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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended Commission File Number:
June 30, 1999 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, 1999 there were issued and outstanding (i) 8,172,414 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 $293,185,352 as of
September 15, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's annual report to security holders for the fiscal
year ended June 30, 1999 are incorporated by reference into Part II of this
report. Portions of the registrant's definitive proxy statement dated September
28, 1999 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 Winery, Robert Mondavi Coastal, Woodbridge, Byron Vineyard & Winery, Io,
Vichon Mediterranean and La Famiglia di Robert Mondavi. The Company also
produces Opus One, in partnership with the Baroness Philippine de Rothschild of
Bordeaux, France; Caliterra and Sena, in partnership with the Eduardo Chadwick
family of Vina Errazuriz in Chile; and Luce, Lucente and Danzante, in
partnership with the 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 9% of net revenues in fiscal 1999.
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 750 ml. bottle are considered premium wines. The Company produces and
sells only premium table wines. The premium category is generally divided by the
trade into four 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; ultra
premium wines that retail at $14.01 to 25.00 per bottle; and luxury premium
wines that retail at over $25.00 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, California, where the Company produces its flagship products, the
Robert Mondavi Winery reserve, district and varietal wines. The principal
varietals include Cabernet Sauvignon, Merlot, Pinot Noir, Chardonnay and Fume'
Blanc.
The Robert Mondavi Coastal line of wines was introduced in 1994 to take
advantage of growth opportunities in the super premium segment. The Coastal
wines reflect a unique wine style with fruit-intense flavors that are
characteristic of grapes grown in the cooler climates near the California Coast.
The principal varietals 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.
Byron Vineyard and Winery, located in the Santa Maria Valley in Santa
Barbara County, primarily produces Pinot Noir and Chardonnay utilizing the
traditional Burgundian style of winemaking. Byron is expanding its portfolio of
luxury premium wines with its upcoming release of a Chardonnay and Pinot Noir
from the Company's Sierra Madre estate vineyard that was purchased in 1996.
Io, introduced in 1999, is a unique, limited production blend of Syrah,
Mourvedre and Grenache that represents the Company's first release of
Rhone-style wines. These unique luxury premium wines will be sold exclusively to
the Company's top accounts, with a focus on fine wine shops.
Vichon Mediterranean sources its wines from the Languedoc region of
France. The principal varietals include Cabernet Sauvignon, Merlot, Chardonnay
and Sauvignon Blanc.
La Famiglia di Robert Mondavi, located in Oakville, California, offers
limited quantities of Italian-style, California-grown varietal wines. The
principal varietals include Barbera, Sangiovese and Pinot Grigio.
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.
The Company, through a joint venture with its Italian partner, the
Marchesi de' Frescobaldi, produces and markets luxury premium, ultra premium and
super premium wines from Italy, under the Luce, Lucente and Danzante labels. The
Company also acts as the exclusive United States importer of Luce, Lucente and
Danzante wines.
The Company, through a joint venture with its partner, the Chadwick
family of Chile, produces and markets luxury premium, ultra premium and super
premium wines from Chile under the Sena and Caliterra labels. The Company also
acts as the exclusive United States importer of Sena and Caliterra wines, as
well as 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 wine 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, Hawaii and Nevada by Southern Wine and Spirits, a large national
beverage distributor. Sales to Southern Wine and Spirits nationwide represented
approximately 29%, 30% and 29% of the Company's gross revenues for the fiscal
years ended June 30, 1999, 1998 and 1997, respectively. Sales to the Company's
15 largest distributors represented 67% of the Company's gross revenues in
fiscal 1999. 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%, 23% and
22% of the Company's gross revenues for the fiscal years ended June 30, 1999,
1998 and 1997, respectively. Other major domestic markets include Florida, New
York, Texas, New Jersey, Massachusetts and Pennsylvania where annual sales
represented collectively 29%, 30% and 30% of the Company's gross revenues for
the fiscal years ended June 30, 1999, 1998 and 1997, respectively.
GRAPE SUPPLY
In fiscal 1999, approximately 10% of the Company's total grape supply
came from Company-owned or leased vineyards, including approximately 41% 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 1999
PLANTABLE ACREAGE(1)
--------------------------------
LOCATION PLANTED FALLOW TOTAL
- --------- ------- ------ -----
<S> <C> <C> <C>
NAPA VALLEY 758 153 911
CARNEROS 455 -- 455
MENDOCINO 418 9 427
MONTEREY 1,129 31 1,160
SAN JOAQUIN 91 -- 91
SAN LUIS OBISPO 434 -- 434
SANTA BARBARA 1,270 249 1,519
----- --- -----
Total 4,555 442 4,997
===== === =====
</TABLE>
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(1) Includes 1,467 acres held pursuant to long-term leases. Excludes vineyards
owned by the Company's joint ventures.
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
The Company employs approximately 750 regular, full-time employees. The
Company also employs part-time and seasonal workers for its vineyard, production
and hospitality operations. 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 Winery 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 Chilean and
Italian joint ventures 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.
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, 7.6 million cases at Woodbridge, 70,000 cases at La Famiglia di
Robert Mondavi, 100,000 cases at Byron and 35,000 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 490,000 square feet of
administrative and warehouse space under various leases expiring between
September 2000 and July 2024. The Company believes that its current facilities,
leased and owned, are adequate for their current needs.
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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, 1999.
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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 44, "Common Stock Information," of the registrant's annual report to
security holders for the fiscal year ended June 30, 1999, 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 22, "Selected Consolidated Financial and Operating Data," of the
registrant's annual report to security holders for the fiscal year ended June
30, 1999, 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 23-27, "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, 1999, 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
pages 33-34, "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, 1999, 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 28-43, "Consolidated Financial Statements," of the registrant's annual
report to security holders for the fiscal year ended June 30, 1999, 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,
1999, 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,
1999, 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,
1999, 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, 1999,
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*
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<S> <C>
Report of Independent Accountants 43
Consolidated Balance Sheets as of June 30, 1999 and 1998 28
Consolidated Statements of Income for the years ended
June 30, 1999, 1998 and 1997 29
Consolidated Statements of Changes in Shareholders' Equity
for the years ended June 30, 1999, 1998 and 1997 30
Consolidated Statements of Cash Flows for the years
ended June 30, 1999, 1998 and 1997 31
Notes to Consolidated Financial Statements 32-42
</TABLE>
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* Incorporated by reference to the indicated pages of the registrant's annual
report to security holders for the fiscal year ended June 30, 1999, 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:
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(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>
<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, 1999 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, 1999.
