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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, 1998 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, 1998 there were issued and outstanding (i) 8,055,251 shares
of the Registrant's Class A Common Stock and (ii) 7,306,012 shares of the
Registrant's Class B Common Stock. The aggregate market value of the
Registrant's voting stock held by non-affiliates was $196,346,743 as of
September 15, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's annual report to security holders for the fiscal
year ended June 30, 1998 are incorporated by reference into Part II of this
report. Portions of the registrant's definitive proxy statement dated September
28, 1998 are incorporated by reference into Part III of this report.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
The Company is a leading producer of premium table wines. The Company
produces and markets fine wines worldwide under the following labels: Robert
Mondavi Napa Valley, La Famiglia di Robert Mondavi, Robert Mondavi Coastal,
Woodbridge by Robert Mondavi, Byron Vineyard & Winery and Vichon Mediterranean.
The Company also produces Opus One, in partnership with the Baroness Philippine
de Rothschild of Chateau Mouton Rothschild in Bordeaux, Sena and Caliterra, in
partnership with the Eduardo Chadwick family of Vina Errazuriz in Chile, and
Luce and Lucente, in partnership with Marchesi de' Frescobaldi of Tuscany,
Italy.
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 1998.
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.
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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.
La Famiglia di Robert Mondavi was introduced in limited quantities
beginning in 1995. La Famiglia di Robert Mondavi offers Italian-style,
California-grown varietal wines.
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.
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, Merlot, Zinfandel, Chardonnay and Sauvignon Blanc wines. All
of the Woodbridge wines are vintage-dated and sold under varietal names,
including Cabernet Sauvignon, Chardonnay, Merlot, Sauvignon Blanc and red and
white Zinfandel.
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.
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.
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. Lucente, another
Tuscan wine produced by the venture, was introduced during fiscal 1998. Luce and
Lucente are grown, produced and bottled in the Montalcino region of Italy.
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. In fiscal 1998 the venture introduced Sena, a super-ultra
premium red wine from Chile. The Company also acts as the exclusive United
States importer of the Caliterra and Sena wines and the Chadwick family's
Errazuriz brand.
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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.
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 30%, 29% and 28% of the Company's gross revenues for the fiscal
years ended June 30, 1998, 1997 and 1996, respectively. Sales to the Company's
15 largest distributors represented 65% of the Company's gross revenues in
fiscal 1998. 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 23%, 22% and
22% of the Company's gross revenues for the fiscal years ended June 30, 1998,
1997 and 1996, respectively. Other major domestic markets include Florida,
Massachusetts, New York, New Jersey, Pennsylvania and Texas where annual sales
represented 30% of the Company's gross revenues in each of the same fiscal
periods.
GRAPE SUPPLY
In fiscal 1998, approximately 12% of the Company's total grape supply
came from Company-owned or leased vineyards, including approximately 37% 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 1998
PLANTABLE ACREAGE
-------------------------------------------
LOCATION(1) PLANTED FALLOW TOTAL
------------- ------------- -------------
<S> <C> <C> <C>
NAPA VALLEY 646 271 917
CARNEROS 452 -- 452
MENDOCINO 422 5 427
MONTEREY 895 268 1,163
SAN JOAQUIN 93 -- 93
SAN LUIS OBISPO 434 -- 434
SANTA BARBARA 1,332 290 1,622
------------- ------------- -------------
Total 4,274 834 5,108
============= ============= =============
</TABLE>
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(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 1,371 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.
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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 over 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, 1998, the Company had 1,098 employees, 921 of whom were
full-time employees and 177 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.
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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, 6.5 million cases at Woodbridge, 80,000 cases at the La Famiglia
facility in Oakville, 100,000 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 530,000 square feet of
administrative and warehouse space under various leases expiring between June
1999 and October 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, 1998.
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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 48, "Common Stock Information," of the registrant's annual report to
security holders for the fiscal year ended June 30, 1998, 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 26, "Selected Consolidated Financial and Operating Data," of the
registrant's annual report to security holders for the fiscal year ended June
30, 1998, 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 27-31, "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, 1998, 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 37, "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, 1998, 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 32-47, "Consolidated Financial Statements," of the registrant's annual
report to security holders for the fiscal year ended June 30, 1998, 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
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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 28,
1998, 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 28,
1998, 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 28,
1998, 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 28, 1998,
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:
<TABLE>
<CAPTION>
PAGE IN
ANNUAL
1) FINANCIAL STATEMENTS: REPORT*
-------
<S> <C>
Report of Independent Accountants 47
Consolidated Balance Sheets as of June 30, 1998 and 1997 32
Consolidated Statements of Income for the years ended
June 30, 1998, 1997 and 1996 33
Consolidated Statements of Changes in Shareholders' Equity
for the years ended June 30, 1998, 1997 and 1996 34
Consolidated Statements of Cash Flows for the years
ended June 30, 1998, 1997 and 1996 35
Notes to Consolidated Financial Statements 36-46
</TABLE>
- ------------------
* Incorporated by reference to the indicated pages of the registrant's annual
report to security holders for the fiscal year ended June 30, 1998, furnished to
the Securities and Exchange Commission pursuant to Rule 14a-3(b).
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<TABLE>
<CAPTION>
2) FINANCIAL STATEMENT SCHEDULES: PAGE
----
<S> <C>
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
</TABLE>
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<TABLE>
<CAPTION>
2) FINANCIAL STATEMENT SCHEDULES: PAGE
----
<S> <C>
(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.
(5) Exhibit 10.38 Amended and Restated 1993 Equity Incentive
Plan.
