U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number:
June 30, 2002 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) 226-1395
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.
As of September 16, 2002 there were issued and outstanding (i) 9,570,602 shares
of the Registrant's Class A Common Stock and (ii) 6,647,647 shares of the
Registrant's Class B Common Stock. The aggregate market value of the
Registrant's voting stock held by non-affiliates was $323,965,000 as of
September 16, 2002.
Documents Incorporated By Reference
Portions of the registrant's definitive proxy statement for its annual meeting
of shareholders to be held on November 8, 2002 are incorporated by reference
into Part III of this report.
1
PART I
ITEM 1. BUSINESS
Business Introduction
As used herein, unless the context indicates otherwise, the "Company" shall mean
The Robert Mondavi Corporation and its consolidated subsidiaries. The original
Robert Mondavi Winery was founded in 1966. The Company was incorporated under
the laws of California in 1981. The Company's principal executive offices are
located at 7801 St. Helena Highway, Oakville, California 94562. Its telephone
number is (707) 259-9463.
The Company is a leading producer of premium table wines. The Company operates
in one business segment and it is organized around three operating units: Robert
Mondavi, Woodbridge and joint venture and other brands .
The Robert Mondavi brand produces, markets and sells wines under the Robert
Mondavi Winery and Robert Mondavi Private Selection labels. Its marketing focus
is on wine quality and image. The To-Kalon Project, a major renovation of the
original Robert Mondavi Winery in Oakville, California, was completed in March
2001. Robert Mondavi Private Selection, introduced in fiscal 1994, sold over 1.3
million cases in fiscal 2002.
The Woodbridge brand produces, markets and sells barrel-aged varietal wines in
the popular-premium segment. Woodbridge accounted for 76% by volume and 57% by
net revenue of the Company's sales in fiscal 2002.
The third operating unit encompasses the Company's smaller wineries including
Byron in Santa Maria and Arrowood in Sonoma, as well as four international joint
ventures. The Company produces Opus One in partnership with the Baroness
Philippine de Rothschild of Chateau Mouton Rothschild of Bordeaux, France; Luce,
Lucente and Danzante in partnership with Marchesi de'Frescobaldi of Tuscany,
Italy; and Sena and Caliterra in partnership with the Eduardo Chadwick family of
Vina Errazuriz in Chile. In July 2001 the Company formalized a joint venture
with Southcorp Limited to produce, market and sell wines from Australia and from
California.
During fiscal 2002, the Company restructured its interest in Tenuta
dell'Ornellaia (Ornellaia), a famous estate in the Bolgheri appellation of
Tuscany, that produces Ornellaia, Masseto, Le Serne Nuove, Le Volte and Paggro
alle Gazze. All of the outstanding shares of Ornellaia are held by a 50/50 joint
venture between the Company and Marchesi de'Frescobaldi.
Industry Background
The wine industry is generally segregated into three categories: premium table
wines that retail for more than $3 per 750ml bottle; "jug" wines that retail for
less than $3 per 750ml bottle; and other wine products, such as sparkling wines,
fortified wines, wine coolers and flavored wines. The Company produces and sells
only premium table wines. The premium category is generally divided by the trade
into four segments: popular-premium ($3-$7 per 750ml); super-premium ($7-$14 per
750ml); ultra-premium ($14-$25 per 750ml); and luxury (over $25 per 750ml). The
Company sells wines in each segment of the premium table wine market.
2
Marketing and Distribution
The Company has a sales force of approximately 150 employees. Its wines 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 of the United States of America and 90 countries
throughout the world. Sales of the Company's products outside the United States
of America accounted for approximately 9% of net revenues in fiscal 2002.
The Company's wines are primarily sold through distributors, who then sell to
retailers and restaurateurs. 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,
Nevada, Hawaii, Kentucky, Illinois and New Mexico by Southern Wine & Spirits, a
large national beverage distributor. Sales to Southern Wine & Spirits nationwide
represented approximately 29%, 28% and 28% of the Company's gross revenues for
the fiscal years ended June 30, 2002, 2001 and 2000, respectively. Sales to the
Company's 15 largest distributors represented 70% of the Company's gross
revenues in fiscal 2002. The Company's distributors also offer premium table
wines of other companies that directly compete with the Company's products.
Sales of the Company's wines in California accounted for 19%, 21% and 21% of the
Company's gross revenues for the fiscal years ended June 30, 2002, 2001 and
2000, respectively. Other major domestic markets include Florida, New York,
Massachusetts, Texas, New Jersey, Pennsylvania and Illinois where annual sales
represented collectively 31%, 28% and 30% of the Company's gross revenues for
the fiscal years ended June 30, 2002, 2001 and 2000, respectively.
Grape Supply
The Company controls approximately 9,800 acres of vineyards in the top
winegrowing regions of California, including Napa Valley, Lodi, Mendocino
County, Monterey County, San Luis Obispo County, Santa Maria Valley, Santa
Barbara County and Sonoma County. Approximately 9,400 acres of the
Company-controlled vineyards are currently planted and the Company expects to
plant the balance of the California acreage within the next three years. In
addition, the Company's joint ventures control approximately 1,725 acres of
vineyards in the top winegrowing regions of Chile, Italy and California.
In fiscal 2002, approximately 12% of the Company's total grape supply came from
Company-controlled vineyards, including approximately 74% of the grape supply
for wines produced at the Robert Mondavi Winery in Oakville.
The Company purchases the balance of its California grape supply from
approximately 300 independent growers, including approximately 60 growers in the
Napa Valley. The grower contracts range from one-year spot market purchases to
intermediate and long-term agreements.
Winemaking and grape growing are subject to a variety of agricultural risks.
Various diseases, pests and certain weather conditions can materially and
adversely affect the quality and quantity of grapes available to the Company,
thereby materially and adversely affecting the supply of the Company's products
and its profitability.
A small portion of the Company's vineyards have Pierce's Disease, a plant
disease that destroys individual vines and for which there is no known cure.
Recently, a new carrier of Pierce's Disease, the Glassy Winged Sharpshooter, has
infected vineyards in Southern California. If this pest migrates north to the
Company's vineyards, it could greatly increase the incidence of Pierce's Disease
and materially and adversely affect the Company's future grape supply.
3
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. The Company emphasizes traditional barrel
aging as a cornerstone of its winemaking approach. 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.
Employees
The Company employs approximately 1,000 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 maintains federal trademark registrations for its brands,
proprietary products and certain logos, motifs and vineyard names. The Company's
joint ventures maintain federal trademark registrations for their brands.
International trademark registrations are also maintained where it is
appropriate to do so. Each of the United States trademark registrations is
renewable indefinitely so long as the Company is making a bona fide usage of the
trademark.
Risk of Consumer Spending
Wine sales depend upon a number of factors related to the level of consumer
spending, including the general state of the economy, federal and state income
tax rates, the deductibility of business entertainment expenses under federal
and state tax laws and consumer confidence in future economic conditions. A
substantial part of the Company's wine sales is concentrated in California and,
to a lesser extent, the states of Florida, New York, Massachusetts, Texas, New
Jersey, Pennsylvania, and Illinois. Changes in consumer spending in these and
other regions can affect both the quantity and the price of wines that customers
are willing to purchase at restaurants or through retail outlets. For example
the Company's sales revenues and profits have declined as a consequence of the
recent recession and the depressed state of the travel and hotel industries in
the wake of the events that occurred on September 11. Reduced consumer
confidence and spending may result in reduced demand for the Company's products,
limitations on its ability to increase prices and increased levels of selling
and promotional expenses.
Cyclical Risks
The premium wine industry swings between cycles of oversupply and undersupply.
At present there is a worldwide oversupply of premium wine, which is likely to
last at least 18 to 24 months. As a consequence the Company's ability to raise
prices has been limited and its selling and promotional expenses have risen.
The Company has historically experienced and expects to continue to experience
seasonal fluctuations in its revenues and net income. Sales can fluctuate
significantly between quarters, depending on the timing of certain holidays and
promotional periods and the timing of releases for certain wines, such as
Cabernet Sauvignon Reserve, and on the rate at which distributor inventories are
depleted through sales to wine retailers. Sales volume tends to decrease if
distributors begin a quarter with larger than standard inventory levels, which
is typically the case in the first quarter of each fiscal year. Wholesalers
significantly reduced their wine inventories during fiscal 2002.
The Company's short-term borrowings also fluctuate, generally peaking during
December and April each year as a result of harvest costs and the timing of
contractual payments to grape growers.
4
Reliance on Key Personnel
The Company believes that its continued success depends to a significant extent
on the active involvement of the Robert Mondavi family and the retention of its
senior, non-family executives. The loss of the services of Robert, Michael or
Timothy Mondavi could have a material adverse effect on the Company's business.
The Company's continued success will depend on its ability to retain its key
executives and on its ability to attract highly-skilled personnel in the future.
Agricultural Risks
Winemaking and grape growing are subject to a variety of agricultural risks.
Various diseases, pests, drought, frosts and certain other weather conditions
can materially and adversely affect the quality and quantity of grapes available
to the Company, thereby materially and adversely affecting the supply of the
Company's products and its profitability.
In the late 1980's phylloxera, a pest which feeds on the roots of grapevines
causing grape yields to decrease, infested many Napa Valley vineyards planted
with AXR-1 rootstock that has turned out to be nonresistant. The Company was
forced to replant most of its Napa Valley vineyards at a cost of approximately
$26 million over 10 years.
It generally takes 3-5 years for a replanted vineyard to bear grapes in
commercial quantities. The strain of phylloxera (phylloxera-B) that infested
Napa Valley vineyards was generally unknown prior to 1983. There can be no
assurance that rootstocks the Company is now using to replant vineyards will not
in the future become susceptible to current or new strains of phylloxera, plant
insects or diseases such as Pierce's Disease or Fan Leaf.
