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SOCIETE CIVILE
CHATEAU DUHART-MILON
Balance Sheets as of December 31, 1995 and 1994,
and Related Statements of Income and Retained Earnings,
and Cash Flows for Each of the Three Years in the Period
Ended December 31, 1995
and Independent Auditors' Report
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INDEPENDENT AUDITORS' REPORT
To the Management of
SOCIETE CIVILE
CHATEAU DUHART-MILON
We have audited the accompanying balance sheets of SOCIETE CIVILE CHATEAU
DUHART-MILON (the Company) (a subsidiary of Domaines Barons de Rothschild
S.C.A.) (Lafite) as of December 31, 1995 and 1994, and the related statements of
income and retained earnings, and cash flows for each of the three years in the
period ended December 31, 1995 (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, 1995 and
1994, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, 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 dependant 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
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Jean-Paul Picard
Neuilly-sur-Seine, France
February 28, 1996
SOCIETE CIVILE CHATEAU DUHART-MILON
BALANCE SHEETS
(All amounts in thousands of French Francs)
December 31
------------------------
1995 1994
----------- -----------
ASSETS
Cash FF 1,423 FF 106
Accounts receivable (no allowance for doubtful
accounts at either date) 976 902
Inventories:
Bulk and bottled wine 15,375 16,378
Wine production supplies 2,495 2,410
Intercompany receivable from parent 40,295
Other current assets 442 342
----------- -----------
Total current assets 61,006 20,138
Property, plant and equipment - net 12,403 13,004
=========== ===========
TOTAL ASSETS FF 73,409 FF 33,142
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank borrowings FF FF 87
Accounts payable 902 1,602
Customer deposits 2,032 1,570
Social charges and taxes, other than income 1,883 1,542
Other current liabilities 161 217
Intercompany accounts:
Interest bearing 2,136 14,199
Non-interest bearing 591 1,061
----------- -----------
Total current liabilities 7,705 20,278
Stated value of common equity parts 13 10
Additional equity contribution 58,885
Undistributed earnings 6,806 12,854
----------- -----------
Total shareholders' equity 65,704 12,864
=========== ===========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY FF 73,409 FF 33,142
=========== ===========
The accompanying notes are an integral part of these statements.
SOCIETE CIVILE CHATEAU DUHART-MILON
STATEMENTS OF INCOME AND RETAINED EARNINGS
(All amounts in thousands of French Francs)
Year ended December 31
-----------------------------------------
1995 1994 1993
------------- ------------ ------------
Wine sales to unrelated parties FF 13,213 FF 7,332 FF 2,652
Intercompany wine sales 8,295 7,406 9,379
------------ ---------- ---------
Total sales 21,508 14,738 12,031
Cost of sales (13,360) (10,003) (9,144)
------------ ---------- ---------
Gross profit 8,147 4,735 2,887
Selling, general and administrative
expenses - Intercompany (1,415) (1,267) (888)
------------ ---------- ---------
Operating income 6,732 3,468 1,999
Interest expense:
Bank loans (2) (5) (41)
Intercompany (872) (988) (824)
Other income 564 592 375
------------ ---------- ---------
Net earnings 6,422 3,067 1,509
Undistributed earnings, beginning of year 12,854 12,543 16,899
Less: Dividends (12,470) (2,756) (5,865)
------------ ---------- ---------
Undistributed earnings, end of year FF 6,806 FF 12,854 FF 12,543
============= ============ ============
SOCIETE CIVILE CHATEAU DUHART-MILON
STATEMENTS OF CASH FLOWS
(All amounts in thousands of French Francs)
Year ended December 31
--------------------------------------
Source (use) of cash 1995 1994 1993
----------- ------------ -----------
Cash flows from operating activities:
Net earnings FF 6,422 FF 3,067 FF 1,509
Non cash transactions included in earnings:
Depreciation 2,137 2,215 1,970
Other (65) (292) 82
Change in:
Accounts receivable (74) (218) (284)
Inventories 918 (1,859) (1,933)
Other current assets (100) (84) 67
Accounts payable (700) 531 27
Customer deposits 462 1,476 (145)
Social charges and taxes, other than income 341 396 (209)
Other current liabilities (56) (607) 370
------------ ------------ ------------
Net cash provided by operating activities 9,285 4,625 1,454
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (2,005) (1,831) (1,712)
Proceeds from sale of assets 537 479 519
------------ ------------ ------------
Net cash used in investing activities (1,468) (1,352) (1,193)
------------ ------------ ------------
Cash flows from financing activities:
Bank borrowings (repayments) (87) (170) (401)
Change in intercompany accounts 6,057 (264) 5,974
Dividends to shareholders 12,470) (2,756) (5,865)
------------ ------------ ------------
Net cash used in financing activities (6,500) (3,190) (292)
------------ ------------ ------------
Net increase (decrease) in cash 1,317 83 (31)
Cash at beginning of year 106 23 54
============ ============ ============
Cash at end of year FF 1,423 FF 106 FF 23
============ ============ ============
Other cash flow information:
Interest paid FF 874 FF 1,016 FF 675
============ ============ ============
SOCIETE CIVILE CHATEAU DUHART-MILON
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1995, 1994 and 1993
(All amounts in thousands of French Francs)
Note A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. Societe Civile Chateau Duhart-Milon (The Company),
formerly Societe Civile de Duhart-Milon-Rothschild, produces and sells French
premium quality wines. The Company farms its vineyards in the Bordeaux region of
France. All wine produced is from its owned land.