Exhibit 13 Those portions of the Registrant's
Annual Report to Security Holders for
the Fiscal Year Ended June 30, 1998 that
are incorporated by reference into this
Annual Report on Form 10-K.
(1) Exhibit 21 Subsidiaries of the Registrant
Exhibit 23 Consent of PricewaterhouseCoopers LLP
Exhibit 27 Financial Data Schedule (not considered to be filed)
</TABLE>
(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.
(5) Incorporated by reference to Annual Report on Form 10-K for the annual
period ended June 30, 1998.
(b) No reports on Form 8-K were filed during the quarter ended June 30,
1998.
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ROBERT MONDAVI CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED JUNE 30, 1998
(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, 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
YEAR ENDED JUNE 30, 1998:
Allowance for uncollectible accounts 500 9 -- 9(1) 500
Inventory reserves for write down
to net realizable value 1,162 1,662 -- 705 2,119
</TABLE>
Notes:
(1) Balances written off as uncollectible.
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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/ STEPHEN A. McCARTHY
-------------------------------
Stephen A. McCarthy,
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 Chairman of the Board September 28, 1998
- -------------------------------
Robert G. Mondavi
/s/ R. MICHAEL MONDAVI President and Director
- ------------------------------- (Principal Executive Officer) September 28, 1998
R. Michael Mondavi
/s/ TIMOTHY J. MONDAVI Managing Director, Winegrower and Director September 28, 1998
- -------------------------------
Timothy J. Mondavi
/s/ GREGORY M. EVANS Chief Operating Officer September 28, 1998
- -------------------------------
Gregory M. Evans
/s/ STEPHEN A. McCARTHY Chief Financial Officer
- ------------------------------- (Principal Financial and Accounting Officer) September 28, 1998
Stephen A. McCarthy
/s/ JAMES L. BARKSDALE Director September 28, 1998
- -------------------------------
James L. Barksdale
/s/ MARCIA MONDAVI BORGER Director September 28, 1998
- -------------------------------
Marcia Mondavi Borger
/s/ FRANK E. FARELLA Director September 28, 1998
- -------------------------------
Frank E. Farella
/s/ PHILIP GREER Director September 28, 1998
- -------------------------------
Philip Greer
/s/ BARTLETT R. RHOADES Director September 28, 1998
- -------------------------------
Bartlett R. Rhoades
</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 24, 1998, appearing on page 47 of the 1998 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/ PRICEWATERHOUSECOOPERS LLP
- -------------------------------
PricewaterhouseCoopers LLP
San Francisco, CA
July 24, 1998
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EXHIBIT 13
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------------------------
(In thousands, except per share data and average net selling price)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Gross revenues $ 341,059 $ 315,998 $ 253,540 $ 210,361 $ 176,236
Less excise taxes 15,900 15,224 12,710 10,892 9,209
--------------------------------------------------------------------------
Net revenues 325,159 300,774 240,830 199,469 167,027
Cost of goods sold 175,690 165,988 122,385 97,254 88,102
--------------------------------------------------------------------------
Gross profit 149,469 134,786 118,445 102,215 78,925
Operating expenses 90,043 79,831 70,707 64,160 56,198
--------------------------------------------------------------------------
Operating income 59,426 54,955 47,738 38,055 22,727
Other income (expense):
Interest (12,298) (10,562) (8,814) (8,675) (6,698)
Other 441 1,880 1,543 215 (305)
--------------------------------------------------------------------------
Income before income taxes 47,569 46,273 40,467 29,595 15,724
Provision for income taxes 18,554 18,048 16,029 11,775 6,212
--------------------------------------------------------------------------
Net income $ 29,015 $ 28,225 $ 24,438 $ 17,820 $ 9,512
==========================================================================
Earnings per share--Basic $ 1.90 $ 1.87 $ 1.67 $ 1.40 $ .75
==========================================================================
Earnings per share--Diluted $ 1.83 $ 1.80 $ 1.61 $ 1.39 $ .75
==========================================================================
Weighted average number of
shares outstanding--Basic (1) 15,264 15,057 14,613 12,749 12,731
==========================================================================
Weighted average number of
shares outstanding--Diluted (1) 15,847 15,670 15,203 12,787 12,731
==========================================================================
BALANCE SHEET DATA
Working capital $ 257,675 $ 185,910 $ 152,757 $ 116,899 $ 59,493
Long-term debt, less current portion 222,557 158,067 123,713 113,017 55,902
Total debt 233,541 173,607 127,828 119,088 107,409
Total liabilities 294,025 223,754 172,940 157,752 137,884
Shareholders' equity (2) 253,983 221,171 188,255 124,562 106,352
Total assets 548,008 444,925 361,195 282,314 244,236
OPERATING DATA (UNAUDITED)
Cases sold (3) 6,766 6,450 5,437 4,550 3,873
Average net selling price (4) $ 47.67 $ 46.22 $ 43.86 $ 43.42 $ 42.70
</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.
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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 1998 was a challenging year for Robert Mondavi. Despite a temporary
shortage of Woodbridge Chardonnay, our top selling wine, the Company achieved
record sales and earnings. While this shortage limited the Company's overall
rate of growth, the Company was successful in introducing a number of new
products during an increasingly competitive year. Wines introduced during fiscal
1998 included: Luce and Lucente, which are produced by the Company's joint
venture in Italy; Sena, a new super ultra premium wine produced by the Company's
joint venture in Chile; Woodbridge Merlot, a new variety for this brand; and
Woodbridge Twin Oaks, a new on-premise brand extension. The Company expects
continued sales growth in fiscal 1999 as distribution of these new wines is
expanded and as wines produced from the large 1997 harvest become available.
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, the
Company's anticipated future investment in vineyards and other capital projects
and possible costs and operational risks associated with the Year 2000 issue.