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ROBERT MONDAVI CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED JUNE 30, 1999
(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, 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
YEAR ENDED JUNE 30, 1999:
Allowance for uncollectible accounts 500 5 -- 5(1) 500
Inventory reserves for write down
to net realizable value 2,119 5,220 -- 4,318 3,021
</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 27, 1999
- ------------------------------
Robert G. Mondavi
/s/ R. MICHAEL MONDAVI President and Director September 27, 1999
- ------------------------------ (Principal Executive Officer)
R. Michael Mondavi
/s/ TIMOTHY J. MONDAVI Managing Director, Winegrower September 27, 1999
- ------------------------------ and Director
Timothy J. Mondavi
/s/ GREGORY M. EVANS Chief Operating Officer September 27, 1999
- ------------------------------
Gregory M. Evans
/s/ STEPHEN A. McCARTHY Chief Financial Officer September 27, 1999
- ------------------------------ (Principal Financial and
Stephen A. McCarthy Accounting Officer)
/s/ JAMES L. BARKSDALE Director September 27, 1999
- ------------------------------
James L. Barksdale
/s/ MARCIA MONDAVI BORGER Director September 27, 1999
- ------------------------------
Marcia Mondavi Borger
/s/ FRANK E. FARELLA Director September 27, 1999
- ------------------------------
Frank E. Farella
/s/ PHILIP GREER Director September 27, 1999
- ------------------------------
Philip Greer
/s/ BARTLETT R. RHOADES Director September 27, 1999
- ------------------------------
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 27, 1999, appearing in the 1999 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, California
July 27, 1999
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------------- ------------
<S> <C>
(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
(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, 1999 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.
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EXHIBIT 13
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------------------
(In thousands, except per share data and net revenues per case)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Gross revenues $ 387,950 $ 341,059 $ 315,998 $ 253,540 $ 210,361
Less excise taxes 17,373 15,900 15,224 12,710 10,892
---------------------------------------------------------------------
Net revenues 370,577 325,159 300,774 240,830 199,469
Cost of goods sold 205,401 173,815 149,760 122,929 106,452
---------------------------------------------------------------------
Gross profit 165,176 151,344 151,014 117,901 93,017
Operating expenses 104,550 90,043 79,831 70,707 64,160
---------------------------------------------------------------------
Operating income 60,626 61,301 71,183 47,194 28,857
Other income (expense):
Interest (14,217) (12,298) (10,562) (8,814) (8,675)
Other 3,631 441 1,880 1,543 215
---------------------------------------------------------------------
Income before income taxes 50,040 49,444 62,501 39,923 20,397
Provision for income taxes 19,257 19,282 24,376 15,808 8,118
---------------------------------------------------------------------
Net income $ 30,783 $ 30,162 $ 38,125 $ 24,115 $ 12,279
=====================================================================
Earnings per share--Diluted $ 1.94 $ 1.90 $ 2.43 $ 1.59 $ .96
=====================================================================
Pro forma* Earnings per share--Diluted $ 2.17 $ 1.90 $ 2.43 $ 1.59 $ .96
=====================================================================
</TABLE>
* A total of $6.0 million, or $0.23 per diluted share, of reorganization and
other one-time charges were recorded during the second quarter of fiscal
1999. Of this amount, $4.5 million was included in cost of goods sold and
$1.5 million was included in operating expenses.
<TABLE>
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital $297,765 $275,977 $203,065 $160,012 $124,477
Long-term debt, less current portion 243,758 222,557 158,067 123,713 113,017
Total debt 254,010 233,541 173,607 127,828 119,088
Total liabilities 324,859 304,225 233,676 177,641 163,244
Shareholders' equity 304,406 271,602 238,326 195,510 132,140
Total assets 629,265 575,827 472,002 373,151 295,384
OPERATING DATA (UNAUDITED)
Cases sold (9-liter equivalent) 7,647 6,766 6,450 5,437 4,550
Net revenues per case $ 48.46 $ 48.06 $ 46.63 $ 44.29 $ 43.84
</TABLE>
22
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
INTRODUCTION The Company was founded in 1966 to make quality premium table wines
that would compete with the finest wines of the world. The Company's strategy is
to sell its wines across all principal price segments of the premium wine
market.
The Company posted strong financial results in fiscal 1999. It was able to
regain and increase Woodbridge market share with the support of its wholesalers
and retailers after the Chardonnay supply shortage experienced in the prior
fiscal year. The Company also trimmed its administrative expenses, appointed a
Chief Operating Officer to streamline decision making, and adopted the FIFO
method of inventory accounting to improve the predictability of earnings. In
addition, the Company increased its marketing and sales focus on its two
largest-volume brands, Woodbridge and Robert Mondavi Coastal, and on its
flagship Robert Mondavi Winery.
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 Effective July 1, 1998, the Company changed its wine
inventory costing method from the last-in, first-out (LIFO) method to the
first-in, first-out (FIFO) method. The change has been applied to prior periods
by retroactively restating the financial statements. For a further discussion of
the impact of this accounting change, see Note 1 of Notes to Consolidated
Financial Statements.
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.
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, especially reserve, district
and vineyard-designated wines, can also 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.
