SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
BALANCE SHEETS
(All amounts in thousands of French Francs)
December 31
---------------------
1994 1993
--------- ---------
ASSETS
Cash FF 106 FF 23
Accounts receivable less allowance
for doubtful accounts of FF 0 - 1994 and FF 85 - 1993 902 599
Inventories:
Bulk and bottled 16,378 15,043
Wine production supplies 2,410 1,886
Other current assets 342 258
---------- ---------
Total current assets 20,138 17,809
Property, plant and equipment - net 13,004 13,660
--------- ---------
TOTAL ASSETS FF 33,142 FF 31,469
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Bank borrowings FF 87 FF 257
Accounts payable 1,602 1,071
Customer deposits 1,570 94
Social charges and taxes, other than income 1,542 1,146
Other current liabilities 217 824
Intercompany accounts:
Interest bearing 14,199 15,100
Non-interest bearing 1,061 424
--------- ---------
Total current liabilities 20,278 18,916
Stated value of common equity parts 10 10
Retained earnings 12,854 12,543
--------- ---------
Total shareholder's equity 12,864 12,553
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY FF 33,142 FF 31,469
========= =========
The accompanying notes are an integral part of these statements.
EXHIBIT 1
SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
STATEMENTS OF INCOME AND RETAINED EARNINGS
(All amounts in thousands of French Francs)
Year ended December 31
------------------------------------
1994 1993 1992
---------- ---------- ----------
Wine sales to unrelated parties FF 7,332 FF 2,652 FF 13,473
Intercompany wine sales 7,406 9,379 5,381
---------- ---------- ----------
Total Sales 14,738 12,031 18,854
Cost of sales (10,003) (9,144) (9,874)
---------- ---------- ----------
Gross Profit 4,735 2,887 8,980
Selling, general and administrative
expenses (1,267) (888) (1,411)
---------- ---------- ----------
Operating income 3,468 1,999 7,569
Interest expense:
Bank loans (5) (41) (77)
Intercompany (988) (824) (174)
Other income 592 375 442
---------- ---------- ----------
Net earnings 3,067 1,509 7,760
Retained earnings, beginning of year 12,543 16,899 12,229
Less: Dividends (2,756) (5,865) (3,090)
---------- ---------- ----------
Retained earnings, end of year FF 12,854 FF 12,543 FF 16,899
========== ========== ==========
The accompanying notes are an integral part of these statements.
2
SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
STATEMENTS OF CASH FLOWS
(All amounts in thousands of French Francs)
Year ended December 31
----------------------------------
1994 1993 1992
--------- --------- ---------
Source (use) of cash
Cash flows from operating activities:
Net earnings FF 3,067 FF 1,509 FF 7,760
Non cash transactions included in earnings:
Depreciation 2,215 1,970 1,915
Other (292) 82 (12)
Change in:
Accounts receivable (218) (284) 151
Inventories (1,859) (1,933) (2,618)
Other current assets (84) 67 (114)
Accounts payable 531 27 104
Customer deposits 1,476 (145) (3,799)
Social charges and taxes, other than income 396 (209) 80
Other current liabilities (607) 370 207
--------- --------- ---------
Net cash provided by operating activities 4,625 1,454 3,674
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (1,831) (1,712) (1,832)
Proceeds from sale of assets 479 519 423
--------- --------- ---------
Net cash used in investing activities (1,352) (1,193) (1,409)
--------- --------- ---------
Cash flows from financing activities:
Bank borrowings (repayments) (170) (401) (389)
Change in intercompany accounts (264) 5,974 1,059
Dividends paid to shareholder (2,756) (5,865) (3,090)
--------- --------- ---------
Net cash (used in) financing activities (3,190) (292) (2,420)
--------- --------- ---------
Net increase (decrease) in cash 83 (31) (155)
Cash at beginning of year 23 54 209
--------- --------- ---------
Cash at end of year FF 106 FF 23 FF 54
========= ========= =========
Other cash flow information:
Interest paid FF 1,016 FF 675 FF 282
========= ========= =========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
3
SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1994, 1993 and 1992
(All amounts in thousands of French Francs)
Note A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. Societe Civile de Duhart-Milon-Rothschild (The Company)
is organised under the laws of the Republic of France and was a subsidiary of
Domaines Barons de Rothschild S.A. (DBR), a company incorporated under the laws
of the Republic of France, during the periods included in the accompanying
financial statements. These financial statements are prepared using United
States generally accepted accounting principles. Interest charges are provided
on intercompany accounts with DBR.