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 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 change
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
increases in FIFO cost of goods sold of approximately $1.9 million and $16.2
million, respectively, in fiscal 1998 and 1997, and a reduction in FIFO cost of
goods sold of approximately $0.5 million in fiscal 1996.
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.
27
<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 1998 QUARTER ENDED FISCAL 1997 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 $ 65.6 $ 93.0 $ 76.0 $ 90.6 $ 59.0 $ 87.2 $ 70.9 $ 83.7
% of annual net revenues 20.1% 28.6% 23.4% 27.9% 19.6% 29.0% 23.6% 27.8%
Net income $ 5.9 $ 10.5 $ 6.5 $ 6.1 $ 5.3 $ 9.2 $ 6.3 $ 7.4
% of annual net income 20.1% 36.2% 22.5% 21.2% 18.8% 32.6% 22.3% 26.3%
</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 1998 QUARTER ENDED FISCAL 1997 QUARTER ENDED
-------------------------------------------- -----------------------------------------
SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30
-------------------------------------------- -----------------------------------------
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total borrowings,
net of cash $ 166.9 $ 202.2 $ 234.7 $ 230.9 $ 134.1 $ 152.8 $174.6 $173.5
</TABLE>
28
<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 FISCAL YEAR ENDED JUNE 30,
--------------------------------
1998 1997 1996
--------------------------------
<S> <C> <C> <C>
Gross revenues 104.9% 105.1% 105.3%
Less excise taxes 4.9 5.1 5.3
--------------------------------
Net revenues 100.0 100.0 100.0
Cost of goods sold 54.0 55.2 50.8
--------------------------------
Gross profit 46.0 44.8 49.2
Operating expenses 27.7 26.5 29.4
--------------------------------
Operating income 18.3 18.3 19.8
Other income (expense):
Interest (3.8) (3.5) (3.6)
Other 0.1 0.6 0.6
--------------------------------
Income before income taxes 14.6 15.4 16.8
Provision for income taxes 5.7 6.0 6.7
--------------------------------
Net income 8.9% 9.4% 10.1%
================================
</TABLE>
YEAR 2000 The Year 2000 issue, which is common to most companies, relates to the
inability of computer systems, including information technology (IT) and non-IT
systems, to properly recognize and process date sensitive information with
respect to dates in the Year 2000 and thereafter. The Company believes that it
will be able to achieve Year 2000 compliance by the end of 1999 and it does not
expect any material disruption of its operations as a result of any failure by
the Company to achieve Year 2000 compliance. However, to the extent the Company
is not able to resolve any Year 2000 issues, the Company's business and results
of operations could be materially affected. This could result from computer
related failures in the Company's financial systems, manufacturing and warehouse
management systems, phone systems and electrical supply.
The Company has assessed its internal computer systems and software and is in
the process of modifying or replacing portions of its software so that its
operating systems will function properly with respect to dates in the Year 2000
and thereafter. The Company is also evaluating its non-IT systems with respect
to the Year 2000 issue. The Company's non-IT systems include phones, voicemail,
electricity, heating and air conditioning and security systems. The cost to the
Company of evaluating and modifying its own systems is not expected to be
material, nor does the Company believe that, with these modifications, the Year
2000 issue will pose significant operational problems for its computer and
non-IT systems. However, as testing of Year 2000 functionality of the Company's
systems must occur in a simulated environment, the Company will not be able to
test full system Year 2000 interfaces and capabilities prior to the Year 2000.
To the extent the Company is not able to address any of its Year 2000 issues,
the Company believes that it could revert to manual processes previously
employed or outsource work with minimal incremental cost.
The Company is also in the process of evaluating system interfaces with
third-party systems, such as those with key suppliers, distributors and
financial institutions, for Year 2000 functionality. If the systems of other
companies with which the Company does business do not address any Year 2000
issues on a timely basis, the Company may experience a variety of problems which
may have a material adverse effect on the Company. These problems may include,
but are not limited to, loss of electronic data interchange capability with the
Company's customers and vendors, and failure of the Company's vendors to deliver
and bill for materials and products ordered by the Company. As a result, the
Company may experience inventory shortages or surpluses. Should these problems
arise, the Company expects to utilize voice, facsimile and/or mail communication
to place orders with vendors, receive customer orders and process customer
billings. In addition, the Company could utilize alternate sources of supply
should its vendors not resolve their Year 2000 issues on a timely basis.
29
<PAGE> 5
THREE YEARS ENDED JUNE 30, 1998
GROSS REVENUES Gross revenues increased by 7.9% to $341.1 million in fiscal 1998
from fiscal 1997, and by 24.6% to $316.0 million in fiscal 1997 from $253.5
million in fiscal 1996. In fiscal 1998, sales volume increased by 4.9% to 6.8
million cases from fiscal 1997, and by 18.6% to 6.5 million cases in fiscal 1997
from 5.4 million cases in fiscal 1996. The increase in gross revenues in fiscal
1998 was mainly due to the sales volume increase and a shift in sales mix to
wines with higher gross revenues per case. The increase in gross revenues in
fiscal 1997 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 accounted for 27.4%
of the total sales volume growth during fiscal 1997. 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 some of its wines will
remain on allocation during fiscal 1999, although wine supplies are not expected
to be as limited as they were during fiscal 1998.