23
<PAGE> 3
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 1999 QUARTER ENDED FISCAL 1998 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 $ 71.3 $104.9 $ 89.2 $105.2 $ 65.6 $ 93.0 $ 76.0 $ 90.6
% of annual net revenues 19.2% 28.3% 24.1% 28.4% 20.1% 28.6% 23.4% 27.9%
Net income $ 8.0 $ 6.5 $ 7.5 $ 8.8 $ 7.7 $ 11.3 $ 6.1 $ 5.1
% of annual net income 26.0% 21.1% 24.3% 28.6% 25.5% 37.4% 20.2% 16.9%
</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 1999 QUARTER ENDED FISCAL 1998 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 $224.2 $259.1 $277.0 $249.5 $166.9 $202.2 $234.7 $230.9
</TABLE>
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,
----------------------------------
1999 1998 1997
----------------------------------
<S> <C> <C> <C>
Gross revenues 104.7% 104.9% 105.1%
Less excise taxes 4.7 4.9 5.1
----------------------------------
Net revenues 100.0 100.0 100.0
Cost of goods sold 55.4 53.5 49.8
----------------------------------
Gross profit 44.6 46.5 50.2
Operating expenses 28.2 27.7 26.5
----------------------------------
Operating income 16.4 18.8 23.7
Other income (expense):
Interest (3.8) (3.8) (3.5)
Other 0.9 0.1 0.6
----------------------------------
Income before income taxes 13.5 15.1 20.8
Provision for income taxes 5.2 5.9 8.1
----------------------------------
Net income 8.3% 9.2% 12.7%
==================================
</TABLE>
24
<PAGE> 4
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.
RESULTS OF OPERATIONS
Fiscal 1999 Compared to Fiscal 1998
REORGANIZATION AND OTHER ONE-TIME CHARGES During the second quarter of fiscal
1999, the Company implemented a series of operational and organizational changes
aimed at improving its competitiveness and resources for investing in vineyards
and wineries and providing stronger marketing support for its wines. As a result
of these changes, the Company recorded one-time charges totaling $6.0 million,
or $0.23 per diluted share, in fiscal 1999. Of this total, $4.5 million, or
$0.17 per diluted share, related to asset impairment charges and $1.5 million,
or $0.06 per diluted share, related to employee separation expenses. For a
further discussion of these operational and organizational changes, see Note 10
of Notes to Consolidated Financial Statements.
NET REVENUES Net revenues increased by 14.0% due primarily to a 13.0% increase
in sales volume. Net revenues per case increased by 0.8% to $48.46 per case in
fiscal 1999 compared to $48.06 per case in fiscal 1998.
COST OF GOODS SOLD Cost of goods sold increased by 18.2%, reflecting the
increase in sales volume, the $4.5 million in asset impairment charges discussed
above and a shift in sales mix to wines with a higher average cost per case.
Excluding the one-time charges, cost of goods sold increased by 15.6%.
25
<PAGE> 5
GROSS PROFIT As a result of the factors discussed above, gross profit increased
by 9.1% and the Company's gross profit percentage was 44.6% in fiscal 1999
compared to 46.5% in fiscal 1998. Excluding the one-time asset impairment
charges, the gross profit percentage was 45.8% in fiscal 1999.
OPERATING EXPENSES Operating expenses increased by 16.1% due mainly to an
increase in sales and marketing expenses associated with increased sales volume.
The ratio of operating expenses to net revenues increased to 28.2% in fiscal
1999 from 27.7% in fiscal 1998, reflecting the $1.5 million in employee
separation expenses discussed above combined with higher promotional spending
per case, primarily in advertising, that was partially offset by a decrease in
general and administrative expenses. Excluding the one-time employee separation
charges, operating expenses increased by 14.4% and the ratio of operating
expenses to net revenues was 27.8% in fiscal 1999.
INTEREST Interest expense increased by 15.6%, reflecting an increase in the
Company's average borrowings that was partially offset by an increase in
capitalized interest and a decrease in the Company's average interest rate. The
increase in capitalized interest was due to increased vineyard development and
winery expansion projects. The Company's average interest rate was 7.06% in
fiscal 1999 compared to 7.45% in fiscal 1998.
EQUITY IN NET INCOME OF JOINT VENTURES Equity in net income of joint ventures
increased by 91.1% due mainly to improved income from Opus One.
OTHER "Other" primarily consists of miscellaneous non-operating income and
expense items. "Other" totaled $1.3 million in fiscal 1999 compared to $2.2
million in fiscal 1998.
PROVISION FOR INCOME TAXES The Company's effective tax rate was 38.5% in fiscal
1999 compared to 39.0% in fiscal 1998. The lower effective rate was primarily
the result of an increase in the benefit derived from manufacturing tax credits.
NET INCOME AND EARNINGS PER SHARE As a result of the above factors, net income
totaled $30.8 million, or $1.94 per diluted share, in fiscal 1999 compared to
$30.2 million, or $1.90 per diluted share, in fiscal 1998. Excluding the
reorganization and other one-time charges discussed above, net income totaled
$34.5 million, or $2.17 per diluted share, in fiscal 1999.
Fiscal 1998 Compared to Fiscal 1997
NET REVENUES Net revenues increased by 8.1%, reflecting a 4.9% increase in sales
volume combined with a shift in sales mix to wines with higher net revenues per
case. Net revenues per case increased by 3.1% to $48.06 per case in fiscal 1998
compared to $46.63 per case in fiscal 1997.
COST OF GOODS SOLD Cost of goods sold increased by 16.1%, reflecting higher wine
costs associated with new vintages introduced during the year, increased sales
volume and a shift in sales mix to wines with a higher average cost per case.
GROSS PROFIT As a result of the factors discussed above, gross profit increased
by 0.2% and the Company's gross profit percentage decreased to 46.5% in fiscal
1998 compared to 50.2% in fiscal 1997. The lower gross profit percentage was
primarily attributable to higher wine costs.
OPERATING EXPENSES Operating expenses increased by 12.8% due mainly to an
increase in sales and marketing expenses. The ratio of operating expenses to net
revenues increased to 27.7% in fiscal 1998 compared to 26.5% in fiscal 1997 due
to increased promotional spending per case.
INTEREST Interest expense increased by 16.4% due primarily to an increase in the
Company's average borrowings that was partially offset by an increase in
capitalized interest and a decrease in the Company's average interest rate. The
increase in capitalized interest was due to increased vineyard development. The
Company's average interest rate was 7.45% in fiscal 1998 compared to 7.83% in
fiscal 1997.