Inventories. Inventories are stated at the lower of cost or market. Cost for
bulk and bottled wines is determined on an accumulated weighted average basis
and includes farming and harvesting costs, winery, and bottling costs. Farming
and related costs are deferred as growing crops and are recognized when the
related crop is harvested. Wine production supplies are stated at FIFO
(first-in, first-out) cost. All bulk and bottled wine inventories are classified
as current assets in accordance with recognized industry practice, although a
portion of such inventories will be aged for periods longer than one year.
Property, Plant and Equipment. Property, plant and equipment are stated at cost.
Depreciation is calculated over the estimated useful life of the asset.
Buildings are depreciated over 20 to 40 years, building improvements over 10
years, and producing vines over 25 to 33 years, primarily using the
straight-line method. Barrels and other equipment are depreciated over 2 to 10
years, primarily using accelerated methods.
Revenue Recognition. Revenues are recognised either when the customer accepts
delivery of the wines or when the customer fully pays for the wines, whichever
occurs first. In accordance with industry practices, customers often will leave
their merchandise on the winery premises, perhaps for many years, prior to
accepting delivery. In such circumstances it is the Company's practice not to
charge storage fees to its customers. Partial payments by customers for wine
purchases prior to bottling and shipment are recorded as deposits and are shown
as current liabilities.
Income Taxes. The Company, as a Societe Civile under French law, has the status
of a pass-through entity whose profits are taxable to its owner(s). Accordingly,
no income taxes have been provided in the accompanying financial statements.
Concentration of Credit Risk. The Company sells the majority of its products to
long-time customers, predominantly in France, many of whom place substantial
advance deposits on the product. The Company maintains reserves for potential
credit losses and such losses have been within management's expectations.
Note B - RELATED PARTY TRANSACTIONS
The Company often sells its wine through a centralized sales staff which is part
of another DBR operating business. Such wine may be sold to independent third
parties or to other operations of DBR. Intercompany sales to other DBR
operations were FF 7,406, FF 9,379, and FF 5,381, in the years ended December
31, 1994, 1993, and 1992, respectively, which generated gross profit related to
the intercompany sales of approximately FF 4,800, FF 6,100, and FF 3,500,
respectively.
The Company obtains certain technical and administrative services, including
certain sales activities discussed above, from other DBR operating business.
Intercompany expense changes (classified as selling, general and administrative
expenses) for such services were FF 1,267, FF 888 and FF 1,411 in the years
ended December 31, 1994, 1993 and 1992 respectively.
4
Note B - RELATED PARTY TRANSACTIONS (Continued)
The Company purchases the barrels used to store and age its wine from another
DBR business. Such barrels are capitalized and depreciated (as a cost of sales)
over their useful life of three years. Such depreciation expense was FF 1,197,
FF 804, and FF 789, in the years ended December 31, 1994, 1993 and 1992,
respectively. Capital expenditures for barrels were FF 340, FF 937 and FF 960
during the years ended December 31, 1994, 1993 and 1992, respectively.
The Company has interest-bearing intercompany borrowings from DBR which are
classified as current liabilities. Such intercompany borrowings were FF 14,199
(at 7%) and FF 15,100 (at 6%) at December 31, 1994 and 1993, respectively. Such
interest rates are established by DBR so as not to exceed rates permitted under
French fiscal (tax) requirements. Intercompany interest expense was FF 988, FF
824 and FF 174 in the years ended December 31, 1994, 1993 and 1992,
respectively. Additionally, at December 31, 1994 and 1993, a DBR subsidiary had
provided non-interest-bearing advances of FF 1,408 and FF 556, respectively,
related to future purchases of wine, consistant with other third party
transactions.
As a component part of a dependent group of business within DBR, the Company
from time-to-time shares its personnel and assets (such as transportation
equipment or farming machinery) with other DBR operations, and also receives the
use of personnel and assets from other such operations. Accordingly, these
financial statements may not reflect the costs and expenses which would be
recorded if the Company were operated on a stand-alone basis, although
management believes the substance of the recorded amounts reflect a reasonable
determination of shared transactions related to the Company.
Note C - PROPERTY, PLANT AND EQUIPMENT
December 31
------------------------------
1994 1993
------------ ------------
Land FF 1,440 FF 1,402
Buildings and buildings improvements 9,006 9,301
Producing and immature vines 5,578 5,319
Barrels 3,928 5,048
Other equipment 6,324 5,225
------------ ------------
26,276 26,295
Less: accumulated depreciation (13,272) (12,635)
------------ ------------
FF 13,004 FF 13,660
============ ============
Note D - SIGNIFICANT CUSTOMER
In addition to intercompany sales, the sales to one customer aggregated 14% and
10% of total sales in the years ended December 31, 1994 and 1993, respectively.