Health Issues; Government Regulation
In recent years, Americans have become increasingly health-conscious. Although a
number of research studies suggest that health benefits may result from the
moderate consumption of alcohol, these suggestions have been challenged by other
reports that suggest that moderate drinking does not have particular health
benefits and may in fact increase the potential risk of strokes and cancer and
have other harmful effects. A number of anti-alcohol groups are advocating
increased governmental action on a variety of fronts unfavorable to the wine
industry, including new labeling requirements that could adversely affect the
sale of the Company's products. Restrictions on the sale and consumption of wine
or increases in the retail cost of wine due to increased governmental
regulations, taxes or otherwise, could materially and adversely affect the
Company's business and its results of operations. There can be no assurance that
there will not be legal or regulatory challenges to the industry, which could
have a material adverse effect on the Company's business and its results of
operations and its cash flows.
The wine industry is subject to extensive regulation by state and federal
agencies. The Federal Bureau of Alcohol, Tobacco and Firearms and the various
state liquor authorities regulate such matters as licensing requirements, trade
and pricing practices, permitted and required labeling, advertising and
relations with wholesalers and retailers. For example, it is the current policy
of the Bureau of Alcohol, Tobacco and Firearms that any statements made by a
wine producer promoting the potential health benefits of wine must be balanced
and must include appropriate statements regarding the known harmful effects of
alcohol use. In recent years, federal and state regulators have required warning
labels and signage. There can be no assurance that new or revised regulations or
increased licensing fees and requirements will not have a material adverse
effect on the Company's business and its results of operations and its cash
flows.
5
Future expansion of the Company's existing facilities and development of new
vineyards and wineries may be limited by present and future zoning ordinances,
environmental restrictions and other legal requirements. Availability of water
and requirements for handling waste water can limit growth. Napa and Santa
Barbara counties impose significant growth restrictions which could become more
stringent in the future. Most of the Company's Napa Valley vineyard acreage is
zoned as "Agricultural Preserve" which places significant restrictions on the
use of that property. Accordingly, the Company may be unable to realize the full
value of its real estate either by expanding its current facilities or vineyards
or by selling the land for other, potentially more profitable purposes in the
future.
Dependence on Distribution Channels
The Company sells its products principally to distributors for resale to
restaurants and retail outlets. Sales to the Company's largest distributor and
sales to the Company's 15 largest distributors represented 29% and 70%,
respectively, of the Company's net revenues during fiscal 2002. Sales to the
Company's 15 largest distributors are expected to continue to represent a
substantial majority of the Company's net revenues. The Company's arrangements
with its distributors may, generally, be terminated by either party with prior
notice. In a few states, including Florida and Massachusetts, a distributor may
be terminated by the Company only for "cause" as defined in the applicable state
statutes. The replacement or poor performance of the Company's major
distributors or the Company's inability to collect accounts receivable from its
major distributors could materially and adversely affect the Company's results
of operations, its financial condition and its cash flows. The Company has
recently made distribution changes in several important markets including
Massachusetts, New York, Illinois and Idaho.
Wine distribution channels have been characterized in recent years by rapid
change, including consolidations of certain distributors. For example, in
California there are now only three statewide distributors, each of which
represents a significant number of competing premium wine brands. Distributors
and retailers of the Company's products often offer wines which compete directly
with the Company's products for shelf space and the consumer dollar.
Accordingly, there is a risk that these distributors or retailers may give
higher priority to products of the Company's competitors. There can be no
assurance that the Company's distributors and retailers will continue to
purchase the Company's products or provide the Company's products with adequate
levels of promotional support.
Consolidation at the retail tier, among club and chain grocery stores in
particular, can be expected to heighten competitive pressure to increase
marketing and sales spending.
Leverage Risks and Capital Requirements
The premium wine industry is a capital intensive business. Historically, the
Company has financed its operations and capital spending principally through
borrowings, as well as through internally generated funds. As of June 30, 2002,
the Company's total indebtedness was $335.9 million. Furthermore, the Company
projects significant capital spending over the next several years. Management
believes that the Company's operating and capital needs will require additional
borrowings or financings in the future.
The Company's leverage has several important consequences to holders of Common
Stock, including the following: (i) the Company has significant interest and
principal repayment obligations requiring the expenditure of substantial amounts
of cash; (ii) the Company's earnings would be adversely affected by increases in
interest rates; (iii) there is no assurance that the Company will be able to
obtain financing when required or that such financing will be available on
reasonable terms; and (iv) the Company's existing senior debt restricts its
ability to pay dividends on its Common Stock. The Company's substantial leverage
could also limit its ability to withstand competitive pressure and adverse
economic conditions (including a downturn in its business or increased inflation
or interest rates) or to take advantage of significant business opportunities,
such as attractive acquisitions or joint ventures, that may arise.
6
Risks From New Taxes and Tariffs
On January 1, 1991, the federal excise tax on table wine increased by over 500%
from $.41 per case to $2.55 per case. Various states, including California, also
impose excise taxes on wine. Further increases in excise taxes on wine, if
enacted, could materially and adversely affect the financial results of the
Company. Imposition of foreign tariffs on wine could also adversely affect the
Company.
Competitive Risks
The premium segment of the wine industry is intensely competitive. The Company's
table wines compete primarily in the U.S., as well as in 90 countries around the
world, with premium and other wines produced in the United States of America,
Europe, South Africa, South America, Australia and New Zealand. Domestic
competitors in the popular-premium and super-premium segments include Beringer
Blass Wine Estates (Beringer, Meridian), Brown-Forman (Fetzer), Constellation
Brands (Estancia, Talus, Vendange, Nathanson Creek), Diageo (Beaulieu
Vineyards), Kendall-Jackson, and the Wine Group (Glen Ellen). The Company's
higher-priced wines compete with several hundred smaller California wineries,
generally from Napa or Sonoma County, and with numerous foreign vintners, that
produce premium wines. In recent years some very large producers of primarily
generic wines such as Gallo have introduced varietal wines in the growing
premium wine market. A result of this intense competition has been and may
continue to be upward pressure on the Company's selling and promotional
expenses. In addition, due to competitive factors, the Company may not be able
to increase prices of its wines, and in particular its Napa Valley wines, to
keep pace with rising farming, winemaking, selling and promotional costs. The
Company's wines also compete with other alcoholic and non-alcoholic beverages
for shelf space in retail stores and for marketing focus by the Company's
independent distributors, all of which also carry other wine or beverage brands.
Many of the Company's domestic and international competitors have significantly
greater resources than the Company. There can be no assurance that in the future
the Company will be able to successfully compete with its current competitors or
that it will not face greater competition from other wineries and beverage
manufacturers.
Environmental Risks
Ownership of real property creates a potential for environmental liability on
the part of the Company. If hazardous substances are discovered on or emanating
from any of the Company's properties and the release of hazardous substances
presents a threat of harm to public health or the environment, the Company may
be held strictly liable for the cost of remediation of hazardous substances.
Joint Venture Risks
Each of the Company's international joint ventures allows either partner, in
certain circumstances, to force a dissolution of the venture and a sale of its
business, subject to priority purchase rights of the respective partners which
vary from venture to venture. If a joint venture partner were to initiate that
process, there is no assurance that the Company would be able to obtain the
financing necessary to exercise its purchase rights or avoid the sale of the
joint venture's business to the partner or to a third party.
The Company may be obligated to contribute more capital to one or more of the
joint ventures. In addition the ventures may involve other risks typically
associated with international business, including taxation of income earned in
foreign countries, foreign exchange controls, currency fluctuations, and
political and economic instability.
7
Control By Robert Mondavi Family
The Company has two classes of common stock, Class A owned by the public, and
Class B owned by the Robert Mondavi family. At September 16, 2002, the family
owned approximately 42% of the economic interest and about 88% of the voting
power of the Company. So long as the Class B shareholders hold at least 12.5% of
the combined outstanding shares of Class A and Class B common stock, they will
be entitled to elect 75% of the Board of Directors. This means the family will
continue to direct the business, policies and management of the Company. The
family's voting control is also a formidable obstacle to an unsolicited takeover
of the Company.
Mr. Robert Mondavi has made substantial charitable commitments, which he will
satisfy by gifts of stock. Sales of stock by the recipient charities, or stock
sales by other family members, could adversely affect the price of the Class A
common stock. Members of the Robert Mondavi family and members of non-family
management own options to purchase Class A common stock, which, if they are
exercised, will dilute the financial interest of other shareholders. For a
further discussion of the Company's stock option plans, see Note 10 of Notes to
Consolidated Financial Statements.
ITEM 2. PROPERTIES
The Company operates five wineries, with total annual production capacity of
approximately 11.9 million cases, including Robert Mondavi Winery, La Famiglia
di Robert Mondavi, Woodbridge, Arrowood and Byron. The Opus One joint venture
owns and operates the Opus One winery in Oakville, California. The Ornellaia
joint venture owns and operates the Ornellaia winery in Bolgheri, Italy. The
other joint ventures utilize wineries and vineyards of the partners. The Company
leases a 580,500 square foot central warehouse and distribution facility at
Lodi, California, for all of the Company's bottled wines. For information
regarding the Company's vineyards, see "Grape Supply" under Item 1 above.
The Company also leases office space in Napa, California, and several cities
throughout the United States of America and abroad. The Company believes that
its current facilities, leased and owned, are adequate for its current needs.
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 or its cash flows.
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, 2002.
8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
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.
Year Ended June 30, 2002 High Low
-------------------------------------------------- ---------------- ----------------
Fourth Quarter $ 39.30 $ 32.00
Third Quarter $ 39.50 $ 35.89
Second Quarter $ 39.04 $ 30.18
First Quarter $ 44.08 $ 35.38
Year Ended June 30, 2001
--------------------------------------------------
Fourth Quarter $ 50.47 $ 40.54
Third Quarter $ 54.50 $ 43.94
Second Quarter $ 54.13 $ 38.31
First Quarter $ 44.56 $ 29.63
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. As of June 30, 2002 there
were 1,865 registered shareholders.