EXCISE TAXES The Company's federal and state excise taxes increased by 4.4% to
$15.9 million in fiscal 1998 from fiscal 1997, and by 19.8% to $15.2 million in
fiscal 1997 from $12.7 million in fiscal 1996. The dollar increase in excise
taxes in fiscal 1998 and 1997 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 fiscal 1998 and 1997 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 8.1% to
$325.2 million in fiscal 1998 from fiscal 1997, and by 24.9% to $300.8 million
in fiscal 1997 from $240.8 million in fiscal 1996. Net revenues per case
increased by 3.1% to $47.67 per case in fiscal 1998 from fiscal 1997, and by
5.4% to $46.22 per case in fiscal 1997 from $43.86 per case in fiscal 1996.
COST OF GOODS SOLD Cost of goods sold increased by 5.8% to $175.7 million in
fiscal 1998 from fiscal 1997, and by 35.6% to $166.0 million in fiscal 1997 from
$122.4 million in fiscal 1996. The increase in fiscal 1998 reflects increased
sales volume and a shift in sales mix to wines with a higher average cost per
case that were partially offset by lower wine costs associated with the large
1997 harvest. The increase in fiscal 1997 reflects increased sales volume and
increased grape and bulk wine prices. If inventories valued at LIFO cost had
been valued at FIFO cost, then cost of goods sold would have been $1.9 million
and $16.2 million lower in fiscal 1998 and 1997, respectively, and $0.5 million
higher in fiscal 1996.
GROSS PROFIT As a result of the factors discussed above, gross profit increased
by 10.9% to $149.5 million in fiscal 1998 from fiscal 1997, and by 13.8% to
$134.8 million in fiscal 1997 from $118.4 million in fiscal 1996. The Company's
gross profit margins were 46.0%, 44.8% and 49.2% of net revenues for fiscal
1998, 1997 and 1996, respectively.
OPERATING EXPENSES Operating expenses increased by 12.8% to $90.0 million in
fiscal 1998 from fiscal 1997, and by 12.9% to $79.8 million in fiscal 1997 from
$70.7 million in fiscal 1996. The ratio of operating expenses to net revenues
was 27.7% in fiscal 1998, 26.5% in fiscal 1997 and 29.4% in fiscal 1996. The
increase in operating expenses and the operating expense ratio in fiscal 1998
was primarily attributable to increased promotional spending per case. The
dollar increase in operating expenses in fiscal 1997 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 the 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.
OPERATING INCOME As a result of the factors discussed above, operating income
increased by 8.1% to $59.4 million in fiscal 1998 from fiscal 1997, and by 15.1%
to $55.0 million in fiscal 1997 from $47.7 million in fiscal 1996. Operating
income constituted 18.3% of net revenues in fiscal 1998 and 1997, and 19.8% in
fiscal 1996.
INTEREST Interest expense increased by 16.4% to $12.3 million in fiscal 1998
from fiscal 1997, and by 19.8% to $10.6 million in fiscal 1997 from $8.8 million
in fiscal 1996. The Company's average interest rates were 7.45%, 7.83% and 8.61%
in fiscal 1998, 1997 and 1996, respectively. The increase in interest
30
<PAGE> 6
expense in fiscal 1998 and 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 1998, "Other" was $0.4 million compared to $1.9 million in fiscal 1997
and $1.5 million in fiscal 1996.
INCOME BEFORE INCOME TAXES As a result of the factors discussed above, income
before income taxes increased by 2.8% to $47.6 million in fiscal 1998 from
fiscal 1997, and by 14.3% to $46.3 million in fiscal 1997 from $40.5 million in
fiscal 1996.
PROVISION FOR INCOME TAXES The provision for income taxes and the Company's
effective tax rates were $18.6 million and 39.0%, $18.0 million and 39.0%, and
$16.0 million and 39.6% in fiscal 1998, 1997 and 1996, respectively.
NET INCOME AND EARNINGS PER SHARE As a result of the above factors, net income
increased by 2.8% to $29.0 million in fiscal 1998 from fiscal 1997, and by 15.5%
to $28.2 million in fiscal 1997 from $24.4 million in fiscal 1996. Diluted
earnings per share were $1.83, $1.80 and $1.61 in fiscal 1998, 1997 and 1996,
respectively. 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.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of June 30, 1998, was $257.7 million compared to $185.9
million at June 30, 1997. The $71.8 million increase in working capital was
primarily attributable to a $58.1 million increase in inventories and a $9.4
million increase in accounts receivable. Borrowings under the Company's credit
lines totaled $30.5 million at June 30, 1998, compared to $58.8 million at June
30, 1997. The Company had a cash balance of $2.7 million at June 30, 1998,
compared to a balance of $0.2 million at June 30, 1997.
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 1998, the Company's primary uses of capital
have been to finance the following: a $58.1 million increase in inventories; a
$49.5 million increase in property, plant and equipment (including vineyard
development, expansion of the Woodbridge facility and purchases of new oak
barrels); $35.1 million in repayments of long-term debt and net repayments of
credit line borrowings; and a $9.4 million increase in accounts receivable. The
primary sources of funds during fiscal 1998 were from the following: $95.0
million in new term debt; $29.0 million in net income, as well as the non-cash
impact on pre-tax income of $13.7 million in depreciation and amortization; and
$7.4 million in proceeds from the sale of assets.
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
capital spending requirements will total approximately $115.0 million for the
two fiscal years ending June 30, 2000.
The Company currently has credit lines that provide both short-term and
long-term borrowings. The short-term credit lines expire on December 25, 1998,
and have maximum credit available of $71.5 million. The long-term credit lines
expire on December 31, 2000, and have maximum credit available of $80.0 million.
The annual interest rates on these lines are based on various bank programs and
ranged from 5.93% to 8.50% during fiscal 1998.
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 1999.