Note E - SUBSEQUENT EVENTS
After December 31, 1994, the Company's parent, DBR, entered into an
understanding with The Chalone Wine Group, Ltd. (Chalone) whereby Chalone will
contribute certain assets to the Company in exchange for a 23.5% interest in the
Company.
5
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
SOCIETE CIVILE DE
DUHART-MILON-ROTHSCHILD
We have audited the accompanying balance sheets of SOCIETE CIVILE DE
DUHART-MILON-ROTHSCHILD (the Company) (a subsidiary of Domaines Barons de
Rothschild S.A.) as of December 31, 1994 and 1993, and the related statements of
income and retained earnings, and cash flows for each of the three years in the
period ended December 31, 1994 (all expressed in French Francs). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994 and
1993, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles in the United States of America.
As discussed in Notes A and B to the financial statements, the Company is
operated on a dependent basis with other operations of its parent company, and
accordingly, the Company has significant transactions with related parties.
Deloitte Touche Tohmatsu
/s/ Jean-Paul Picard
Jean-Paul Picard
Neuilly-sur-Seine, France
July 13, 1995
6
SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
BALANCE SHEETS
(All amounts in thousands of French Francs)
June 30
-----------------------
1995 1994
--------- ---------
ASSETS
Cash FF 73 FF 204
Accounts receivable 2,393 2,038
Inventories:
Bulk and bottled wine 12,970 13,383
Wine production supplies 3,431 3,139
Other current assets 421 623
--------- ---------
Total current assets 19,287 19,388
Property, plant and equipment - net 12,938 13,386
--------- ---------
TOTAL ASSETS FF 32,225 FF 32,774
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Bank borrowings FF -- FF 374
Accounts payable 1,875 2,387
Customer deposits 45 --
Social charges and taxes, other than income 1,045 1,242
Other current liabilities 73 2
Intercompany accounts:
Interest bearing 15,712 17,428
Non-interest bearing -- --
--------- ---------
Total current liabilities 18,750 21,433
Stated value of common equity parts 10 10
Retained earnings 13,465 11,331
--------- ---------
Total shareholder's equity 13,475 11,341
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY FF 32,225 FF 32,774
========= =========
The accompanying notes are an integral part of these statements.
7
SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
STATEMENTS OF INCOME AND RETAINED EARNINGS
(All amounts in thousands of French Francs)
June 30
-----------------------
1995 1994
--------- ---------
Wine sales to unrelated parties FF 6,449 FF 3,979
Intercompany wine sales 6,974 4,817
--------- ---------
Total Sales 13,423 8,796
Cost of sales (8,376) (6,195)
--------- ---------
Gross Profit 5,047 2,601
Selling, general and administrative expenses (791) (648)
--------- ---------
Operating income 4,256 1,953
Interest expense:
Bank loans 0 (4)
Intercompany (365) (459)
Other income 119 54
--------- ---------
Net earnings 4,010 1,544
Retained earnings, beginning of year 12,854 12,543
Less: Dividends (3,399) (2,756)
--------- ---------
Retained earnings, end of year FF 13,465 FF 11,331
========= =========
The accompanying notes are an integral part of these statements.
8
SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
STATEMENTS OF CASH FLOWS
(All amounts in thousands of French Francs)
June 30
----------------------------
1995 1994
----------- -----------
Source (use) of cash
Cash flows from operating activities:
Net earnings FF 4,010 FF 1,544
Other (3,349) (2,608)
----------- -----------
Net cash provided by operating activities 661 (1,064)
Net cash used in investing activities (1,059) (776)
Net cash used in financing activities 365 2,021
----------- -----------
Net increase (decrease) in cash (33) 181
Cash at beginning of year 106 23
----------- -----------
Cash at end of Period 73 204
Interest paid 365 463
The accompanying notes are an integral part of these statements.
9
SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
NOTES TO FINANCIAL STATEMENTS
Six Months ended June 30, 1995 and 1994
Note A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Information. The financial statements for the
six-month period ended June 30, 1995, is unaudited, but includes all adjustments
(consisting of normal recurring entries) which management considers necessary
for a fair presentation.
Operating results for the six months ended June 30, 1995, are not necessarily
indicative of the results that may be expected for the year ended December 31,
1995.
10