9
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
Year Ended June 30,
--------------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(In thousands, except ratios, per share and per case data)
INCOME STATEMENT DATA
Net revenues $ 441,358 $ 480,969 $ 407,266 $ 356,456 $ 317,308
Gross profit 192,338 216,230 180,773 151,055 143,493
Operating income 54,338 83,734 76,158 60,626 61,301
Earnings before interest & taxes (EBIT) 62,888 91,803 83,630 64,257 61,742
Net income 25,516 43,294 41,585 30,783 30,162
Earnings per share-Diluted $ 1.56 $ 2.65 $ 2.60 $ 1.94 $ 1.90
As a percent of net revenues:
Gross profit 43.6% 45.0% 44.4% 42.4% 45.2%
Operating income 12.3% 17.4% 18.7% 17.0% 19.3%
Earnings before interest & taxes (EBIT) 14.2% 19.1% 20.5% 18.0% 19.5%
Net income 5.8% 9.0% 10.2% 8.6% 9.5%
Adjusted (1)
--------
Net revenues $ 441,358 $ 480,969 $ 407,266 $ 356,456 $ 317,308
Gross profit 200,097 221,147 180,773 155,555 143,493
Operating income 74,337 88,651 76,158 66,626 61,301
Earnings before interest & taxes (EBIT) 85,316 99,757 82,039 70,257 61,742
Net income 39,534 48,186 40,606 34,474 30,162
Earnings per share-Diluted $ 2.41 $ 2.95 $ 2.54 $ 2.17 $ 1.90
As a percent of net revenues:
Gross profit 45.3% 46.0% 44.4% 43.6% 45.2%
Operating income 16.8% 18.4% 18.7% 18.7% 19.3%
Earnings before interest & taxes (EBIT) 19.3% 20.7% 20.1% 19.7% 19.5%
Net income 9.0% 10.0% 10.0% 9.7% 9.5%
BALANCE SHEET DATA
Current assets $ 493,308 $ 480,900 $ 383,482 $ 353,851 $ 336,348
Total assets 855,565 864,358 734,943 629,265 575,827
Current liabilities 74,884 93,570 75,410 56,086 60,371
Total liabilities 424,286 461,889 386,775 324,859 304,225
Shareholders' equity 431,279 402,469 348,168 304,406 271,602
Working capital 418,424 387,330 308,072 297,765 275,977
Total debt 335,871 367,593 310,592 254,010 233,541
Current ratio 6.6 5.1 5.1 6.3 5.6
Total debt to capital 44% 48% 47% 45% 46%
OPERATING DATA
Cases sold (9-liter equivalent) 9,375 9,929 8,684 7,647 6,766
Net revenues per case $ 47.08 $ 48.44 $ 46.90 $ 46.61 $ 46.90
(1) Excludes inventory step-up charges associated with business acquisitions, as
well as non-recurring gains and losses.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
During fiscal 2002, the Company recorded $12.2 million, or $0.47 per diluted
share, in special charges related to operational changes in its Disney
California Adventure project. The Company also recorded inventory and fixed
asset write-downs during fiscal 2002 totaling $3.8 million, or $0.14 per diluted
share, as a result of lowering its sales volume growth projections early in the
fiscal year. The adjusted figures discussed throughout this report exclude these
special charges and asset write-downs, as well as inventory step-up charges
associated with business acquisitions and other non-recurring gains and losses
for all periods presented.
The Company has included these adjusted figures in its discussion and analysis
of financial condition and results of operations to provide a clearer picture of
its ongoing operating performance as compared to its reported results. The
adjusted figures should not be considered an alternative to financial statements
required under accounting principles generally accepted in the United States of
America.
Forward-looking Statements This discussion 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, anticipated future investment in vineyards and other
capital projects, the premium wine grape market, and the premium wine industry
generally. Actual results may differ materially from the Company's present
expectations. Among other things, a soft economy, a downturn in the travel and
entertainment sector, reduced consumer spending, or changes in consumer
preferences could reduce demand for the Company's wines. Similarly, increased
competition or changes in tourism to our California properties could affect the
Company's volume and revenue growth outlook. The supply and price of grapes, the
Company's most important raw material, are beyond the Company's control. A
shortage of grapes might constrict the supply of wine available for sale and
cause higher grape costs that put more pressure on gross profit margins. A
surplus of grapes might allow for greater sales and lower grape costs, but it
might also result in more competition and pressure on selling prices or
marketing spending. Interest rates and other business and economic conditions
could increase significantly the cost and risks of projected capital spending.
For these and other reasons, no forward-looking statement by the Company can nor
should be taken as a guarantee of what will happen in the future.
Key Accounting Matters The Company has recorded inventory step-up charges
associated with its acquisition of Arrowood Vineyards & Winery (Arrowood) and
its acquisition of an interest in Tenuta dell'Ornellaia (Ornellaia). Under
purchase accounting, the purchase price is allocated to the assets and
liabilities of the acquired company based on their estimated fair market values
at the time of the transaction. When the inventory acquired is subsequently sold
in the normal course of business, costs of the inventory are charged to cost of
goods sold, including the amount of the inventory step-up (the difference
between the original book value of the inventory and the fair market value of
the inventory upon acquisition). The inventory step-up charges reduce the
Company's reported net income. Inventory step-up charges related to Arrowood are
recorded in cost of goods sold, while those related to Ornellaia are recorded in
equity in net income of joint ventures.
The Company's joint venture interests are accounted for as investments under the
equity method of accounting. Accordingly, the Company's share of its joint
ventures' 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 and Europe. Revenues and expenses related to
importing and selling these wines are included in the appropriate sections of
the Consolidated Statements of Income.
11
The Company has stock option plans and an employee stock purchase plan. The
Company accounts for these plans using the intrinsic value-based method of
accounting in accordance with Accounting Principles Board Opinion No. 25 and its
related Interpretations. Accordingly, no compensation cost has been recognized
for the Company's stock option plans or its employee stock purchase plan. For a
further discussion of the Company's stock option plans, see Note 10 of Notes to
Consolidated Financial Statements.
Effective July 1, 2001, the Company implemented new pronouncements issued by the
Financial Accounting Standards Board's Emerging Issues Task Force that require
certain sales incentives and fees paid to retailers to be recorded as reductions
of revenue. The Company previously reported some of these expenses as selling,
general and administrative expenses. Prior period financial statements have been
restated to reflect this change in classification. For further details of this
change in classification, see Note 1 of Notes to Consolidated Financial
Statements.
Critical Accounting Policies The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, and expenses, and the related
disclosures of contingent assets and liabilities. Actual results could differ
from those estimates under different assumptions or conditions. The Company
believes that the following critical accounting policies affect its more
significant estimates and judgments used in the preparation of its consolidated
financial statements:
The Company determines its allowance for doubtful accounts based on the aging of
accounts receivable balances, its historic write-off experience, and the
financial condition of its customers. Changes in the financial condition of the
Company's major customers could result in significant accounts receivable
write-offs.
The Company writes down its inventory for estimated obsolescence equal to the
difference between the cost of the inventory and its estimated market value,
which is based on historic experience and assumptions about market conditions
and expected future demand. If actual market conditions and future demand are
less favorable than projected, inventory write-downs may be required.
The Company records a valuation allowance related to deferred tax assets if,
based on the weight of the available evidence, the Company concludes that it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. While the Company has considered future taxable income and
prudent and feasible tax planning strategies in assessing the need for a
valuation allowance, an adjustment to the carrying value of the deferred tax
assets would be charged to income if the Company determined that it would not be
able to realize all or part of its net deferred tax assets in the future.
The Company has goodwill and licenses associated with business acquisitions. The
Company reviews these assets for impairment annually and whenever an event
occurs or circumstances change that would more likely than not reduce the fair
value of these assets below their carrying value. If the fair value of these
assets is less than their carrying value, then an impairment loss would be
recognized equal to the excess of the carrying value over the fair value of the
asset.
12
The Company's liabilities for its self-insured medical plan and high-deductible
workers' compensation plan are estimated based on the Company's historic claims
experience, estimated future claims costs, and other factors. Changes in key
assumptions may occur in future periods, which could result in changes to
related insurance costs.
The Company is subject to litigation and other contingencies in the ordinary
course of business. Liabilities related to commitments and contingencies are
recognized when a loss is probable and reasonably estimable.
Seasonality and Quarterly Results The Company has historically experienced and
expects to continue experiencing seasonal and quarterly fluctuations in its net
revenues, gross profit, equity income from joint ventures, 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 normal inventory levels. The timing of releases for certain luxury
wines can also have a significant impact on quarterly results.
The following table sets forth certain financial highlights for each of the
Company's last eight fiscal quarters:
Fiscal 2002 Quarter Ended Fiscal 2001 Quarter Ended
-------------------------------------------- ---------------------------------------------
Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30
------- ------- ------- ------- ------- ------- ------- -------
Net revenues $ 80.9 $ 131.1 $ 104.3 $ 125.1 $ 94.6 $ 140.5 $ 112.1 $ 133.8
Gross profit $ 33.5 $ 58.2 $ 46.3 $ 54.3 $ 41.8 $ 60.5 $ 51.5 $ 62.4
Net income (loss) $ (2.5) $ 10.2 $ 7.6 $ 10.2 $ 9.9 $ 14.1 $ 8.9 $ 10.4
Earnings (loss) per
share- $ (.15) $ .64 $ .47 $ .63 $ .63 $ .90 $ .56 $ .65
Basic
Earnings (loss) per
share- $ (.15) $ .63 $ .46 $ .62 $ .61 $ .87 $ .54 $ .63
Diluted
Adjusted net income $ 8.2 $ 11.6 $ 8.7 $ 11.0 $ 11.3 $ 15.3 $ 10.0 $ 11.6
Adjusted earnings per
share-Diluted $ .50 $ .71 $ .53 $ .67 $ .70 $ .93 $ .61 $ .71
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,
some grape contracts include a deferral of a portion of the payment obligations
until April 1 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:
Fiscal 2002 Quarter Ended Fiscal 2001 Quarter Ended
-------------------------------------------- ---------------------------------------------
Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30
------- ------- ------- ------- ------- ------- ------- -------
(In millions)
Total borrowings,
net of cash $333.2 $ 372.0 $ 382.3 $ 335.9 $315.9 $ 364.8 $ 395.1 $ 360.4
13
RESULTS OF OPERATIONS
Fiscal 2002 Compared to Fiscal 2001
Net Revenues Sales volume decreased by 5.6% and net revenues decreased by 8.2%,
reflecting the impact of the current recession, a sharp decline in the travel
and entertainment sectors that began in September 2001, and increased
competition. The sales volume decrease also reflects the impact of selling the
Vichon brand early in the fiscal year and management's efforts to reduce
distributor inventory levels. Net revenues per case decreased by 2.8% to $47.08
per case, reflecting a shift in sales mix from luxury wines to popular-premium
and super-premium wines combined with an increase in certain promotional
allowances, which are now recorded as reductions of revenue. The Company expects
moderate sales volume and net revenue growth during fiscal 2003, as the economy
and the travel and entertainment sectors begin to improve.