The Company sells the majority of its products through distributers in France
and other countries.
The Company is organised under the laws of the Republic of France. The company
was controlled 76.4%, 99.9% and 99.9% by Domaines Barons de Rothschild S.C.A.
(Lafite) (DBR), a company incorporated under the laws of the Republic of France,
at December 31, 1995, 1994 and 1993 respectively. 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.
Accounting estimates. The presentation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses for the year. Actual results could differ from these
estimates.
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 8,295, FF 7,406, and FF 9,379, in the years ended December
31, 1995, 1994 and 1993, respectively, which generated gross profit related to
the intercompany sales of approximately FF 5,400, FF 4,800, and FF 6,100,
respectively.
The Company obtains certain technical and administrative services, including
certain sales activities discussed above, from other DBR operating business.
Intercompany expense charges (classified as selling, general and administrative
expenses) for such services were FF 1,415, FF 1,267 and FF 888 in the years
ended December 31, 1995, 1994 and 1993 respectively.
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 1,235,
FF 1,197 and FF 804, in the years ended December 31, 1995, 1994 and 1993,
respectively. Capital expenditures for barrels were FF 786, FF 340 and FF 937
during the years ended December 31, 1995, 1994 and 1993, respectively.
In a 1995 non-cash transaction, the Company issued a 23,5% ownership interest to
Chalone Wine Group Ltd. (Chalone), and received common shares of DBR as payment
from Chalone. The shares of DBR were recorded at the agreed value between
Chalone and DBR of KF 58,885. In accordance with the contract between DBR and
Chalone, DBR agreed to sell such shares to others or to repurchase such shares
at an amount that is not less than this price by December 31, 1995. Effective
December 31, 1995, the Company recorded an interest-bearing receivable from DBR
in this amount, which is classified in the balance sheet at December 31, 1995,
net of other interest bearing amounts to DBR. By agreement of Chalone and DBR,
proceeds to the Company from the KF 58,885 receivable are restricted for the use
of (1) repaying debt of the company, (2) for rateable distributions to the
shareholders, (3) for retention as working capital, or (4) for making
investments. At December 31, 1995, the Company had an intercompany liability to
Chalone at an interest rate of 6%.
The Company has interest-bearing intercompany accounts with DBR. Such
intercompany accounts accrued interest at 6% and 7% at December 31, 1995 and
1994, respectively. Such interest rates are established so as not to exceed
rates permitted under French fiscal (tax) requirements. Intercompany interest
expense was FF 872, FF 988 and FF 824 in the years ended December 31, 1995, 1994
and 1993, respectively. Additionally, there were non-interest-bearing advances
related to future purchases of wine and other current accounts with other DBR
subsidies at December 31, 1995 and 1994, of FF 591 and FF 1,061, respectively.
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. The costs or benefits of
such transactions have not been measured by the Company. 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
-----------------------------------
1995 1994
---------------- -----------------
Land FF 1,440 FF 1,440
Buildings and buildings improvements 9,185 9,006
Producing and immature vines 5,608 5,578
Barrels 3,837 3,928
Other equipment 6,475 6,324
---------------- -----------------
26,545 26,276
Less: accumulated depreciation (14,142) (13,272)
================ =================
FF 12,403 FF 13,004
================ =================
Note D - SIGNIFICANT CUSTOMER
In addition to intercompany sales, the sales to one customer aggregated 20%, 14%
and 10% of total sales in the years ended December 31, 1995, 1994 and 1993
respectively.