31
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
JUNE 30,
----------------------
1998 1997
----------------------
<S> <C> <C>
Current assets:
Cash $ 2,683 $ 150
Accounts receivable--trade, net 68,656 59,222
Inventories 226,141 167,695
Deferred income taxes 2,127 1,677
Prepaid expenses and other current assets 8,239 5,593
----------------------
Total current assets 307,846 234,337
Property, plant and equipment, net 215,301 186,990
Investments in joint ventures 19,349 19,212
Other assets 5,512 4,386
----------------------
Total assets $548,008 $444,925
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ -- $ 8,750
Accounts payable--trade 18,888 14,769
Employee compensation and related costs 9,881 10,608
Other accrued expenses 7,800 5,446
Current portion of long-term debt 10,984 6,790
Deferred revenue 2,618 2,064
----------------------
Total current liabilities 50,171 48,427
Long-term debt, less current portion 222,557 158,067
Deferred income taxes 14,245 10,848
Deferred executive compensation 6,713 5,395
Other liabilities 339 1,017
----------------------
Total liabilities 294,025 223,754
----------------------
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--8,050,126 and 7,499,024 shares 79,040 76,138
Class B Common Stock, without par value: Authorized--12,000,000 shares
Issued and outstanding--7,306,012 and 7,676,012 shares 11,732 12,324
Paid-in capital 4,776 3,289
Retained earnings 158,435 129,420
----------------------
253,983 221,171
----------------------
Total liabilities and shareholders' equity $548,008 $444,925
======================
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------
1998 1997 1996
--------------------------------------------
<S> <C> <C> <C>
Gross revenues $ 341,059 $ 315,998 $ 253,540
Less excise taxes 15,900 15,224 12,710
--------------------------------------------
Net revenues 325,159 300,774 240,830
Cost of goods sold 175,690 165,988 122,385
--------------------------------------------
Gross profit 149,469 134,786 118,445
Selling, general and administrative expenses 90,043 79,831 70,707
--------------------------------------------
Operating income 59,426 54,955 47,738
Other income (expense):
Interest (12,298) (10,562) (8,814)
Equity in net income of joint ventures 2,593 2,510 1,751
Other (2,152) (630) (208)
--------------------------------------------
Income before income taxes 47,569 46,273 40,467
Provision for income taxes 18,554 18,048 16,029
--------------------------------------------
Net income $ 29,015 $ 28,225 $ 24,438
============================================
Earnings per share--Basic $ 1.90 $ 1.87 $ 1.67
============================================
Earnings per share--Diluted $ 1.83 $ 1.80 $ 1.61
============================================
Weighted average number of shares outstanding--Basic 15,264 15,057 14,613
============================================
Weighted average number of shares outstanding--Diluted 15,847 15,670 15,203
============================================
</TABLE>
See Notes to Consolidated Financial Statements.
33
<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, 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
Net income 29,015 29,015
Conversion of Class B
Common Stock to Class A
Common Stock 370 592 (370) (592)
Exercise of Class A Common
Stock Options including
related tax benefits 163 1,831 1,487 3,318
Issuance of Class A Common
Stock through Employee
Stock Purchase Plan 18 479 479
-------------------------------------------------------------------------------
Balance at June 30, 1998 8,050 $79,040 7,306 $11,732 $4,776 $158,435 $253,983
===============================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
34
<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 29,015 $ 28,225 $ 24,438
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Deferred income taxes 2,947 797 (489)
Depreciation and amortization 13,665 12,534 10,263
Equity in net income of joint ventures (2,593) (2,510) (1,751)
Other 283 213 178
Changes in assets and liabilities:
Accounts receivable--trade (9,434) (19,727) (6,894)
Inventories (58,134) (26,030) (29,319)
Prepaid income taxes (1,044) 1,036 (1,036)
Other assets (1,602) (4,753) 148
Accounts payable--trade and accrued expenses 5,895 3,830 6,239
Income taxes payable 1,338 3,399 (1,160)
Deferred revenue 554 382 189
Deferred executive compensation 1,318 (703) 259
Other liabilities (678) (85) 437
--------------------------------------
Net cash provided by (used in) operating activities (18,470) (3,392) 1,502
--------------------------------------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (49,525) (42,552) (40,084)
Proceeds from sale of assets 7,440 -- --
Distributions from joint ventures 2,362 1,657 4,102
Contributions to joint ventures (218) (359) (7,530)
--------------------------------------
Net cash used in investing activities (39,941) (41,254) (43,512)
--------------------------------------
Cash flows from financing activities:
Book overdraft -- (403) 403
Net additions (repayments) under notes payable to banks (8,750) 8,750 --
Proceeds from issuance of long-term debt 95,000 60,000 40,368
Principal repayments of long-term debt (26,316) (22,971) (37,572)
Proceeds from issuance of Class A Common Stock 479 289 35,520
Exercise of Class A Common Stock options 1,831 2,447 2,401
Other (1,300) (3,316) (10)
--------------------------------------
Net cash provided by financing activities 60,944 44,796 41,110
--------------------------------------
Net increase (decrease) in cash 2,533 150 (900)
Cash at the beginning of the year 150 -- 900
--------------------------------------
Cash at the end of the year $ 2,683 $ 150 $ --
======================================
</TABLE>
See Notes to Consolidated Financial Statements.
35
<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 1997 and 1996 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. 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.
These assets are amortized using the straight-line method over their estimated
useful lives or terms of their related loans, not exceeding 40 years.
ADVERTISING COSTS Advertising costs are expensed as incurred or the first time
the advertising takes place. Point of sale materials are accounted for as
inventory and charged to expense as utilized. Advertising expense, including
point of sale materials charged to expense, totaled $10,688,000, $8,714,000 and
$6,604,000, respectively, for the year ended June 30, 1998, 1997 and 1996.