Cost of Goods Sold Cost of goods sold decreased by 5.9%, reflecting decreased
sales volume, the shift in sales mix to popular-premium and super-premium wines,
and lower grape costs that were partially offset by inventory and fixed asset
write-downs totaling $3.8 million. Excluding these write-downs and inventory
step-up charges, cost of goods sold decreased by 7.1%.
Gross Profit As a result of the factors discussed above, the gross profit
percentage decreased to 43.6% compared to 45.0% reported last year. The adjusted
gross profit percentage decreased to 45.3% compared to 46.0% last year. The
Company expects continued downward pressure on its gross profit percentage in
fiscal 2003 due to an oversupply of premium wine and wine grapes and increased
competition within the industry.
Selling, General and Administrative Expenses Selling, general and administrative
expenses decreased by 5.1%, reflecting the elimination of operating expenses
associated with the Disney California Adventure project and employee bonuses,
partially offset by higher selling expenses per case. The ratio of selling,
general and administrative expenses to net revenues increased to 28.5% compared
to 27.5% a year ago, which primarily reflects the loss of volume leverage.
Special Charges During fiscal 2002, the Company changed from an operator to a
sponsor role at Disney's California Adventure. With this change, the Company
eliminated any further operational risk associated with the project while it
continues its business relationship with Disney and maintains a presence at the
theme park. As a result of this change, the Company recorded special charges
totaling $12.2 million, or $0.47 per diluted share, primarily reflecting fixed
asset write-offs, employee separation expenses, and lease cancellation fees.
Interest Interest expense increased by 3.0%, reflecting a reduction in
capitalized interest due to the completion of certain capital and vineyard
development projects, which was partially offset by a decrease in the Company's
average interest rate. The Company's average interest rate was 6.75% compared to
7.12% last year.
Equity in Net Income of Joint Ventures Equity in net income of joint ventures
increased by 3.0%, primarily reflecting improved profitability of the Chilean
joint venture.
Other Other consists of miscellaneous non-operating expense and income items.
Other expense totaled $0.3 million compared to $0.5 million last year.
Provision for Income Taxes The Company's effective tax rate was 37.5% compared
to 38.5% last year. The lower effective tax rate was primarily the result of an
increase in certain deductible expenses and manufacturing tax credits.
14
Net Income and Earnings Per Share As a result of the above factors, net income
totaled $25.5 million, or $1.56 per diluted share, compared to $43.3 million, or
$2.65 per diluted share, a year ago. Adjusted net income totaled $39.5 million,
or $2.41 per diluted share, compared to $48.2 million, or $2.95 per diluted
share, a year ago.
Fiscal 2001 Compared to Fiscal 2000
Net Revenues Net revenues increased by 18.1%, reflecting a 14.3% increase in
sales volume that was driven by Woodbridge and Robert Mondavi Private Selection
sales. Net revenues per case increased by 3.3% to $48.44, reflecting price
increases, higher retail revenues, and revenues from the Disney California
Adventure project, which opened during the third quarter of fiscal 2001.
Cost of Goods Sold Cost of goods sold increased by 16.9%, primarily reflecting
the increase in sales volume and inventory step-up charges related to the
Arrowood acquisition. Excluding inventory step-up charges, cost of goods sold
increased by 14.7%.
Gross Profit As a result of the factors discussed above, the gross profit
percentage increased to 45.0% compared to 44.4% reported in fiscal 2000. The
adjusted gross profit percentage increased to 46.0% compared to 44.4% in fiscal
2000.
Selling, General and Administrative Expenses Selling, general and administrative
expenses increased by 26.7% and the ratio of these expenses to net revenues
increased to 27.5% compared to 25.7% in fiscal 2000. These increases were
primarily due to higher promotional spending per case, start-up costs related to
the Disney California Adventure project, and the addition of operating expenses
from business acquisitions.
Interest Interest expense increased by 33.5% due to increased average borrowings
outstanding associated with facility expansion, business acquisitions, and the
To Kalon and Disney California Adventure projects. The Company's average
interest rate was 7.12% compared to 7.20% in fiscal 2000.
Equity in Net Income of Joint Ventures Equity in net income of joint ventures
increased by 44.0% due mainly to improved income from Opus One. Excluding
inventory step-up charges related to the Ornellaia acquisition, equity in net
income of joint ventures increased by 68.6% to $11.6 million, reflecting the
Opus One improvement and the addition of income from Ornellaia.
Other Other consists of miscellaneous non-operating expense and income items.
Other included a net gain primarily related to the sale of vineyards of $2.5
million in fiscal 2000. Excluding this non-recurring gain, other expenses
totaled $0.5 million compared to $1.0 million in fiscal 2000.
Provision for Income Taxes The Company's effective tax rate remained unchanged
from fiscal 2000 at 38.5%.
Net Income and Earnings Per Share As a result of the above factors, net income
totaled $43.3 million, or $2.65 per diluted share, compared to $41.6 million, or
$2.60 per diluted share, in fiscal 2000. Adjusted net income totaled $48.2
million, or $2.95 per diluted share, compared to $40.6 million, or $2.54 per
diluted share, in fiscal 2000.
15
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of June 30, 2002, was $418.4 million compared to $387.3
million at June 30, 2001. The $31.1 million increase in working capital was
primarily attributable to an increase in inventories and decreases in short-term
borrowings and accrued employee compensation and related costs. Borrowings under
the Company's credit lines totaled $41.4 million at June 30, 2002, compared to
$61.0 million at June 30, 2001.
Cash and cash equivalents decreased by $7.2 million in fiscal 2002, as cash used
in financing and investing activities exceeded cash provided by operating
activities. Cash provided by operations totaled $33.7 million, reflecting net
income of $62.7 million (before depreciation, amortization, special charges and
asset write-downs) and a decrease in accounts receivable, which were partially
offset by a $35.0 million increase in inventories. The inventory build during
fiscal 2002 reflects grape commitments that were made prior to the Company
reducing its sales growth outlook earlier in the fiscal year. Cash used in
investing activities totaled $10.3 million, reflecting $31.0 million of capital
purchases that were partially offset by the proceeds from the sale of certain
vineyard assets and net distributions from joint ventures. Cash used in
financing activities totaled $30.5 million, primarily reflecting net repayments
of debt.
Management expects that the Company's working capital needs will grow 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 to be
between $25 million and $30 million for fiscal 2003.
The Company maintains master lease facilities that provide the capacity to fund
up to $187.7 million, of which $145.6 million had been utilized as of June 30,
2002. The combined facilities enable the Company to lease certain real property
and equipment to be constructed or acquired. The leases are classified as
operating leases and they have initial terms of three to seven years, after a
construction period, with options to renew. The Company may, at its option,
purchase the property under lease during or at the end of the lease term. If the
Company does not exercise the purchase option, the Company will guarantee a
residual value of the property under lease, which was approximately $125.4
million as of June 30, 2002.
On June 28, 2002, the Financial Accounting Standards Board issued a proposed
interpretation of Accounting Research Bulletin No. 51 related to the
consolidation of certain special-purpose entities. If this proposed
interpretation is adopted as currently written, the Company would be required to
include in its consolidated financial statements the majority of the $145.6
million of assets leased under its master lease facilities during the fourth
quarter of its fiscal year ending June 30, 2003. The Company is currently
evaluating the potential accounting and financing implications of this proposed
interpretation. The assets leased under these facilities have historically been
included in the financial covenants of the Company's debt agreements and in the
evaluation of the Company's creditworthiness by its banks.
The Company has unsecured long-term credit lines that have maximum credit
availability of $150.0 million and expire on December 14, 2004. The Company had
$37.0 million outstanding under its long-term credit lines as of June 30, 2002.
The Company also has the ability to borrow up to $35.0 million under an
uncommitted credit facility with a bank. The Company may request advances under
this credit facility, and if approved by the bank, the advance must be repaid in
no more than 180 days from the date of the advance. The Company had $4.4 million
outstanding under this credit facility as of June 30, 2002.
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 2003.
16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The majority of the Company's long-term debt has fixed interest rates. However,
the Company is exposed to market risk caused by fluctuations in interest rates
because its long-term credit lines have variable interest rates. Based on credit
line borrowings outstanding as of June 30, 2002, the Company's interest expense
would increase by $0.1 million for every 10 percent increase in variable
interest rates.