26
<PAGE> 6
EQUITY IN NET INCOME OF JOINT VENTURES Equity in net income of joint ventures
increased by 3.3% due mainly to improved income from Opus One.
OTHER "Other" primarily consists of miscellaneous non-operating income and
expense items. "Other" totaled $2.2 million in fiscal 1998 compared to $0.6
million in fiscal 1997.
PROVISION FOR INCOME TAXES The Company's effective tax rate remained unchanged
at 39.0%.
NET INCOME AND EARNINGS PER SHARE As a result of the above factors, net income
totaled $30.2 million, or $1.90 per diluted share, in fiscal 1998 compared to
$38.1 million, or $2.43 per diluted share, in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of June 30, 1999, was $297.8 million compared to $276.0
million at June 30, 1998. The $21.8 million increase in working capital was
primarily attributable to a $13.4 million increase in accounts receivable, a
$6.4 million decrease in current deferred taxes and a $5.7 million increase in
inventories. Borrowings under the Company's credit lines totaled $61.9 million
at June 30, 1999, compared to $30.5 million at June 30, 1998. The Company had a
cash balance of $4.5 million at June 30, 1999, compared to a balance of $2.7
million at June 30, 1998.
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 1999, the Company's primary uses of capital
have been to finance the following: a $50.8 million increase in property, plant
and equipment (including vineyard development, expansion of the Woodbridge
facility, renovation of the Robert Mondavi Winery facility and purchases of new
oak barrels); a $13.4 million increase in accounts receivable; $11.0 million in
repayments of long-term debt; and a $5.7 million increase in inventories. The
primary sources of funds during fiscal 1999 were from the following: $30.8
million in net income, as well as the non-cash impact on pre-tax income of $15.8
million in depreciation and amortization; $31.5 million in net additions of
credit line borrowings; a $5.2 million increase in accounts payable; and $3.3
million in joint venture distributions.
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 $125.0 million for the
two year period ending June 30, 2001.
The Company currently has credit lines that provide both short-term and
long-term borrowings. The short-term credit lines expire on December 24, 1999,
and have maximum credit available of $71.5 million. The long-term credit lines
expire on December 31, 2001, 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 5.20% to 8.50% during fiscal 1999.
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 2000.
27
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1999 1998
-------------------------
<S> <C> <C>
Current assets:
Cash $ 4,544 $ 2,683
Accounts receivable--trade, net 82,037 68,656
Inventories 262,377 256,770
Prepaid expenses and other current assets 4,893 8,239
-------------------------
Total current assets 353,851 336,348
Property, plant and equipment, net 249,572 215,301
Investments in joint ventures 20,124 18,666
Other assets 5,718 5,512
-------------------------
Total assets $ 629,265 $ 575,827
-------------------------
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities:
Accounts payable--trade $ 19,416 $ 18,888
Employee compensation and related costs 11,605 9,881
Other accrued expenses 10,231 7,800
Current portion of long-term debt 10,252 10,984
Deferred income taxes 3,827 10,200
Deferred revenue 755 2,618
-------------------------
Total current liabilities 56,086 60,371
Long-term debt, less current portion 243,758 222,557
Deferred income taxes 17,355 14,245
Deferred executive compensation 7,425 6,713
Other liabilities 235 339
-------------------------
Total liabilities 324,859 304,225
-------------------------
Commitments and contingencies (Note 11)
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--8,151,664 and 8,050,126 shares 80,483 79,040
Class B Common Stock, without par value: Authorized--12,000,000 shares
Issued and outstanding--7,306,012 11,732 11,732
Paid-in capital 5,266 4,776
Retained earnings 207,520 176,737
Accumulated other comprehensive income:
Cumulative translation adjustment (595) (683)
-------------------------
304,406 271,602
-------------------------
Total liabilities and shareholders' equity $ 629,265 $ 575,827
=========================
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Gross revenues $ 387,950 $ 341,059 $ 315,998
Less excise taxes 17,373 15,900 15,224
-----------------------------------------
Net revenues 370,577 325,159 300,774
Cost of goods sold 205,401 173,815 149,760
-----------------------------------------
Gross profit 165,176 151,344 151,014
Selling, general and administrative expenses 104,550 90,043 79,831
-----------------------------------------
Operating income 60,626 61,301 71,183
Other income (expense):
Interest (14,217) (12,298) (10,562)
Equity in net income of joint ventures 4,956 2,593 2,510
Other (1,325) (2,152) (630)
-----------------------------------------
Income before income taxes 50,040 49,444 62,501
Provision for income taxes 19,257 19,282 24,376
-----------------------------------------
Net income $ 30,783 $ 30,162 $ 38,125
=========================================
Earnings per share--Basic $ 2.00 $ 1.98 $ 2.53
-----------------------------------------
Earnings per share--Diluted $ 1.94 $ 1.90 $ 2.43
-----------------------------------------
Weighted average number of shares outstanding--Basic 15,414 15,264 15,057
-----------------------------------------
Weighted average number of shares outstanding--Diluted 15,865 15,847 15,670
-----------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE> 9
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
ACCUMULATED
CLASS A CLASS B OTHER TOTAL
COMMON COMMON PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY
---------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 7,282 $ 73,402 7,676 $ 12,324 $ 1,334 $108,450 $ -- $195,510
Net income 38,125
Comprehensive income 38,125
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 3,289 146,575 -- 238,326
Net income 30,162
Cumulative translation
adjustment, net of tax of $(426) (683)
Comprehensive income 29,479
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 4,776 176,737 (683) 271,602
Net income 30,783
Cumulative translation
adjustment, net of tax of $55 88
Comprehensive income 30,871
Exercise of Class A
Common Stock Options
including related tax
benefits 85 907 490 1,397
Issuance of Class A Common
Stock through Employee
Stock Purchase Plan 17 536 536
-----------------------------------------------------------------------------------------------
Balance at June 30, 1999 8,152 $ 80,483 7,306 $ 11,732 $ 5,266 $207,520 $ (595) $304,406
===============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
1999 1998 1997
------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 30,783 $ 30,162 $ 38,125
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Deferred income taxes (2,892) 3,675 7,125
Depreciation and amortization 15,758 13,665 12,534
Equity in net income of joint ventures (4,956) (2,593) (2,510)