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 30%, 29% and 28%, respectively, of
gross revenues for the year ended June 30, 1998, 1997 and 1996. Trade accounts
receivable from these distributors at June 30, 1998 and 1997 totaled $23,873,000
and $12,549,000, respectively.
36
<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 (APB 25) 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 adopted
SFAS 128 for the quarter ending December 31, 1997, and as required under SFAS
128, the Company has restated previously reported earnings per share for all
periods presented.
In computing basic earnings per share for the years ended June 30, 1998, 1997
and 1996, no adjustments have been made to net income (numerator) or
weighted-average shares outstanding (denominator). The computation of diluted
earnings per share for the same periods is identical to the computation of basic
earnings per share except that the weighted-average shares outstanding
(denominator) has been increased by 583,000, 613,000 and 590,000, respectively,
for the year ended June 30, 1998, 1997 and 1996 to include the dilutive effect
of stock options outstanding.
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, 1998, the carrying amount and estimated fair value of notes payable to
banks and long-term debt are $233,541,000 and $244,394,000, respectively. 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.
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.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 is effective for years beginning
after June 15, 1999. The statement requires all derivatives to be recorded on
the balance sheet at fair value and establishes "special accounting" for the
different types of hedges. The Company plans to adopt this statement in fiscal
2000 and does not expect it to have a material effect on the consolidated
financial statements.
At June 30, 1998, the Company has outstanding forward exchange contracts to
purchase 40,537,000 French francs through May 1999 for the U.S. dollar
equivalent of $6,808,000. Using exchange rates outstanding as of June 30, 1998,
the U.S. dollar equivalent of the contracts is $6,687,000.
37
<PAGE> 13
NOTE 2--INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1998 1997
----------------------------
<S> <C> <C>
Wine in production $ 170,708 $ 127,922
Bottled wine 70,572 53,734
Crop costs and supplies 15,490 14,793
----------------------------
Inventories stated at FIFO cost 256,770 196,449
Reserve for LIFO valuation method (30,629) (28,754)
----------------------------
$ 226,141 $ 167,695
============================
</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 $1,144,000 and
$9,899,000, respectively, for the year ended June 30, 1998 and 1997, and
decreased by approximately $329,000 for the year ended June 30, 1996.
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,
-----------------------------
1998 1997
-----------------------------
<S> <C> <C>
Land $ 40,903 $ 42,405
Vineyards 32,939 31,413
Machinery and equipment 125,270 112,884
Buildings 33,222 38,105
Vineyards under development 31,818 19,738
Construction in progress 39,577 22,447
-----------------------------
303,729 266,992
Less--accumulated depreciation (88,428) (80,002)
-----------------------------
$ 215,301 $ 186,990
=============================
</TABLE>
Included in property, plant and equipment are assets leased under capital leases
with cost and accumulated depreciation totaling $6,514,000 and $2,313,000,
respectively, at June 30, 1998 and $6,514,000 and $1,590,000, respectively, at
June 30, 1997. Depreciation expense for machinery and equipment under capital
leases was $723,000, $917,000 and $793,000 for the year ended June 30, 1998,
1997 and 1996, respectively.
Included in property, plant and equipment is $2,645,000, $1,343,000 and $532,000
of interest capitalized for the year ended June 30, 1998, 1997 and 1996,
respectively.
38
<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 Della Vite (LDV) during fiscal 1998.
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,
---------------------
1998 1997
---------------------
<S> <C> <C>
Opus One (50%) $ 10,054 $ 9,749
Caliterra (50%) 7,357 7,582
LDV (50%) 1,394 1,339
Other 544 542
---------------------
$ 19,349 $ 19,212
=====================
</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,
---------------------- ----------------------
1998 1997 1998 1997
---------------------- ----------------------
<S> <C> <C> <C> <C>
Current assets $ 35,912 $ 27,072 $ 17,956 $ 13,530
Other assets 44,167 35,628 22,084 17,713
---------------------- ----------------------
Total assets $ 80,079 $ 62,700 $ 40,040 $ 31,243
====================== ======================
Current liabilities $ 27,055 $ 8,147 $ 13,527 $ 4,074
Other liabilities 15,633 16,612 7,817 8,306
Venturers' equity 37,391 37,941 18,696 18,863
---------------------- ----------------------
Total liabilities and venturers' equity $ 80,079 $ 62,700 $ 40,040 $ 31,243
====================== ======================
</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.
39
<PAGE> 15
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
COMBINED PROPORTIONATE SHARE
-------------------------------- --------------------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
-------------------------------- --------------------------------
1998 1997 1996 1998 1997 1996
-------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 37,417 $ 28,271 $ 17,171 $ 18,671 $ 14,089 $ 8,511
Cost of goods sold 15,267 11,479 7,179 7,634 5,740 3,590
-------------------------------- --------------------------------
Gross profit 22,150 16,792 9,992 11,037 8,349 4,921
Other expenses 16,817 9,753 6,588 8,356 4,784 3,184
-------------------------------- --------------------------------
Net income $ 5,333 $ 7,039 $ 3,404 $ 2,681 $ 3,565 $ 1,737
================================ ================================
</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 $2,411,000, $2,108,000 and $1,925,000 for the
year ended June 30, 1998, 1997 and 1996, 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 $1,192,000 and $839,000 at June 30, 1998 and 1997,
respectively.
The Company has a deferred compensation plan with certain key executives,
officers and directors. Under the provisions of this plan, participants may
elect to defer up to 100% of their eligible compensation and earn a guaranteed
interest rate on their deferred amounts, which was approximately 9.1% for the
year ended June 30, 1998. The Company's liability under this plan totaled
$1,050,000 at June 30, 1998 and it was included in deferred executive
compensation. Amounts deferred are held within a Rabbi Trust for the benefit of
the participants. These funds and the accumulated interest were included in the
other assets at June 30, 1998.