The Company is also exposed to market risk associated with changes in foreign
currency exchange rates. To manage the volatility related to this risk, the
Company enters into forward exchange contracts. The Company has only a limited
involvement with derivative instruments and does not use them for trading
purposes. For a further discussion of the Company's use of derivative
instruments and hedging activities, see Note 1 of Notes to Consolidated
Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of The Robert Mondavi Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 35 present fairly, in all material
respects, the financial position of The Robert Mondavi Corporation and its
subsidiaries at June 30, 2002 and 2001, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2002
in conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule listed
in the index appearing under Item 14(a)(2) on page 35 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, 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 our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
San Francisco, California
July 24, 2002
17
THE ROBERT MONDAVI CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
June 30,
2002 2001
---- ----
Current assets:
Cash $ - - $ 7,189
Accounts receivable--trade, net 92,555 104,555
Inventories 388,574 358,756
Prepaid expenses and other current assets 12,179 10,400
---------- ----------
Total current assets 493,308 480,900
Property, plant and equipment, net 323,582 338,935
Investments in joint ventures 27,220 31,311
Other assets 11,455 13,212
---------- ----------
Total assets $ 855,565 $ 864,358
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Book overdraft $ 2,734 $ - -
Notes payable to banks 4,400 15,800
Accounts payable--trade 23,012 29,752
Employee compensation and related costs 11,044 19,835
Other accrued expenses 21,126 12,360
Current portion of long-term debt 12,568 15,823
---------- ----------
Total current liabilities 74,884 93,570
Long-term debt, less current portion 316,169 335,970
Deferred income taxes 24,039 23,454
Deferred executive compensation 5,657 5,128
Other liabilities 3,537 3,767
---------- ----------
Total liabilities 424,286 461,889
---------- ----------
Commitments and contingencies (Note 12)
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--9,566,102 and 9,151,217 shares 93,827 91,214
Class B Common Stock, without par value: Authorized--12,000,000 shares
Issued and outstanding--6,647,647 and 6,885,717 shares 10,677 11,059
Paid-in capital 11,025 10,547
Retained earnings 317,915 292,399
Accumulated other comprehensive loss:
Cumulative translation adjustment (1,716) (2,750)
Forward contracts (449) - -
---------- -------------
Total shareholders' equity 431,279 402,469
---------- ----------
Total liabilities and shareholders' equity $ 855,565 $ 864,358
========== ==========
See Notes to Consolidated Financial Statements
18
THE ROBERT MONDAVI CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended June 30,
2002 2001 2000
---- ---- ----
Gross revenues $ 463,587 $ 504,615 $ 427,424
Less excise taxes 22,229 23,646 20,158
---------- ---------- ----------
Net revenues 441,358 480,969 407,266
Cost of goods sold 249,020 264,739 226,493
---------- ---------- ----------
Gross profit 192,338 216,230 180,773
Selling, general and administrative expenses 125,760 132,496 104,615
Special charges 12,240 - - - -
----------- ---------- ----------
Operating income 54,338 83,734 76,158
Other income (expense):
Interest (22,062) (21,411) (16,041)
Equity in net income of joint ventures 8,868 8,606 5,977
Other (318) (537) 1,495
---------- ---------- ----------
Income before income taxes 40,826 70,392 67,589
Provision for income taxes 15,310 27,098 26,004
---------- ---------- ----------
Net income $ 25,516 $ 43,294 $ 41,585
========== ========== ==========
Earnings per share - Basic $ 1.59 $ 2.73 $ 2.68
============ ============ ============
Earnings per share - Diluted $ 1.56 $ 2.65 $ 2.60
============ ============ ============
Weighted average number of shares outstanding - Basic 16,094 15,846 15,520
========== ========== ==========
Weighted average number of shares outstanding - Diluted 16,383 16,327 15,994
========== ========== ==========
See Notes to Consolidated Financial Statements
19
THE ROBERT MONDAVI CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
Accumulated
Other Total
Class A Class B Paid-in Retained Comprehensive Share-holders'
Common Stock Common Stock Capital Earnings Income Equity
Shares Amount Shares Amount
------- -------- ------- -------- -------- --------- ---------- -------
Balance at June 30, 1999 8,152 $80,483 7,306 $ 11,732 $ 5,266 $ 207,520 $ (595) $304,406
Net income 41,585
Cumulative translation adjustment
net of tax of $(684) (1,015)
Comprehensive income 40,570
Exercise of Class A Common
Stock Options including
related tax benefits 73 1,063 514 1,577
Issuance of Class A
Common Stock 49 1,615 1,615
------- -------- ------- -------- -------- --------- ---------- -------
Balance at June 30, 2000 8,274 83,161 7,306 11,732 5,780 249,105 (1,610) 348,168
Net income 43,294
Cumulative translation adjustment
net of tax of $(852) (1,140)
Comprehensive income 42,154
Conversion of Class B Common
Stock to Class A Common Stock 420 673 (420) (673)
Exercise of Class A Common
Stock Options including
related tax benefits 439 6,820 4,767 11,587
Issuance of Class A
Common Stock 18 560 560
------- -------- ------ -------- --------- --------- ------- -------
Balance at June 30, 2001 9,151 91,214 6,886 11,059 10,547 292,399 (2,750) 402,469
Net income 25,516
Cumulative translation adjustment
net of tax of $620 1,034
Forward contracts net of tax of (449)
$(269)
Comprehensive income 26,101
Conversion of Class B Common
Stock to Class A Common Stock 238 382 (238) (382)
Exercise of Class A Common
Stock Options including
related tax benefits 189 2,776 478 3,254
Repurchase of Class A
(30) (1,116) (1,116)
Common Stock
Issuance of Class A
Common Stock 18 571 571
------- -------- ------ -------- -------- -------- ------- -------
Balance at June 30, 2002 9,566 $93,827 6,648 $ 10,677 $11,025 $317,915 $ (2,165) $ 431,279
======= ========= ======== ========= ======= ======== ========== ==========
See Notes to Consolidated Financial Statements
20
THE ROBERT MONDAVI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended June 30,
2002 2001 2000
---- ---- ----
Cash flows from operating activities:
Net income $ 25,516 $ 43,294 $ 41,585
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes (5,588) (3,482) 873
Depreciation and amortization 23,088 21,861 18,901
Equity in net income of joint ventures (8,868) (8,606) (5,977)
Distributions from joint ventures 9,132 7,232 5,714
Special charges and asset write-downs 14,070 - - - -
Other 314 307 (2,320)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable--trade 12,000 (26,236) 4,375
Inventories (35,007) (40,926) (37,014)
Other assets 6,087 (99) 1,038
Accounts payable-- trade and accrued expenses (7,344) 15,823 3,672
Deferred executive compensation 529 (3,447) 1,150
Other liabilities (230) (383) (85)
---------- ----------- ----------
Net cash provided by operating activities 33,699 5,338 31,912
---------- ---------- ----------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (31,037) (50,465) (78,005)
Proceeds from sale of assets 12,327 3,716 - -
Acquisition of company - - (14,191) - -
Issuance of notes receivable to joint venture - - (1,750) - -
Distributions from joint ventures 15,657 - - - -
Contributions to joint ventures (7,287) (628) (12,603)
---------- ---------- ----------
Net cash used in investing activities (10,340) (63,318) (90,608)
----------- ----------- -----------
Cash flows from financing activities:
Book overdraft 2,734 - - - -
Net additions (repayments) under credit lines (19,600) (18,828) 17,800
Proceeds from issuance of long-term debt - - 85,000 50,000
Principal repayments of long-term debt (14,856) (10,115) (11,218)
Proceeds from issuance of Class A Common Stock 571 560 536
Exercise of Class A Common Stock options 2,776 6,820 1,063
Repurchase of Class A Common Stock (1,116) - - - -
Other (1,057) (1,270) (1,027)
------------ ------------ ------------
Net cash provided by (used in) financing activities (30,548) 62,167 57,154
----------- ---------- ----------
Net increase (decrease) in cash (7,189) 4,187 (1,542)
Cash at the beginning of the year 7,189 3,002 4,544
------------ ------------ ------------
Cash at the end of the year $ - - $ 7,189 $ 3,002
============ =========== ===========
See Notes to Consolidated Financial Statements
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
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 of America. A substantial
part of the Company's wine sales is concentrated in California and, to a lesser
extent, the states of Florida, New York, Massachusetts, Texas, New Jersey,
Pennsylvania and Illinois. 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 2001 balances have been reclassified to conform with the
current year presentation.
Critical accounting policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses, and the related disclosures of contingent
assets and liabilities. These estimates include the recoverability of accounts
receivable, valuation of inventory, the adequacy of the valuation allowance for
deferred tax assets, the recoverability of goodwill and licenses associated with
business acquisitions, and the adequacy of the Company's liabilities for its
self-insured medical plan, its high-deductible workers compensation plan, and
litigation and other contingencies in the ordinary course of business. Actual
results could differ from those estimates.
Revenue recognition
Revenue is recognized when the product is shipped and title passes to the
customer. Revenue from items sold through the Company's retail locations is
recognized at the time of sale. No products are sold on consignment.
Effective July 1, 2001, the Company implemented new pronouncements issued by the
Financial Accounting Standards Board's Emerging Issues Task Force that require
certain sales incentives and fees paid to retailers to be recorded as reductions
of revenue. The Company previously reported some of these expenses as selling,
general and administrative expenses. Prior period financial statements have been
restated to reflect this change in classification. The restatement resulted in a
decrease in both revenues and selling, general and administrative expenses of
$24,858 for the fiscal year ended June 30, 2001 and $20,457 for the fiscal year
ended June 30, 2000.
Inventories
Inventories are valued at the lower of cost or market. Inventory and cost of
goods sold are determined using the first-in, first-out (FIFO) method. Costs
associated with growing crops, winemaking and other costs associated with the
manufacturing of product for resale are recorded as inventory. 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.
22
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 loan fees, licenses, goodwill, label design, restricted
cash and notes receivable. Loan fees, licenses, goodwill and label design are
amortized using the straight-line method over their estimated useful lives or
terms of their related loans, not exceeding 40 years. Effective July 1, 2001,
the Company adopted Statement of Financial Accounting Standards No. 142 (SFAS
142), "Goodwill and Other Intangible Assets." Under SFAS 142, goodwill is no
longer amortized but it remains on the balance sheet and is reviewed for
impairment periodically. Goodwill and its related amortization expense was not
material for the year ended June 30, 2001 and 2000. Therefore, the adoption of
SFAS 142 did not have a material impact on the Company's consolidated financial
statements.
In May 2001, the Company loaned $1,750 to its Chilean joint venture under a note
receivable agreement. The principal and accrued interest, at a rate of 6.5%, are
due in January 2003. At June 30, 2002, the amount was included in prepaid
expenses and other current assets. At June 30, 2001, the amount was included in
other assets.
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 $18,244, $20,465 and $15,085, respectively, for the
year ended June 30, 2002, 2001 and 2000.
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.
Other comprehensive income
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 forward
foreign currency contracts. The Company presents comprehensive income in the
accompanying Consolidated Statements of Shareholders' Equity.
Segment reporting
Management organizes financial information primarily by product line for
purposes of making operating decisions and assessing performance. These product
lines have been aggregated as a single operating segment in the consolidated
financial statements because they share similar economic characteristics,
production processes, customer types and distribution methods.
Major customers
The Company sells the majority of its wines through distributors in the United
States of America and through brokers and agents in export markets. There is a
common ownership in several distributorships in different states that, when
considered to be one entity, represented 29%, 28% and 28%, respectively, of
gross revenues for the year ended June 30, 2002, 2001 and 2000. Trade accounts
receivable from these distributors at June 30, 2002 and 2001 totaled $23,616 and
$29,752, respectively.