Other 1,067 283 213
Changes in assets and liabilities:
Accounts receivable--trade (13,381) (9,434) (19,727)
Inventories (5,695) (60,009) (42,258)
Other assets 3,346 (2,646) (4,753)
Accounts payable--trade and accrued expenses 5,173 7,233 8,265
Deferred revenue (1,863) 554 382
Deferred executive compensation 712 1,318 (703)
Other liabilities (104) (678) (85)
------------------------------------
Net cash provided by (used in) operating activities 27,948 (18,470) (3,392)
------------------------------------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (50,827) (49,525) (42,552)
Proceeds from sale of assets -- 7,440 --
Distributions from joint ventures 3,251 2,362 1,657
Contributions to joint ventures (36) (218) (359)
------------------------------------
Net cash used in investing activities (47,612) (39,941) (41,254)
------------------------------------
Cash flows from financing activities:
Book overdraft -- -- (403)
Net additions (repayments) under credit lines 31,450 (28,300) 18,750
Proceeds from issuance of long-term debt -- 95,000 50,000
Principal repayments of long-term debt (10,981) (6,766) (22,971)
Proceeds from issuance of Class A Common Stock 536 479 289
Exercise of Class A Common Stock Options 907 1,831 2,447
Other (387) (1,300) (3,316)
------------------------------------
Net cash provided by financing activities 21,525 60,944 44,796
------------------------------------
Net increase in cash 1,861 2,533 150
Cash at the beginning of the year 2,683 150 --
------------------------------------
Cash at the end of the year $ 4,544 $ 2,683 $ 150
====================================
</TABLE>
See Notes to Consolidated Financial Statements.
31
<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 9% 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 1998 and 1997 balances have been
reclassified to conform with the 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 Effective July 1, 1998, the Company changed its wine inventory
costing method from the last-in, first-out (LIFO) method to the first-in,
first-out (FIFO) method. The primary reasons for the change in accounting method
are: management's belief that the FIFO method of accounting better matches
revenues and expenses of the Company's wines sold, and therefore provides a
better method of reporting the Company's results of operations; the FIFO method
of accounting will reduce intra-year cost of sales volatility; and the FIFO
method of accounting will provide improved financial comparability to other
publicly-traded companies in the industry. The accounting change has been
applied to prior years by retroactively restating the financial statements. As a
result of this restatement, current assets, current liabilities and retained
earnings increased by $28,502,000, $10,200,000 and $18,302,000, respectively, at
June 30, 1998. The restatement increased net income for the year ended June 30,
1998, by $1,147,000, or $0.07 per diluted share, and increased net income for
the year ended June 30, 1997, by $9,900,000, or $0.63 per diluted share.
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 $14,662,000, $10,688,000 and
$8,714,000, respectively, for the year ended June 30, 1999, 1998 and 1997.
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.
32
<PAGE> 12
OTHER COMPREHENSIVE INCOME Effective July 1, 1998, the Company adopted Statement
of Financial Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive
Income. This statement establishes standards for reporting and displaying
comprehensive income and its components. Comprehensive income includes revenues,
expenses, gains and losses that are excluded from net income under current
accounting standards, including foreign currency translation adjustments and
unrealized gains and losses on certain investments in debt and equity
securities. The adoption of SFAS 130 did not have a material impact on the
Company's consolidated financial statements and the amounts have been
reclassified for prior periods in order to conform with this statement. The
Company has presented the information required by SFAS 130 in the accompanying
consolidated statements of shareholders' equity.
SEGMENT REPORTING The Company adopted Statement of Financial Accounting
Standards No. 131 (SFAS 131), Disclosures about Segments of an Enterprise and
Related Information, for the fiscal year ended June 30, 1999. SFAS 131
establishes standards for reporting certain information about operating segments
of an enterprise. Operating segments are defined based upon the way that
management organizes financial information within the enterprise for making
operating decisions and assessing performance.
Management organizes financial information primarily by product line for
purposes of making operating decisions and assessing performance. The Company
has determined that its product line operating segments share similar long-term
financial performance, production processes, customer types, distribution
methods and other economic characteristics. Accordingly, as permitted by SFAS
131, these operating segments have been aggregated as a single operating segment
in the consolidated financial statements.
MAJOR CUSTOMERS The Company sells the majority of its wines through distributors
in the United States and through brokers and agents in export markets. There is
a common ownership in several distributorships in different states that, when
considered to be one entity, represented 29%, 30% and 29%, respectively, of
gross revenues for the year ended June 30, 1999, 1998 and 1997. Trade accounts
receivable from these distributors at June 30, 1999 and 1998 totaled $29,376,000
and $23,873,000, respectively.
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 The Company measures compensation cost for employee
stock options and similar equity instruments using the intrinsic value-based
method of accounting. The Company's stock option plans are discussed in Note 9.
EARNINGS PER SHARE Earnings per share has 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.
In computing basic earnings per share for the year ended June 30, 1999, 1998 and
1997, 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 451,000, 583,000 and 613,000, respectively,
for the year ended June 30, 1999, 1998 and 1997 to include the dilutive effect
of stock options outstanding.
FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Company's debt is
estimated based on the current market rates available to the Company for debt of
the same remaining maturities. At June 30, 1999, the carrying amount and
estimated fair value of the Company's debt was $254,010,000 and $251,690,000,
respectively. At June 30, 1998, the carrying amount and estimated fair value of
the Company's debt was $233,541,000 and $244,394,000, 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.
33
<PAGE> 13
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, 2000. 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
2001 and does not expect it to have a material effect on the consolidated
financial statements.