The Company also 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 $173,000 and $1,950,000 at June 30, 1998 and 1997, respectively.
40
<PAGE> 16
NOTE 6--LONG-TERM DEBT AND NOTES PAYABLE TO BANKS
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1998 1997
---------------------------
<S> <C> <C>
Long-term unsecured credit lines $ 30,450 $ 50,000
Fixed rate secured term loans; interest rates 6.33% to 10.00% at
June 30, 1998; principal and interest payable monthly; due 1998--2005 17,597 19,917
Fixed rate unsecured term loans; interest rate 8.92% at June 30, 1998;
principal and interest payable quarterly; due 2004 35,167 39,033
Fixed rate unsecured term loans; interest rate 7.39% at June 30, 1998;
interest payable semiannually through January 8, 1998; principal and
interest payable semiannually from July 8, 1998; due 2006 50,000 50,000
Fixed rate unsecured term loans; interest rate 6.71% at June 30, 1998;
principal and interest payable semiannually; due 2013 95,000 --
Capitalized lease obligations; interest rates 6.96% to 8.00% at
June 30, 1998; principal and interest payable monthly; due 2002--2010 5,327 5,907
---------------------------
233,541 164,857
Less--current portion (10,984) (6,790)
---------------------------
$ 222,557 $ 158,067
===========================
</TABLE>
Aggregate annual maturities of long-term debt at June 30, 1998 are as follows
(in thousands):
<TABLE>
<CAPTION>
Year Ending
June 30,
-----------
<S> <C>
1999 $ 10,984
2000 40,702
2001 10,103
2002 15,761
2003 12,501
Thereafter 143,490
--------
$233,541
========
</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 25, 1998, and have maximum credit available of $71,500,000. The
long-term credit lines expire on December 31, 2000, and have maximum credit
available of $80,000,000. The credit lines bear interest, which is payable
monthly, at rates determined under various bank interest programs, ranging from
6.05% to 8.50% at June 30, 1998. There were no borrowings outstanding under the
Company's short-term credit lines as of June 30, 1998. At June 30, 1997, there
was $8,750,000 outstanding under the Company's short-term credit lines.
On January 29, 1998, the Company entered into unsecured term loans totaling
$95,000,000 that bear interest, payable semiannually, at a fixed rate of 6.71%.
Semiannual principal and interest payments commence on July 29, 1998. The
proceeds from these loans were used to pay down long-term credit line
borrowings.
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.
41
<PAGE> 17
Property, plant and equipment with a net book value of approximately $34,600,000
at June 30, 1998 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, 1998.
NOTE 7--INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
1998 1997 1996
---------------------------------
<S> <C> <C> <C>
Current:
Federal $ 13,377 $ 14,763 $ 14,760
State 2,230 2,488 1,758
---------------------------------
15,607 17,251 16,518
---------------------------------
Deferred:
Federal 2,532 768 (824)
State 415 29 335
---------------------------------
2,947 797 (489)
---------------------------------
$ 18,554 $ 18,048 $ 16,029
=================================
</TABLE>
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,
--------------------------------
1998 1997 1996
--------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 3.6 3.8 3.4
Permanent differences 0.5 0.4 0.5
Other (0.1) (0.2) 0.7
--------------------------------
39.0% 39.0% 39.6%
================================
</TABLE>
The approximate effect of temporary differences and carryforwards that give rise
to deferred tax balances at June 30, 1998 and 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1998 1997
---------------------
<S> <C> <C>
GROSS DEFERRED TAX ASSETS
Liabilities and accruals $ (2,070) $ (1,735)
Deferred compensation (3,828) (3,679)
Inventories (1,717) (1,228)
Tax credits (692) (692)
---------------------
Gross deferred tax assets (8,307) (7,334)
---------------------
GROSS DEFERRED TAX LIABILITIES
Property, plant and equipment 17,331 13,602
Retirement plans 677 625
Receivables 435 350
Investments in joint ventures 1,623 1,620
State taxes 359 308
---------------------
Gross deferred tax liabilities 20,425 16,505
---------------------
Net deferred tax liability $ 12,118 $ 9,171
=====================
</TABLE>
42
<PAGE> 18
The Company has foreign tax credits at June 30, 1998 that can be carried forward
five years.
During the year ended June 30, 1998 and 1997 the Company recognized certain tax
benefits related to stock option plans in the amount of $1,487,000 and
$1,955,000, respectively. 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.
During the second quarter of fiscal 1998 and the first quarter of fiscal 1996,
370,000 and 649,769 shares, respectively, of Class B Common Stock, owned by a
major shareholder, were converted into 370,000 and 649,769 shares, respectively,
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.
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, 1998, 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).
Under the Equity Incentive Plan, the Company is authorized to grant both
incentive stock options and non-qualified stock options for up to 2,585,294
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
43
<PAGE> 19
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.
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.