23
Stock-based compensation
The Company measures compensation cost for employee stock options and similar
equity instruments using the intrinsic value-based method of accounting in
accordance with Accounting Principles Board Opinion No. 25 and its related
Interpretations. The Company's stock option plans are discussed in Note 10.
Earnings per share
Diluted earnings per share is 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, 2002, 2001 and
2000, 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 290,000, 481,000 and 474,000, respectively,
for the year ended June 30, 2002, 2001 and 2000 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, 2002, the carrying amount and estimated fair value of debt was $333,137
and $343,757, respectively. At June 30, 2001, the carrying amount and estimated
fair value of the Company's debt was $367,593 and $356,976, respectively.
Derivative instruments and hedging activities
Effective July 1, 2000, the Company adopted Statement of Financial Accounting
Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS 137 and 138. These accounting pronouncements
collectively require that all derivatives be measured at fair value and
recognized in the balance sheet as either assets or liabilities. They also
require that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. The adoption of
these accounting pronouncements did not have a material impact on the Company's
consolidated financial statements.
The Company has only a limited involvement with derivative instruments and does
not use them for trading purposes. Forward exchange contracts, generally with
average maturities of less than one year, are used as protection against the
risk that the eventual U.S. dollar cash flows resulting from certain
unrecognized firm purchase commitments and forecasted transactions denominated
in foreign currencies will be adversely affected by changes in exchange rates.
The Company formally assesses, both at inception and at least quarterly
thereafter, whether the derivative instruments are effective at offsetting
changes in the cash flows of the hedged transactions.
The derivative instruments associated with unrecognized firm purchase
commitments are designated as fair-value hedges. The derivative instruments
associated with forecasted transactions are designated as cash-flow hedges.
Changes in the fair value of derivatives designated as fair-value hedges, along
with changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk (including changes that reflect losses or gains
on firm commitments), are recorded in current period earnings. Changes in the
fair value of derivative instruments designated as cash-flow hedges are recorded
in accumulated other comprehensive loss, until earnings are affected by the
variability of cash flows of the hedged transaction. Amounts related to
purchases of inventory items are recorded in cost of goods sold and amounts
related to all other items are included in other expense. Any ineffective
portion of the change in fair value for all hedges is recognized immediately in
earnings. No material foreign currency gains or losses were recognized in
earnings for the year ended June 30, 2002, 2001 and 2000. The Company expects to
reclassify the majority of the existing $449 net loss from accumulated other
comprehensive loss to earnings during fiscal 2003. However, the amount that is
ultimately reclassified to earnings may differ as a result of future changes in
exchange rates.
At June 30, 2002, the Company had outstanding forward exchange contracts,
hedging primarily European euro purchases of barrels and corks and forecasted
receipts of Canadian dollars and European euros, with notional amounts totaling
$10,424. Using exchange rates outstanding as of June 30, 2002, the U.S. dollar
equivalent of the contracts totaled $11,629.
24
NOTE 2 ACQUISITION
On July 13, 2000, the Company acquired 100% of the outstanding shares of
Arrowood Vineyards & Winery (Arrowood). The acquisition has been accounted for
using the purchase method of accounting. The Company also has the option to
purchase certain tangible assets, including vineyards and winery facilities,
within the four years after the acquisition date, for $12,000. In addition, the
Company entered into a long-term licensing agreement for use of the Arrowood and
Grand Archer brand names. Under the terms of the agreement, the Company is
required to pay license fees of $550 per year through fiscal 2005 and $600 per
year from fiscal 2006 through fiscal 2010. The Company also has an option to
purchase the brand names for approximately $15,000, which will be adjusted for
certain financial performance measures, in 2010.
The total cost of the Arrowood acquisition was as follows:
Cash paid, net of cash purchased $ 13,956
Acquisition costs 235
----------
Total purchase price $ 14,191
===========
The allocation of the purchase price to the assets acquired and liabilities
assumed was made using estimated fair values at the acquisition date based on
independent appraisals and on studies performed by management.
The purchase price allocations are summarized as follows:
Fair market value of assets acquired, net of cash purchased:
Accounts receivable $ 657
Inventories 20,010
Property, plant and equipment 1,578
Brand license 4,000
Other 173
-------
26,418
Liabilities assumed (6,021)
Deferred tax liabilities (6,206)
--------
$ 14,191
========
NOTE 3 INVENTORIES
Inventories consist of the following:
June 30,
2002 2001
---- ----
Wine in production $ 237,934 $ 226,214
Bottled wine 130,831 109,674
Crop costs and supplies 19,809 22,868
--------- -----------
$388,574 $358,756
========= ===========
The Arrowood acquisition described above resulted in the allocation of purchase
price in excess of book value, totaling $15,161, to inventories at the date of
acquisition. This difference between the original book value and the fair market
value of the inventory upon acquisition is referred to as inventory step-up.
Included in inventories at June 30, 2002 and 2001, respectively, was $6,234 and
$10,243 of inventory step-up remaining from the Arrowood acquisition.
25
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
The cost and accumulated depreciation of property, plant and equipment consist
of the following:
June 30,
2002 2001
---- ----
Land $ 58,592 $ 62,672
Vineyards 76,146 67,097
Machinery and equipment 218,569 199,906
Buildings 70,776 77,421
Vineyards under development 21,255 34,022
Construction in progress 16,528 21,481
----------- -----------
461,866 462,599
Less--accumulated depreciation (138,284) (123,664)
---------- ----------
$ 323,582 $ 338,935
========= =========
Included in property, plant and equipment are assets leased under capital leases
with cost and accumulated depreciation totaling $6,471 and $4,016, respectively,
at June 30, 2002 and $6,504 and $3,688, respectively, at June 30, 2001.
Depreciation expense for machinery and equipment under capital leases was $352,
$373 and $444 for the year ended June 30, 2002, 2001 and 2000, respectively.
Included in property, plant and equipment is $3,255, $5,576 and $5,511 of
interest capitalized for the year ended June 30, 2002, 2001 and 2000,
respectively.
NOTE 5 INVESTMENTS IN JOINT VENTURES
During fiscal 2000, the Company purchased an interest in Tenuta Dell'Ornellaia
(Ornellaia), an Italian winery that produces luxury category premium table
wines, for $11,593 in cash and 29,976 shares of the Company's Class A Common
Stock. The issuance of these shares represents a non-cash investing activity for
purposes of the Consolidated Statement of Cash Flows.
During fiscal 2002, the Company restructured its interest in Ornellaia. All of
the outstanding shares of Ornellaia are now held by a 50/50 joint venture
between the Company and Marchesi de'Frescobaldi. As a result of restructuring
its interest in Ornellaia, the Company received distributions of capital
totaling $15,657 from its original joint venture and the Company contributed
$6,040 to its new joint venture. The Company also repurchased 29,976 shares of
its Class A Common Stock for $1,116, which were previously held by Ornellaia.
Investments in joint ventures are summarized below. The Company's interest in
income and losses for each joint venture is stated within parentheses.
June 30,
2002 2001
---- ----
Opus One (50%) $ 12,680 $ 13,671
Chile (50%) 5,564 4,476
Italy (50%) 4,918 3,506
Ornellaia (50%) 2,844 9,180
Australia (50%) 823 - -
Other 391 478
--------- ----------
$ 27,220 $ 31,311
========= ==========
26
The condensed combined balance sheets and statements of operations of the joint
ventures, along with the Company's proportionate share, are summarized as
follows:
Balance Sheets
Combined Proportionate Share
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Current assets $ 63,323 $ 56,983 $ 31,662 $ 28,423
Other assets 64,376 57,315 32,188 28,539
---------- ---------- ---------- ----------
Total assets $ 127,699 $ 114,298 $ 63,850 $ 56,962
========== ========== ========== ==========
Current liabilities $ 35,101 $ 29,440 $ 17,551 $ 14,692
Other liabilities 26,003 26,816 13,002 13,380
Venturers' equity 66,595 58,042 33,297 28,890
---------- ---------- ---------- ----------
Total liabilities and venturers' equity $ 127,699 $ 114,298 $ 63,850 $ 56,962
========== ========== ========== ==========
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. The Company's equity in
net income of joint ventures differs from the amount that would be obtained by
applying the Company's ownership interest to the net income of these entities
due to the elimination of intercompany profit in inventory.
Statements of Operations
Combined Proportionate Share
Year Ended June 30, Year Ended June 30,
2002 2001 2000 2002 2001 2000
---- ---- ---- ---- ---- ----
Net revenues $ 77,023 $ 69,455 $ 56,491 $ 44,564 $ 38,806 $ 28,932
Cost of goods sold 30,804 28,620 21,367 18,763 17,323 11,290
---------- ---------- ---------- ---------- ---------- ----------
Gross profit 46,219 40,835 35,124 25,801 21,483 17,642
Other expenses 25,667 26,499 21,996 15,405 14,869 11,276
---------- ---------- ---------- ---------- ---------- ----------
Net income $ 20,552 $ 14,336 $ 13,128 $ 10,396 $ 6,614 $ 6,366
========== ========== ========== ========== ========== ==========
NOTE 6 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 $3,562, $3,323 and $2,736 for the year ended June
30, 2002, 2001 and 2000, 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 $2,037 and $1,773 at June 30, 2002 and 2001, respectively.
The Company has a deferred compensation plan with certain key executives,
officers and directors. Under the provisions of this plan, participants may
elect to defer up to 100% of their eligible compensation and earn a guaranteed
interest rate on their deferred amounts, which was approximately 9.3% and 9.5%
for the year ended June 30, 2002 and 2001, respectively. The Company's liability
under this plan totaled $3,386 and $2,935 at June 30, 2002 and 2001,
respectively. Amounts deferred are held within a Rabbi Trust for the benefit of
the participants. These funds and the accumulated interest were 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 $2,263 and $6,571 at June 30, 2002 and 2001,
respectively.