At June 30, 1999, the Company had outstanding forward exchange contracts to
purchase various foreign currencies through April 2000 for the U.S. dollar
equivalent of $9,517,000. Using exchange rates outstanding as of June 30, 1999,
the U.S. dollar equivalent of the contracts was $8,943,000.
NOTE 2 INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1999 1998
---------------------------
<S> <C> <C>
Wine in production $183,825 $170,708
Bottled wine 66,682 70,572
Crop costs and supplies 11,870 15,490
---------------------------
$262,377 $256,770
===========================
</TABLE>
Wine inventories are valued at the lower of cost or market and inventory costs
are determined using the 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.
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,
----------------------------
1999 1998
----------------------------
<S> <C> <C>
Land $ 44,711 $ 40,903
Vineyards 32,790 32,939
Machinery and equipment 152,026 125,270
Buildings 39,578 33,222
Vineyards under development 46,275 31,818
Construction in progress 31,441 39,577
----------------------------
346,821 303,729
Less--accumulated depreciation (97,249) (88,428)
----------------------------
$ 249,572 $ 215,301
============================
</TABLE>
Included in property, plant and equipment are assets leased under capital leases
with cost and accumulated depreciation totaling $6,514,000 and $2,878,000,
respectively, at June 30, 1999 and $6,514,000 and $2,313,000, respectively, at
June 30, 1998. Depreciation expense for machinery and equipment under capital
leases was $565,000, $723,000 and $917,000 for the year ended June 30, 1999,
1998 and 1997, respectively.
Included in property, plant and equipment is $3,513,000, $2,645,000 and
$1,343,000 of interest capitalized for the year ended June 30, 1999, 1998 and
1997, respectively.
34
<PAGE> 14
NOTE 4 INVESTMENTS IN JOINT VENTURES
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,
---------------------------
1999 1998
---------------------------
<S> <C> <C>
Opus One (50%) $11,720 $10,054
Caliterra (50%) 6,418 6,798
LDV (50%) 1,482 1,270
Other 504 544
---------------------------
$20,124 $18,666
===========================
</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,
------------------- -------------------
1999 1998 1999 1998
------------------- -------------------
<S> <C> <C> <C> <C>
Current assets $41,268 $35,912 $20,634 $17,956
Other assets 47,566 44,167 23,783 22,084
------------------- -------------------
Total assets $88,834 $80,079 $44,417 $40,040
=================== ===================
Current liabilities $24,874 $27,055 $12,437 $13,527
Other liabilities 23,350 15,633 11,675 7,817
Venturers' equity 40,610 37,391 20,305 18,696
------------------- -------------------
Total liabilities and venturers' equity $88,834 $80,079 $44,417 $40,040
=================== ===================
</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.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
COMBINED PROPORTIONATE SHARE
------------------------------- -------------------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
------------------------------- -------------------------------
1999 1998 1997 1999 1998 1997
------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $40,040 $37,417 $28,271 $20,020 $18,671 $14,089
Cost of goods sold 14,624 15,267 11,479 7,312 7,634 5,740
------------------------------- -------------------------------
Gross profit 25,416 22,150 16,792 12,708 11,037 8,349
Other expenses 15,670 16,817 9,753 7,835 8,356 4,784
------------------------------- -------------------------------
Net income $ 9,746 $ 5,333 $ 7,039 $ 4,873 $ 2,681 $ 3,565
=============================== ===============================
</TABLE>
35
<PAGE> 15
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 $2,219,000, $2,411,000 and $2,108,000 for the
year ended June 30, 1999, 1998 and 1997, 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
related to this plan totaled $1,377,000 and $1,192,000 at June 30, 1999 and
1998, 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 8.5% and 9.1%
for the year ended June 30, 1999 and 1998, respectively. The Company's liability
under this plan totaled $1,544,000 and $1,050,000 at June 30, 1999 and 1998,
respectively. Amounts deferred are held within a Rabbi Trust for the benefit of
the participants. These funds and the accumulated interest are included in other
assets.
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 unfunded liability
related to this plan totaled $6,138,000 and $5,836,000 at June 30, 1999 and
1998, respectively.
NOTE 6 LONG-TERM DEBT AND NOTES PAYABLE TO BANKS
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1999 1998
------------------------
<S> <C> <C>
Long-term unsecured credit lines $ 61,900 $ 30,450
Fixed rate secured term loans;
interest rates 8.06% to 10.00% at June 30, 1999;
principal and interest payable monthly; due 1999--2005 15,520 17,597
Fixed rate unsecured term loans;
interest rate 8.92% at June 30, 1999;
principal and interest payable quarterly; due 2004 31,300 35,167
Fixed rate unsecured term loans;
interest rate 7.39% at June 30, 1999;
principal and interest payable semiannually; due 2006 45,589 50,000
Fixed rate unsecured term loans;
interest rate 6.71% at June 30, 1999;
interest payable semiannually through July 29, 2006;
principal and interest payable semiannually from
January 29, 2007; due 2013 95,000 95,000
Capitalized lease obligations;
interest rates 6.96% to 8.00% at June 30, 1999;
principal and interest payable monthly; due 2002--2010 4,701 5,327
------------------------
254,010 233,541
Less--current portion (10,252) (10,984)
------------------------
$ 243,758 $ 222,557
========================
</TABLE>
36
<PAGE> 16
Aggregate annual maturities of long-term debt at June 30, 1999, are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
-----------
<S> <C>
2000 $ 10,252
2001 72,003
2002 15,761
2003 12,501
2004 8,695
Thereafter 134,798
--------
$254,010
========
</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 24, 1999, and have maximum credit available of $71,500,000. The
long-term credit lines expire on December 31, 2001, 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
5.61% to 7.75% at June 30, 1999. There were no borrowings outstanding under the
Company's short-term credit lines as of June 30, 1999 and 1998.
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 payments commence on January 29, 2007. The proceeds from
these loans were used to pay down long-term credit line borrowings.
Property, plant and equipment with a net book value of approximately $28,400,000
at June 30, 1999, 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, 1999.