A summary of the Company's stock option plans is presented below:
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------------------------ ---------------------------
AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------------------------------ ---------------------------
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 1,279,834 $15.74 1,287,188 $12.86
Granted 205,000 51.03 212,172 29.10
Exercised (163,283) 11.22 (207,151) 11.81
Forfeited (5,818) 21.03 (12,375) 10.40
--------------------------------------------------------------
Outstanding at
end of year 1,315,733 $21.73 1,279,834 15.74
==============================================================
Options exercisable
at year end 1,074,338 $18.84 969,709 $15.31
==============================================================
</TABLE>
The following table summarizes information about stock options outstanding
at June 30, 1998:
<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>
$38.01 to $52.00 203,512 9.2 years $51.03 96,704 $50.94
15.01 to 38.00 325,345 8.0 years 28.66 242,227 28.23
11.01 to 15.00 635,942 4.7 years 12.06 635,942 12.06
7.00 to 11.00 150,934 6.2 years 8.03 99,465 8.11
----------------------------------------------------------------------------------------------
7.00 to 52.00 1,315,733 7.2 years $21.73 1,074,338 $18.84
==============================================================================================
</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, 1998, 1997 and 1996, shares totaling
17,819, 10,344 and 12,725, respectively, were issued under the Employee Stock
Purchase Plan at average prices of $26.90, $27.98 and $15.47, respectively.
44
<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
$3,789,000, $2,739,000 and $2,126,000, respectively, for the year ended June 30,
1998, 1997 and 1996. 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, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
JUNE 30, LEASES LEASES
----------- ------- ---------
<S> <C> <C>
1999 $1,011 $ 2,338
2000 1,011 1,902
2001 1,011 1,624
2002 1,011 1,344
2003 906 1,271
Thereafter 2,880 13,895
------ -------
7,830 $22,374
------ =======
Less amount representing interest (2,503)
------
Present value of minimum lease payments $5,327
======
</TABLE>
Interest expense on capital lease obligations was $431,000, $470,000 and
$176,000 for the year ended June 30, 1998, 1997 and 1996, 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 $9,853,000, $8,974,000
and $7,999,000 for the year ended June 30, 1998, 1997 and 1996, respectively.
Cash paid for income taxes was $16,800,000, $14,771,000 and $20,048,000 for the
year ended June 30, 1998, 1997 and 1996, 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,
totaling $5,944,000.
Non-cash financing activities not included in the statements of cash flows
include the conversions of stock in fiscal 1998 and 1996 (Note 8) and the tax
benefits related to stock option plans in fiscal 1998, 1997 and 1996 (Note 7).
45
<PAGE> 21
NOTE 12--QUARTERLY HIGHLIGHTS (UNAUDITED)
Selected highlights for each of the fiscal quarters during the year ended June
30, 1998 and 1997 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, 1998:
Net revenues $65,550 $93,002 $76,009 $90,598
Gross profit 28,576 42,372 35,960 42,561
Net income 5,851 10,494 6,528 6,142
Earnings per share--Basic .39 .69 .43 .40
Earnings per share--Diluted .37 .66 .41 .39
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--Basic .36 .61 .42 .49
Earnings per share--Diluted .34 .59 .40 .47
</TABLE>
46
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
THE ROBERT MONDAVI CORPORATION
In our opinion, the accompanying consolidated 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, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended June 30, 1998, 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.
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
July 24, 1998
47
<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
James Barksdale
President and Chief Executive Officer
Netscape Communications Corporation
Frank E. Farella (1)
Partner
Farella, Braun & Martel, Attorneys
Philip Greer (1)(2)
Senior Managing Principal
Weiss, Peck and Greer, L.L.C., Investment Managers
Bartlett R. Rhoades (1)(2)
Director
The Robert Mondavi Corporation
(1) Member Audit Committee
(2) Member Compensation
Committee
OFFICERS
R. Michael Mondavi
President and Chief Executive Officer
Timothy J. Mondavi
Managing Director and Winegrower
Gregory M. Evans
Executive Vice President and
Chief Operating Officer
Stephen A. McCarthy
Senior Vice President and
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
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
ANNUAL MEETING
The annual meeting of shareholders will be held on Monday, November 2, 1998 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 written
shareholder or investor inquiries should be directed to: Investor Relations, The
Robert Mondavi Corporation, P.O. Box 106, Oakville, California 94562. We can
also be contacted by telephone at (707) 251-4850 and e-mail at
[email protected].
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, 1998 HIGH LOW
- --------------------------------------------------------------------------------
<S> <C> <C>
Fourth Quarter $41 9/16 $28 3/8
Third Quarter $50 1/4 $36 3/16
Second Quarter $56 3/8 $46 1/2
First Quarter $55 3/4 $42 13/16
</TABLE>
<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>
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 3o, 1998.
48
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT 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 24, 1998 appearing on page 47 of the Annual Report to
Stockholders 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/ PRICEWATERHOUSECOOPERS LLP
- -------------------------------
PricewaterhouseCoopers LLP
San Francisco, CA
September 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,683
<SECURITIES> 0
<RECEIVABLES> 68,656
<ALLOWANCES> 0
<INVENTORY> 226,141
<CURRENT-ASSETS> 307,846
<PP&E> 303,729
<DEPRECIATION> 88,428
<TOTAL-ASSETS> 548,008
<CURRENT-LIABILITIES> 50,171
<BONDS> 222,557
0
0
<COMMON> 90,772
<OTHER-SE> 163,211
<TOTAL-LIABILITY-AND-EQUITY> 548,008
<SALES> 325,159
<TOTAL-REVENUES> 325,159
<CGS> 175,690
<TOTAL-COSTS> 175,690
<OTHER-EXPENSES> 90,043
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,298
<INCOME-PRETAX> 47,569
<INCOME-TAX> 18,554
<INCOME-CONTINUING> 29,015
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,015
<EPS-PRIMARY> 1.90<F1>
<EPS-DILUTED> 1.83<F2>
<FN>
<F1>REPRESENTS BASIC EPS, CALCULATED IN ACCORDANCE WITH SFAS NO. 128.
<F2>REPRESENTS DILUTED EPS, CALCULATED IN ACCORDANCE WITH SFAS NO. 128.
</FN>
</TABLE>