27
NOTE 7 LONG-TERM DEBT AND NOTES PAYABLE TO BANKS
Long-term debt consists of the following:
June 30,
2002 2001
---- ----
Long-term unsecured credit lines;
interest rate 2.73% at June 30, 2002;
principal and interest due through 2005 $ 37,000 $ 45,200
Fixed rate secured term loans;
interest rates 7.76% to 10.00% at June 30, 2002;
principal and interest due through 2008 7,152 13,920
Fixed rate unsecured term loans;
interest rates 6.71% to 8.92% at June 30, 2002;
principal and interest due through 2013 282,056 289,367
Capitalized lease obligations;
interest rates 6.96% to 8.00% at June 30, 2002;
principal and interest due through 2010 2,529 3,306
------ -----
328,737 351,793
Less--current portion (12,568) (15,823)
--------- ----------
$ 316,169 $ 335,970
========= ==========
Aggregate annual maturities of long-term debt at June 30, 2002 are as follows:
Year Ending
June 30,
2003 $ 12,568
2004 8,797
2005 55,910
2006 4,509
2007 4,502
Thereafter 242,451
-----------
$328,737
The Company has unsecured long-term credit lines that have maximum credit
availability of $150.0 million and expire on December 14, 2004. The Company had
$37.0 million outstanding under its long-term credit lines as of June 30, 2002.
The Company also has the ability to borrow up to $35.0 million under an
uncommitted credit facility with a bank. The Company may request advances under
this credit facility, and if approved by the bank, the advance must be repaid in
no more than 180 days from the date of the advance. The Company had $4.4 million
outstanding under this credit facility as of June 30, 2002.
On January 31, 2001, the Company entered into unsecured term loans totaling
$55,000 that bear interest, payable at fixed rates between 7.27% and 7.37%. The
proceeds from these loans were used primarily to pay down credit line
borrowings.
On April 5, 2001, the Company entered into unsecured term loans totaling $30,000
that bear interest, payable semiannually, at a fixed rate of 7.28%. The proceeds
from these loans were used primarily to pay down credit line borrowings.
Property, plant and equipment with a net book value of approximately $21,558 at
June 30, 2002, 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 Company was in compliance with all such covenants during the year
ended June 30, 2002. The most restrictive of these covenants requires the ratio
of funded debt to adjusted net worth in excess of one year to be 0.65 to 1 or
less. At June 30, 2002, the Company's ratio of funded debt to adjusted net worth
in excess of one year was 0.52 to 1.
28
NOTE 8 INCOME TAXES
The provision for income taxes consists of the following:
Year Ended June 30,
2002 2001 2000
---- ---- ----
Current:
Federal $ 18,150 $ 27,053 $ 21,502
State 2,748 4,459 3,629
---------- ---------- ----------
20,898 31,512 25,131
---------- ---------- ----------
Deferred:
Federal (4,466) (3,578) 877
State (1,122) (836) (4)
---------- ---------- ----------
(5,588) (4,414) 873
---------- ---------- ----------
$ 15,310 $ 27,098 $ 26,004
========== ========== ==========
Income tax expense differs from the amount computed by multiplying the statutory
federal income tax rate times income before taxes, due to the following:
Year Ended June 30,
2002 2001 2000
---- ---- ----
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 2.1 2.8 3.5
Permanent differences 0.6 0.0 0.5
Other (0.2) 0.7 (0.5)
-------- -------- --------
37.5% 38.5% 38.5%
======= ======= =======
The approximate effect of temporary differences and carryforwards that give rise
to deferred tax balances at June 30, 2002 and 2001 are as follows:
June 30,
2002 2001
---- ----
Gross deferred tax assets
Liabilities and accruals $ (5,407) $ (4,154)
Deferred compensation (2,229) (3,865)
Foreign tax credits (2,121) (2,121)
Inventories (5,381) --
Investments in joint ventures (3,135) (40)
---------- ----------
Gross deferred tax assets (18,273) (10,180)
---------- ----------
Gross deferred tax liabilities
Property, plant and equipment 33,171 30,426
Retirement plans 1,017 890
Inventories -- 274
Receivables -- 109
State taxes 863 327
---------- ----------
Gross deferred tax liabilities 35,051 32,026
---------- ----------
Net deferred tax liability $ 16,778 $ 21,846
========== ==========
The Company has foreign tax credits at June 30, 2002 that can be utilized upon
repatriation of foreign source earnings and can be carried forward five years
thereafter.
During the year ended June 30, 2002 and 2001, the Company recognized certain tax
benefits related to stock option plans in the amount of $478 and $4,767,
respectively. These benefits were recorded as a decrease in income taxes payable
and an increase in paid-in capital.
29
NOTE 9 SHAREHOLDERS' EQUITY
The authorized capital stock of the Company consists of Preferred Stock, Class A
Common Stock and Class B Common Stock.
During fiscal 2002, 238,070 shares of Class B Common Stock were converted into
238,070 shares of Class A Common Stock. The conversion of the shares represents
a non-cash financing activity for purposes of the consolidated statement of cash
flows.
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, 2002, is $7,407 of undistributed
income from joint ventures that has been accounted for using the equity method.
NOTE 10 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. The following
table compares earnings as reported to pro forma earnings 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.
Year Ended June 30,
2002 2001 2000
---- ---- ----
Net income
As reported $ 25,516 $ 43,294 $ 41,585
Pro forma 22,402 40,588 38,903
Earnings per share -- Diluted
As reported $1.56 $2.65 $2.60
Pro forma 1.37 2.49 2.43
For purposes of calculating compensation cost using the fair value-based method,
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 2002, 2001 and 2000, respectively:
dividend yield of 0% for all years; expected volatility of 44%, 48% and 50%;
risk-free interest rates of 3.77%, 5.55% and 5.70%; and expected lives of three
to five 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).
30
Under the Equity Incentive Plan, the Company is authorized to grant both
incentive stock options and non-qualified stock options for up to 3,185,294
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 150,000 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. In addition,
the Non-Employee Directors' Stock Option Plan authorizes the Board to make
additional stock option grants to directors at their discretion.
A summary of the Company's stock option plans is presented below:
June 30, 2002 June 30, 2001
------------------------------------- -------------------------------------
Weighted Weighted
Average Average
Options Exercise Price Options Exercise Price
----------------- ---------------- ---------------- -----------------
Outstanding at beginning of year 1,558,940 $30.02 1,722,048 $24.80
Granted 247,150 33.10 287,223 40.45
Exercised (188,129) 14.76 (439,075) 15.53
Forfeited (53,298) 38.80 (11,256) 44.80
----------------- ---------------- ---------------- -----------------
Outstanding at end of year 1,564,663 $32.04 1,558,940 $30.02
================= ================ ================ =================
Options exercisable at year end 1,010,506 $30.45 1,005,907 $27.02
The following table summarizes information about stock options outstanding at
June 30, 2002:
Options Outstanding Options Exercisable
------------------------------------------------------ --------------------------------
Weighted Average Weighted Weighted
Range of Exercise Remaining Average Average
Prices Options Contractual Life Exercise Price Options Exercise Price
------ ------- ---------------- -------------- ------- --------------
$38.01 to $52.00 407,234 7.22 years $45.84 229,105 $48.28
15.01 to 38.00 1,003,081 6.59 years 29.65 627,053 28.67
11.01 to 15.00 110,847 0.72 years 12.26 110,847 12.26
7.00 to 11.00 43,501 2.23 years 8.42 43,501 8.42
---------- ---------- ---- ------ ----
7.00 to 52.00 1,564,663 6.22 years $32.04 1,010,506 $30.45
========== ========== ====== ========= ======
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, 2002, 2001 and 2000, shares totaling 18,662, 17,536 and 19,273,
respectively, were issued under the Employee Stock Purchase Plan at average
prices of $30.55, $31.93 and $27.80, respectively.
31
NOTE 11 OPERATIONAL CHANGES AND NON-RECURRING GAINS AND LOSSES
During the first quarter of fiscal 2002, the Company implemented a number of
operational changes aimed at improving its competitiveness in the slowing
economy. These included changes in the Company's Disney California Adventure
project and the write-down of certain inventories and fixed assets due to
lowered volume growth expectations.
The Company changed from an operator to a sponsor role at Disney's California
Adventure. With this change, the Company eliminated any further operational risk
associated with the project while it continues a business relationship with
Disney and maintains a presence at the theme park. As a result of this change,
the Company has recorded special charges through June 30, 2002, totaling
$12,240, or $0.47 per diluted share, primarily reflecting fixed asset
write-offs, employee separation expenses and lease cancellation fees.
During the first quarter of fiscal 2002, the Company also revised its volume
growth expectations for the fiscal year to reflect the continued economic
slowdown and a significant decrease in on-premise (i.e., hotel and restaurant)
sales. As a result of these lowered volume growth expectations, the Company
recorded $3,750, or $0.14 per diluted share, in inventory and fixed asset
write-downs during the first quarter that were classified as cost of goods sold.
During fiscal 2000, the Company recorded a gain of approximately $2,500 related
to the sale and acquisition of vineyards and vineyard land through a
non-monetary exchange of assets. This asset exchange represents a non-cash
investing activity for purposes of the Consolidated Statement of Cash Flows.
NOTE 12 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
$15,638, $8,059 and $5,108, respectively, for the year ended June 30, 2002, 2001
and 2000. 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, 2002 are as follows:
Year Ending Capital Operating
June 30, Leases Leases
2003 $ 907 $ 15,431
2004 144 15,928
2005 144 14,321
2006 144 9,922
2007 144 5,473
Thereafter 2,174 21,081
----------- ------------
3,658 $ 82,156
Less amount representing interest (1,128) ============
-----------
Present value of minimum lease payments $ 2,529
===========
Interest expense on capital lease obligations was $225, $282 and $331 for the
year ended June 30, 2002, 2001 and 2000, respectively.
The Company maintains master lease facilities that provide the capacity to fund
up to $187,658, of which $145,610 had been utilized as of June 30, 2002. The
combined facilities enable the Company to lease certain real property and
equipment to be constructed or acquired. The leases are classified as operating
leases and they have initial terms of three to seven years, after a construction
period, with options to renew. The Company may, at its option, purchase the
property under lease during or at the end of the lease term. If the Company does
not exercise the purchase option, the Company will guarantee a residual value of
the property under lease, which was approximately $125,425 as of June 30, 2002.