NOTE 7 INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------
1999 1998 1997
---------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 19,684 $ 13,377 $ 14,763
State 2,465 2,230 2,488
---------------------------------------------
22,149 15,607 17,251
---------------------------------------------
Deferred:
Federal (2,428) 3,136 6,049
State (464) 539 1,076
---------------------------------------------
(2,892) 3,675 7,125
---------------------------------------------
$ 19,257 $ 19,282 $ 24,376
=============================================
</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,
-------------------------------
1999 1998 1997
-------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 2.6 3.6 3.9
Permanent differences 0.5 0.5 0.3
Other 0.4 (0.1) (0.2)
-------------------------------
38.5% 39.0% 39.0%
===============================
</TABLE>
37
<PAGE> 17
The approximate effect of temporary differences and carryforwards that give rise
to deferred tax balances are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1999 1998
--------------------------
<S> <C> <C>
GROSS DEFERRED TAX ASSETS
Liabilities and accruals $ (2,374) $ (2,070)
Deferred compensation (3,159) (3,828)
Tax credits (692) (692)
--------------------------
Gross deferred tax assets (6,225) (6,590)
--------------------------
GROSS DEFERRED TAX LIABILITIES
Property, plant and equipment 20,042 17,331
Retirement plans 766 677
Inventories 4,555 10,610
Receivables 326 435
Investments in joint ventures 1,384 1,623
State taxes 334 359
--------------------------
Gross deferred tax liabilities 27,407 31,035
--------------------------
Net deferred tax liability $ 21,182 $ 24,445
==========================
</TABLE>
The Company has foreign tax credits at June 30, 1999 that can be utilized upon
repatriation of foreign source earnings and can be carried forward five years
thereafter.
During the year ended June 30, 1999 and 1998, the Company recognized certain tax
benefits related to stock option plans in the amount of $490,000 and $1,487,000,
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, 370,000 shares of Class B Common
Stock, owned by a major shareholder, were converted into 370,000 shares of Class
A Common Stock. The conversion of the shares represents a non-cash financing
activity for purposes of the consolidated statements of cash flows.
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, 1999, is $5,266,000 of undistributed
income from joint ventures that has been accounted for using the equity method.
38
<PAGE> 18
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 accounts for its plans using the intrinsic
value-based method of accounting 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, net income would have been $28,738,000, $28,840,000 and $37,628,000,
respectively, and earnings per diluted share would have been $1.81, $1.82, and
$2.40, respectively, for the year ended June 30, 1999, 1998 and 1997.
For purposes of calculating compensation cost under SFAS 123, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in fiscal 1999, 1998 and 1997, respectively: dividend yield of 0% for all
years; expected volatility of 50%, 49% and 46%; risk-free interest rates of
4.79%, 6.26% and 6.78%; and expected lives of three to six years for all years.
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 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.
39
<PAGE> 19
A summary of the Company's stock option plans is presented below:
<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30, 1998
------------------------------ -------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------------------------------ -------------------------------
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 1,315,733 $ 21.73 1,279,834 $ 15.74
Granted 419,425 23.98 205,000 51.03
Exercised (84,916) 10.68 (163,283) 11.22
Forfeited (11,521) 13.89 (5,818) 21.03
--------------------------- ---------------------------
Outstanding at
end of year 1,638,721 $ 22.89 1,315,733 $ 21.73
=========================== ===========================
Options exercisable
at end of year 1,140,183 $ 20.43 1,074,338 $ 18.84
=========================== ===========================
</TABLE>
The following table summarizes information about stock options outstanding
at June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$38.01 to $52.00 200,900 8.2 years $ 51.03 123,936 $ 50.97
15.01 to 38.00 743,345 8.2 years 26.02 331,240 27.58
11.01 to 15.00 575,217 3.7 years 12.08 575,217 12.08
7.00 to 11.00 119,259 5.2 years 8.07 109,790 8.09
--------------------------------------------------------------------------------------------
7.00 to 52.00 1,638,721 6.4 years $ 22.89 1,140,183 $ 20.43
============================================================================================
</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, 1999, 1998 and 1997, shares totaling
16,622, 17,819 and 10,344, respectively, were issued under the Employee Stock
Purchase Plan at average prices of $32.27, $26.90 and $27.98, respectively.
NOTE 10 REORGANIZATION AND OTHER ONE-TIME CHARGES
During the second quarter of fiscal 1999, the Company implemented a series of
operational and organizational changes aimed at improving its competitiveness
and resources for investing in vineyards and wineries and providing stronger
marketing support for its wines. These changes included the reduction of
approximately 4% of the Company's workforce; the centralization of various
support functions; the write-down of excess imported wine inventory; and the
write-off of certain vineyard assets. As a result of these operational and
organizational changes, the Company recorded one-time charges totaling $6.0
million, or $0.23 per diluted share, during the second quarter of fiscal 1999.
The Company eliminated 36 positions, primarily in Napa Valley winery operations
and in the administrative areas. These job eliminations, combined with the
centralization of finance, logistics, purchasing and customer service, are
intended to make the Company more efficient without affecting wine quality or
service levels. As a result of these organizational changes, the Company
incurred $1.5 million of employee separation expenses for the fiscal year. All
severance payments were made prior to June 30, 1999.
40
<PAGE> 20
The Company also completed a strategic review of its product portfolio and
decided to focus more of its resources on the Company's core brands: Robert
Mondavi Winery, Robert Mondavi Coastal and Woodbridge. As a result, the Company
lowered its sales growth expectations for its Vichon Mediterranean brand. Based
on revised sales forecasts, the Company determined it had approximately 475,000
gallons of excess imported wine inventory. Accordingly, the Company wrote down
the excess inventory to its fair market value based on current market prices and
recent sales of similar wine inventory. The resulting $4.0 million write-down
was included in cost of goods sold. At June 30, 1999, the Company had $1.0
million remaining as a reserve related to this write-down that the Company
expects will be utilized during fiscal 2000 as it sells its remaining excess
imported wine inventory.
The Company also decided to prioritize the replanting of its internal vineyards.
