plans in fiscal 1997 and 1996 (Note 7).
ROBERT MONDAVI
37
<PAGE> 21
NOTE 12 -- QUARTERLY HIGHLIGHTS (UNAUDITED)
Selected highlights for each of the fiscal quarters during the year ended June
30, 1997 and 1996 are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1997:
Net revenues $58,984 $87,197 $70,889 $83,704
Gross profit 25,616 38,040 31,925 39,205
Net income 5,323 9,215 6,333 7,354
Earnings per share .34 .59 .40 .47
YEAR ENDED JUNE 30, 1996:
Net revenues $45,561 $70,786 $58,389 $66,094
Gross profit 22,093 34,142 28,304 33,906
Net income 4,557 8,059 5,881 5,941
Earnings per share .31 .52 .38 .38
</TABLE>
ROBERT MONDAVI
38
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
THE ROBERT MONDAVI CORPORATION
In our opinion, the accompanying balance sheets and related consolidated
statements of income, of changes in shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of The Robert
Mondavi Corporation and its subsidiaries at June 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/S/ Price Waterhouse LLP
- ------------------------------
PRICE WATERHOUSE LLP
SAN FRANCISCO, CALIFORNIA
JULY 25, 1997
ROBERT MONDAVI
39
<PAGE> 23
CORPORATE INFORMATION
BOARD OF DIRECTORS
Robert G. Mondavi
Chairman of the Board
The Robert Mondavi Corporation
R. Michael Mondavi
President and Chief Executive Officer
The Robert Mondavi Corporation
Timothy J. Mondavi
Managing Director and Winegrower
The Robert Mondavi Corporation
Marcia Mondavi Borger
Director
The Robert Mondavi Corporation
Clifford S. Adams
Director
The Robert Mondavi Corporation
James Barksdale
President and Chief Executive Officer
Netscape Communications
Corporation
Frank E. Farella (1)
Partner
Farella, Braun & Martel, Attorneys
Philip Greer (1)
Senior Managing Principal
Weiss, Peck and Greer, L.L.C.,
Investment Managers
Bartlett R. Rhoades (1)
Chief Executive Officer
Medical Data International, Inc.
(1) Member Audit and Compensation
Committees
OFFICERS
R. Michael Mondavi
President and Chief Executive Officer
Timothy J. Mondavi
Managing Director and Winegrower
Gregory M. Evans
Chief Financial Officer
Michael K. Beyer
Senior Vice President,
General Counsel and Secretary
Mitchell J. Clark
Senior Vice President,
Sales
Martin C. Johnson
Senior Vice President,
Marketing
Peter Mattei
Senior Vice President,
Production and Vineyards
Alan E. Schnur
Senior Vice President,
Human Resources
Steven R. Soderberg
Senior Vice President,
Information Systems
SHAREHOLDER INFORMATION
REGISTRAR AND TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C.
Shareholder Relations
P.O. Box 469
Washington Bridge Station
New York, NY 10033
(800) 356-2017
(800) 231-5469 (TDD)
(212) 613-7247 (Outside U.S.)
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
San Francisco, California
ANNUAL MEETING
The annual meeting of shareholders will be held on Monday, November 3, 1997 at
the Robert Mondavi Winery in Oakville, California.
INQUIRIES
Communications concerning stock transfer requirements, lost certificates and
changes of address should be directed to the Transfer Agent. Other shareholder
or investor inquiries should be directed to: Investor Relations, The Robert
Mondavi Corporation, P.O. Box 106, Oakville, California 94562, (707) 259-9463
ext. 3587.
FORM 10-K
A copy of the Company's Form 10-K as filed with the Securities and Exchange
Commission is available, without charge, by writing or calling the Company at
the address under Inquiries.
COMMON STOCK INFORMATION
The Company's Class A Common Stock trades on the NASDAQ National Market System
under the symbol "MOND." There is no established trading market for the
Company's Class B Common Stock. The following table sets forth the high and low
closing prices of the Class A Common Stock for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997 HIGH LOW
- ------------------------ ---- ---
<S> <C> <C>
Fourth Quarter $47-3/8 $36
Third Quarter $43-3/4 $36
Second Quarter $38-1/4 $28-1/2
First Quarter $33-1/2 $26-1/2
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 HIGH LOW
- ------------------------ ---- ---
<S> <C> <C>
Fourth Quarter $33-3/4 $24-3/4
Third Quarter $31 $25-3/4
Second Quarter $32-1/2 $22-5/8
First Quarter $26 $17-5/8
</TABLE>
The Company has never declared or paid dividends on its common stock and
anticipates that all earnings will be retained for use in its business. The
payment of any future dividends will be at the discretion of the Board of
Directors and will continue to be subject to certain limitations and
restrictions under the terms of the Company's indebtedness to various
institutional lenders, including a prohibition on the payment of dividends
without the prior written consent of such lenders. There were approximately
1,300 shareholders of record as of June 30, 1997.
ROBERT MONDAVI
40
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-61516) of The Robert Mondavi Corporation of our
report dated July 25, 1997 appearing on page 39 of the 1997 Annual Report to
Shareholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 13 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
San Francisco, CA
September 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 150
<SECURITIES> 0
<RECEIVABLES> 59,222
<ALLOWANCES> 0
<INVENTORY> 167,695
<CURRENT-ASSETS> 234,337
<PP&E> 266,992
<DEPRECIATION> 80,002
<TOTAL-ASSETS> 444,925
<CURRENT-LIABILITIES> 48,427
<BONDS> 158,067
0
0
<COMMON> 88,462
<OTHER-SE> 132,709
<TOTAL-LIABILITY-AND-EQUITY> 444,925
<SALES> 300,774
<TOTAL-REVENUES> 300,774
<CGS> 165,988
<TOTAL-COSTS> 165,988
<OTHER-EXPENSES> 79,831
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,562
<INCOME-PRETAX> 46,273
<INCOME-TAX> 18,048
<INCOME-CONTINUING> 28,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,225
<EPS-PRIMARY> 1.80
<EPS-DILUTED> 1.79
</TABLE>
