Sonoma-Cutrer Vineyards (a Business of Brown-Forman Corporation)
Notes to Condensed Combined Financial Statements
(Unaudited).
| 1. | Description of Business |
Sonoma-Cutrer Vineyards, headquartered in Windsor, California, produces and markets luxury wine brands. The wine brands consist largely of Chardonnay wines sourced from vineyards in the Russian River Valley and Sonoma Coast regions. Brown- Forman Corporation (“Brown-Forman” or “Parent”) operates the Sonoma-Cutrer Vineyards business through certain of its wholly-owned subsidiaries, including Sonoma-Cutrer Vineyards, Inc.
In these notes, “we,” “us,” “our,” “Sonoma-Cutrer,” and the “Company” refer to the Sonoma-Cuter Vineyards business.
The Condensed Combined Financial Statements of the Company have been derived from the consolidated financial statements and accounting records of Brown-Forman and have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). The Condensed Combined Financial Statements may not be indicative of the Company’s future performance and do not necessarily reflect what the financial position, results of operations, and cash flows would have been had it operated as an independent company.
Intracompany transactions have been eliminated. Transactions between the Company and Brown-Forman have been included in these Condensed Combined financial statements. The aggregate net effect of transactions between the Company and Brown- Forman that have been historically settled other than in cash are reflected in the Condensed Combined Balance Sheets as “Net Parent Investment” and in the Condensed Combined Statements of Cash Flows as “Net transfer to Parent.” See Note 5 for additional information.
The Condensed Combined Balance Sheets include certain of Brown-Forman’s assets and liabilities that are specifically identifiable or otherwise attributable to the Company. Brown-Forman’s third-party long-term debt and the related interest expense have not been allocated to the Company, which was not the legal obligor of such debt.
Brown-Forman utilizes a centralized approach to cash management and financing its operations. Cash held by Brown-Forman at the corporate level is not specifically identifiable to the Company and, therefore, has not been reflected in the Company’s Condensed Combined Balance Sheets. Cash transfers between Brown-Forman and the Company are accounted for through “Net Parent Investment.” Cash on the Condensed Combined Balance Sheets represents cash held by the Company at period-end prior to any potential transfer to the centralized cash management pool of Brown-Forman.
In addition, for purposes of preparing these Condensed Combined Financial Statements on a “carve-out” basis, a portion of Brown-Forman’s corporate expenses have been allocated to the Company. Costs were allocated to the Company based on direct usage when identifiable or, when not directly identifiable, on the basis of proportional gross profit. These expense allocations include the cost of corporate functions and resources that are provided by or administered by Brown-Forman including, but not limited to, executive management and other corporate and governance functions, such as corporate finance, internal audit, tax and treasury. The related employee payroll and benefit costs associated with such functions are included in the expense allocations.
Management considers the basis on which the expenses have been allocated to reasonably reflect the utilization of services provided to, or the benefit received by, the Company. However, the allocations may not reflect the expenses the Company would have incurred if the Company had been a standalone company. Actual costs that may have been incurred if the Company had been a standalone company would depend on a number of factors, including the organizational structure, whether functions were outsourced or performed by employees, and strategic or capital decisions.
During the periods presented in these Condensed Combined Financial Statements, the Company’s income tax expense and deferred tax balances have been included in Brown-Forman’s income tax returns. Income tax expense and deferred tax balances contained in the Condensed Combined Financial Statements are presented on a separate return basis, as if the Company had filed its own income tax returns. Income taxes currently payable are deemed to have been remitted to the Parent, in cash, in the period in which the liability arose, and income taxes currently receivable are deemed to have been received from the Parent in the period in which the receivable arose. These amounts accrued under the separate return method have been reflected in Net Parent Investment.