As a result, the Company accelerated the removal of certain vineyards for
replant. The net book value of the vineyards removed totaled $0.5 million, which
was included in cost of goods sold.
NOTE 11 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
$4,163,000, $3,789,000 and $2,739,000, respectively, for the year ended June 30,
1999, 1998 and 1997. 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, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
JUNE 30, LEASES LEASES
----------- -------- ---------
<S> <C> <C>
2000 $ 1,011 $ 2,819
2001 1,011 2,503
2002 1,011 2,211
2003 906 2,139
2004 144 1,517
Thereafter 2,736 13,639
-------- --------
6,819 $ 24,828
========
Less amount representing interest (2,118)
--------
Present value of minimum lease payments $ 4,701
========
</TABLE>
Interest expense on capital lease obligations was $385,000, $431,000 and
$470,000 for the year ended June 30, 1999, 1998 and 1997, 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,
results of its operations, or cash flows.
41
<PAGE> 21
NOTE 12 SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized, was $14,382,000, $9,853,000
and $8,974,000 for the year ended June 30, 1999, 1998 and 1997, respectively.
Cash paid for income taxes was $22,149,000, $16,800,000 and $14,771,000 for the
year ended June 30, 1999, 1998 and 1997, respectively.
Non-cash financing activities not included in the statements of cash flows
include the conversions of stock in fiscal 1998 (Note 8) and the tax benefits
related to stock option plans in fiscal 1999, 1998 and 1997 (Note 7).
NOTE 13 QUARTERLY HIGHLIGHTS (UNAUDITED)
Selected highlights for each of the fiscal quarters during the year ended June
30, 1999 and 1998 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, 1999:
Net revenues $ 71,361 $104,871 $ 89,161 $105,184
Gross profit 32,473 42,752 40,816 49,135
Net income 7,996 6,455 7,505 8,827
Earnings per share--Basic .52 .42 .49 .57
Earnings per share--Diluted .51 .41 .47 .55
YEAR ENDED JUNE 30, 1998:
Net revenues $ 65,550 $ 93,002 $ 76,009 $ 90,598
Gross profit 31,532 43,749 35,180 40,883
Net income 7,654 11,336 6,051 5,121
Earnings per share--Basic .50 .74 .40 .33
Earnings per share--Diluted .48 .71 .38 .32
</TABLE>
42
<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 the related
consolidated statements of income, 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, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended June 30, 1999, 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.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for inventories in the first quarter of fiscal
1999.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
SAN FRANCISCO, CALIFORNIA
JULY 27, 1999
43
<PAGE> 23
CORPORATE INFORMATION
<TABLE>
<S> <C> <C>
BOARD OF DIRECTORS
Robert G. Mondavi Marcia Mondavi Borger Philip Greer(1)(2)
Chairman of the Board Director Senior Managing Director
The Robert Mondavi Corporation The Robert Mondavi Corporation Weiss, Peck and Greer, L.L.C.,
Investment Managers
R. Michael Mondavi James Barksdale
President and Chief President and Chief Bartlett R. Rhoades(1)(2)
Executive Officer Executive Officer President and Chief
The Robert Mondavi Corporation The Barksdale Group Executive Officer
Healthtrac, Inc.
Timothy J. Mondavi Frank E. Farella(1)
Managing Director and Winegrower Partner (1) Member Audit Committee
The Robert Mondavi Corporation Farella, Braun & Martel,
Attorneys (2) Member Compensation
Committee
OFFICERS
R. Michael Mondavi Michael K. Beyer Peter Mattei
President and Chief Executive Senior Vice President, Senior Vice President,
Officer General Counsel and Secretary Production and Vineyards
Timothy J. Mondavi Mitchell J. Clark Alan E. Schnur
Managing Director and Senior Vice President, Senior Vice President,
Winegrower Sales Human Resources
Gregory M. Evans Martin C. Johnson Steven R. Soderberg
Executive Vice President and Senior Vice President, Senior Vice President,
Chief Operating Officer Marketing Information Systems
Stephen A. McCarthy
Senior Vice President and
Chief Financial Officer
</TABLE>
SHAREHOLDER INFORMATION
REGISTRAR AND TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C.
Shareholder Relations
P.O. Box 3315
South Hackensack, NJ 07606
(800) 356-2017
(800) 231-5469 (TDD)
(201) 328-8450 (Outside U.S.)
www.chasemellon.com
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
San Francisco, California
ANNUAL MEETING
The annual meeting of shareholders
will be held on Friday, November 5, 1999 at
the Woodbridge Winery in Acampo, 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, 1999 HIGH LOW
- -------------------------------------------------------------
<S> <C> <C>
FOURTH QUARTER $38 1/4 $31 1/2
THIRD QUARTER $40 15/16 $31 3/16
SECOND QUARTER $41 3/8 $21 1/4
FIRST QUARTER $30 5/16 $20 7/8
</TABLE>
<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>
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 1,635
shareholders of record as of June 30, 1999.
44
<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 27, 1999 appearing on page 43 of the Annual Report to
Shareholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 13 of this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
- ----------------------------------
PricewaterhouseCoopers LLP
San Francisco, California
September 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 4,544
<SECURITIES> 0
<RECEIVABLES> 82,037
<ALLOWANCES> 0
<INVENTORY> 262,377
<CURRENT-ASSETS> 353,851
<PP&E> 346,821
<DEPRECIATION> 97,249
<TOTAL-ASSETS> 629,265
<CURRENT-LIABILITIES> 56,086
<BONDS> 243,758
0
0
<COMMON> 92,215
<OTHER-SE> 212,191
<TOTAL-LIABILITY-AND-EQUITY> 629,265
<SALES> 370,577
<TOTAL-REVENUES> 370,577
<CGS> 205,401
<TOTAL-COSTS> 205,401
<OTHER-EXPENSES> 104,550
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,217
<INCOME-PRETAX> 50,040
<INCOME-TAX> 19,257
<INCOME-CONTINUING> 30,783
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,783
<EPS-BASIC> 2.00<F1>
<EPS-DILUTED> 1.94<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>