32
On June 28, 2002, the Financial Accounting Standards Board issued a proposed
interpretation of Accounting Research Bulletin No. 51 related to the
consolidation of certain special-purpose entities. If this proposed
interpretation is adopted as currently written, the Company would be required to
include in its consolidated financial statements the majority of the $145,610 of
assets leased under its master lease facilities during the fourth quarter of its
fiscal year ending June 30, 2003. The Company is currently evaluating the
potential accounting and financing implications of this proposed interpretation.
The assets leased under these facilities have historically been included in the
financial covenants of the Company's debt agreements and in the evaluation of
the Company's creditworthiness by its banks.
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.
NOTE 13 SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized, was $21,870, $19,378 and
$16,026 for the year ended June 30, 2002, 2001 and 2000, respectively. Cash paid
for income taxes was $14,223, $25,439 and $27,796 for the year ended June 30,
2002, 2001 and 2000, respectively.
The issuance of stock as part of the acquisition of an interest in Ornellaia
(Note 5) during fiscal 2000 and a non-monetary exchange of assets (Note 11)
during fiscal 2000 represent non-cash investing activities, which are not
included in the Consolidated Statements of Cash Flows.
The conversions of stock in fiscal 2002 and 2001 (Note 9) represent non-cash
financing activities, which are not included in the Consolidated Statements of
Cash Flows.
The tax benefits related to stock option plans in fiscal 2002, 2001 and 2000
(Note 8) and the recognition of forward exchange contracts in fiscal 2002 (Note
1) represent non-cash financing activities, which are not included in the
Consolidated Statements of Cash Flows.
NOTE 14 QUARTERLY HIGHLIGHTS (Unaudited)
Selected highlights for each of the fiscal quarters during the year ended June
30, 2002 and 2001 are as follows:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Year ended June 30, 2002:
Net revenues $ 80,903 $ 131,111 $104,290 $125,054
Gross profit 33,498 58,197 46,309 54,334
Net income (loss) (2,476) 10,252 7,583 10,157
Earnings (loss) per share - Basic (.15) .64 .47 .63
Earnings (loss) per share - Diluted (.15) .63 .46 .62
Year ended June 30, 2001:
Net revenues $ 94,640 $ 140,479 $112,081 $133,769
Gross profit 41,783 60,490 51,510 62,447
Net income 9,849 14,141 8,891 10,413
Earnings per share - Basic .63 .90 .56 .65
Earnings per share - Diluted .61 .87 .54 .63
33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from pages
2-5 of the registrant's definitive proxy statement for its annual meeting of
shareholders to be held on November 8, 2002, as filed with the Securities and
Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from pages
8-11 of the registrant's definitive proxy statement for its annual meeting of
shareholders to be held on November 8, 2002, as filed with the Securities and
Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by reference from pages
6-7 of the registrant's definitive proxy statement for its annual meeting of
shareholders to be held on November 8, 2002, as filed with the Securities and
Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from page 13
of the registrant's definitive proxy statement for its annual meeting of
shareholders to be held on November 8, 2002, as filed with the Securities and
Exchange Commission.
34
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:
1) Financial Statements: Page
Report of Independent Accountants 17
Consolidated Balance Sheets as of June 30, 2002 and 2001 18
Consolidated Statements of Income for the years ended
June 30, 2002, 2001 and 2000 19
Consolidated Statements of Changes in Shareholders' Equity
for the years ended June 30, 2002, 2001 and 2000 20
Consolidated Statements of Cash Flows for the years
ended June 30, 2002, 2001 and 2000 21
Notes to Consolidated Financial Statements 22-33
2) Financial Statement Schedules:
Schedule II Valuation and Qualifying Accounts 38
3) Exhibits:
(1) Exhibit 3.1 Restated Articles of Incorporation
(2) Exhibit 3.2 Certificate of Amendment of Articles of Incorporation
filed on June 4, 1993.
(2) Exhibit 3.3 Restated Bylaws.
(1) Exhibit 10.1 Form of Registrant's Indemnification Agreement for
Directors and Officers
(1) Exhibit 10.2 Stock Buy-Sell Agreement between Registrant and the
holders of Class B Common Stock, dated as of March 1, 1982
(1) Exhibit 10.3 First Amendment to Stock Buy-Sell Agreement
between Registrant and the holders of Class B
Common Stock, dated as of March 8, 1993
(1) Exhibit 10.4 Registration Rights Agreement between Registrant
and the holders of Class B Common Stock, dated
as of February 26, 1993
(1) Exhibit 10.7 1993 Employee Stock Purchase Plan, and form of
plan offering document thereunder
(1) Exhibit 10.8 Second Amended and Restated Executive
Incentive Compensation Plan, dated July 1, 1988,
as amended effective June 30, 1992 and April 20, 1993
(1) Exhibit 10.9 Retirement Restoration Plan, effective as of April 1, 1992
(1) Exhibit 10.11 Form of Supplemental Long Term Disability
Income Plan for certain Executive Officers of Registrant
35
(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 10.39 The Robert Mondavi Corporation Deferred Compensation Plan dated effective October 1, 1996.
Exhibit 10.40 The Robert Mondavi Corporation Deferred Compensation Plan for Directors dated effective
January 1, 1997.
Exhibit 10.41 $95,000,000 Note Agreement dated as of
January 29, 1998.
Exhibit 10.42 $50,000,000 Note Purchase Agreement dated as of March 28, 2000.
Exhibit 10.43 First Supplement to Note Purchase Agreement dated as of January 30, 2001 and consisting of
$45,000,000 Senior Notes and $10,000,000 Senior Notes.
Exhibit 10.44 Second Supplement to Note Purchase Agreement dated as of April 5, 2001 and consisting of
$30,000,000 Senior Notes.
Exhibit 10.45 Robert Mondavi Properties, Inc. Lease Financing of Vineyard Facilities dated as of October
29, 1999.
Exhibit 10.46 First Omnibus Amendment dated as of February 17, 2000 to Robert Mondavi Properties, Inc.
Lease Financing of Vineyard Facilities.
Exhibit 10.47 R.M.E., Inc. Lease Financing of Lodi Distribution Facilities dated as of July 14, 2000.
Exhibit 10.48 First Omnibus Amendment dated as of May 11, 2001 to R.M.E., Inc. Lease Financing of Lodi
Distribution Facilities.
Exhibit 10.49 Second Omnibus Amendment dated as of March 31, 2000 to Robert Mondavi Properties, Inc. Lease
Financing of Vineyard Facilities.
Exhibit 10.50 Third Omnibus Amendment dated as of June 23, 2000 to Robert Mondavi Properties, Inc. Lease
Financing of Vineyard Facilities.
36
Exhibit 10.51 Fourth Omnibus Amendment dated as of July 12, 2001 to Robert Mondavi Properties, Inc. Lease
Financing of Vineyard Facilities.
Exhibit 10.52 $150,000,000 Syndicated Senior Credit Facility dated as of December 14, 2001.
(1) Exhibit 21 Subsidiaries of the Registrant
Exhibit 23 Consent of PricewaterhouseCoopers LLP
(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, 2002.
37
ROBERT MONDAVI CORPORATION
Schedule II--Valuation and Qualifying Accounts
Three Years Ended June 30, 2002
(In Thousands)
Additions
------------------------------
Balance at Charged to Charged Balance
Beginning Costs and To Other at End
of Year Expenses Accounts Deductions of Year
----------- ----------- --------- ------------ ---------
Year Ended June 30, 2000:
Allowance for uncollectible accounts $500 $276 - - $276 (1) $500
Inventory reserves for write down
to net realizable value 3,021 396 - - 1,953 1,464
Year Ended June 30, 2001:
Allowance for uncollectible accounts 500 123 - - 123 (1) 500
Inventory reserves for write down
to net realizable value 1,464 756 - - 138 2,082
Year Ended June 30, 2002:
Allowance for uncollectible accounts 500 6 - - 6 (1) 500
Inventory reserves for write down
to net realizable value 2,082 3,219 - - 2,919 2,382
Notes:
(1) Balances written off as uncollectible.
38
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/ HENRY J. SALVO, JR.
-------------------------
Henry J. Salvo, Jr.,
Executive 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.
Signature Title Date
/s/ ROBERT G. MONDAVI
Robert G. Mondavi Chairman Emeritus September 27, 2002
/s/ R. MICHAEL MONDAVI
R. Michael Mondavi Chairman of the Board September 27, 2002
/s/ TIMOTHY J. MONDAVI
Timothy J. Mondavi Vice Chairman, Winegrower and Director September 27, 2002
/s/ GREGORY M. EVANS
Gregory M. Evans President, Chief Executive Officer and Director September 27, 2002
/s/ HENRY J. SALVO, JR.
-----------------------
Henry J. Salvo, Jr. Chief Financial Officer
(Executive Vice President and Accounting Officer) September 27, 2002
/s/ MARCIA MONDAVI BORGER
Marcia Mondavi Borger Director September 27, 2002
/s/ FRANK E. FARELLA
Frank E. Farella Director September 27, 2002
/s/ PHILIP GREER
Philip Greer Director September 27, 2002
/s/ SIR ANTHONY GREENER
Sir Anthony Greener Director September 27, 2002
/s/ BARTLETT R. RHOADES
Bartlett R. Rhoades Director September 27, 2002
/s/ JOHN M. THOMPSON
John M. Thompson Director September 27, 2002
39
10-K CERTIFICATIONS
I, GREGORY M. EVANS, certify that:
1. I have reviewed this annual report on Form 10-K of The Robert Mondavi
Corporation ;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: September 27, 2002
------------------------------------------
/s/ GREGORY M. EVANS
----------------------------------------------
Gregory M. Evans
President / CEO
40
10-K CERTIFICATIONS
I, HENRY J. SALVO, JR., certify that:
1. I have reviewed this annual report on Form 10-K of The Robert Mondavi
Corporation ;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: September 27, 2002
--------------------------------------------
/s/ HENRY J. SALVO, JR.
--------------------------------------------
Henry J. Salvo, Jr.
Executive Vice President / CFO
41