2011 NABI Budget Status

NABI Membership and Board Meeting Presentation MaterialsThe following slides are provided as background for both meetingAttendees and members who were not able to be in New York on March 23rd.These notes are not intended on substituting for meeting minutes but can give you An overview of the gathering and the topics discussed.

1Presentation by Jim Squeo, Chief Executive Officer of the National Alcohol Bverage Control Administrators

Jim made a presentation onThe current status of PrivatizationWithin the control states. His PowerPointPresentation slide follow.Details of Jims presentation in these balloons2Control States - Spirits

Montgomery Co.Worcester Co.3Control States - Wine

4Wholesale DistributionSpirits OnlySpirits & WineSpirits, Wine & Beer

55All control states have wholesale distributions responsibilities, but not for all types of alcohol.[CLICK]12 markets - spirits only [CLICK]7 markets spirits and wine [CLICK]1 market spirits, wine and beer

On another note, 12 markets use state or county personnel to run the warehouse. [CLICK]Retail DistributionGovernmentGovernment & AgencyPrivateAgencyWV

66Retail is handled in a variety of ways [CLICK]6 markets have only state stores [CLICK]4 have state stores and agency stores [CLICK]5 have agency stores only [CLICK]5 have private licensee run retail [CLICK]PrivatizationWashingtonVirginiaNorth CarolinaPennsylvaniaOhio7Washington

BackFollowing the defeat of both referendums on system revision state ABC officials have promised to change the system to make retail more accessible and convenient. They have suggested providing shipping to Washington state consumers of retail items. COSTCO is suggesting more pressure to change the system including legislation or a new referendum8Virginia

BackPrivatization as a legislative process is finished for this session in VA. Governor McDonalds fellow republicans in the legislature did not support his bill. The lack of a reliable revenue stream to replace the annual $120M from current alcohol sales doomed McDonalds plan. He has vowed to bring a modified plan back next year.9North Carolina

BackThe NC system is decentralized down to the county level where 167 ABC boards run 422 retail sales operations and retain the profits for use within the county. This creates a disincentive to privatize without replacing the revenue stream 10Pennsylvania

BackPennsylvania Gov. Corbett has established a commission to study privatizing. He is from a policy point of view opposed to state government operating a business of this type. State Senator John Pippa has a hearing scheduled for May 4 in Harrisburg, PA to vet the issue.11Ohio

Ohio Governor Kasich has proposed setting up a quasi-governmental unit called JobOhio that would use alcohol taxes to pay off bonds. 12Energy Drinks

There is a continuing interest by state administrators in this category. They may be looking at the consequences if the size and alcohol content of flavored malt beverages from a tax standpoint.Editor note: Monster Energy is not one of the products targeted by FDA and TTB and ought not be included in this category.13

H.R. 5034Though NABCA supported this bill in the past the board has not yet taken a position of the new bill HR 1161. NABCA s annual meeting will be held in Phoenix, AZ on May 17. NABCA officers have a conference call on May 4 to discuss their position on the current bill.14Alcohol is Alcohol

Jim made the point that as beverage alcohol products morph into new variations not associated with their basic style and type administrators may be looking to assign higher tax rates and placement restrictions.15Author Daniel Orkent speaks at the annual NABImemberhsip and Board meeting

Author Daniel Orkent spoke to the group about his book Last Call: the rise and fall of Prohibition. Mr. Orkent answered questions and signed copies of his book for meeting attendees. In response to one question he revealed that Joe Kennedy was not in fact involved in the illegal prohibition liquor running activity but was well positioned to take advantage of the end of the dry era. 162011 NABI Budget StatusActual Dues Income$456,720Reflects new members andnon renewal of a few small associatemembers2011 Budget 450,000YTD Expenses 165,769Avg. Monthly Spend Rate 33,153Spending at the same rate asprior year in spite of additionalmeeting expense in Jan. 2011Projected Total year revenue and spend within budget.

Budget / Expenditure detail in the Conf. Materials

17Cash on hand Capital One Cash on hand$ 383,343

Eagle Bank CD 105,039

PNC Bank 95,438

Total$ 583,82018Outside Audit Report and LetterNABI outside auditors state that all accounts and practices are in conformance with generally accepted accounting principles. The Association receives a clean opinion.Auditors recommend establishing a policy on staff leave accumulation. Action Step: Conduct a review of leave hours over the past year, apply any adjustments and determine final current leave balances. Report to 19Audit report continuedreport to offices on the next monthly conference callLeave Policy for Association StaffFollow the Federal Government policy to accumulate not more than 240 hours of vacation time to be carried over from year to year. Leave earned at the rate of 4 hours per pay period or 15 days per year. Sick leave earned at 4 hours per pay period or 15 days per year. No cap on sick leave ceiling but no cash value.

20Audit report continued Personal days available not to exceed 15 days per year. Vacation leave balance for the President would not be paid out at end of employment or be an obligation of the association. Special Projects expenses auditors commented that dues can be taken as a valid member business expense. Other payments to the association would have to meet the criteria to be taken as business expense. Expense for lobbying may not meet this criteria. 21Ratification of AuditorsAuditors Linton, Shafer, Warfield & Garrett, P.A. have agreed to be retained for the coming year at the same rate as last year $7,500.Action: Approve Auditors for the current fiscal year.The board approved retaining Linton, Shafer as association auditors for 2011-201222Election of Board of DirectorsKatja Zastrow Anheuser-Busch InbevMarc Pl GoodrichBanfi VintnersJames P. RyanCrown ImportsWilliam J. DeutschW.J. Deutsch & Sons, Ltd.Barbara J. AndersonDIAGEO-Guinness USAJohn R. FrankSidney FrankDavid FranckeFolio Fine Wine PartnersT. Daniel TearnoHeineken USA IncRobert DeRooseKobrand CorporationChristopher J. ORourkeMoet Hennessy USA IncJohn F. BeaudetteMHW, Ltd.Timothy ScullyMiller Coors LLCMichael P. OBrienPalm Bay InternationalDavid P. BabkowRemy Cointreau USA, Inc.John A. ScribnerTerlato Wines InternationalFred CooperWirtz Beverage

This slate of officers were approved by the membership 23Election of OfficersChairman Board of DirectorsMichael P. OBrienChairman of the Executive Com.John F. BeaudetteVice Chair Board and Exec. Com.Michael J. RudyTreasurerT. Daniel TearnoPresidentWilliam EarleVP, Asst Treasurer & Corp Sec.Bernadeen P. EmamaliThese individuals were elected by the board to be the officers of the association for the 2011-2013 period. Board member T. Daniel Tearno was elected to fill the position as Treasurer. Past Chairman Jim Ryan was congratulated on his productive leadership of the association. 25NABI Executive Committee duties, goals and alignmentBy-laws designate the Executive committee to act on behalf of the board between Board meetings. The Executive committee currently has 14 members representing all product segments Response from the Board and Executive committee as a whole have often been slow on time critical issues.

Issue: The association often needs to act promptly in responseTo issues, actions or positions confronting the import community26Proposal to the Board

Designate the immediate past Chairman of the Board a member of the Executive committee leadership team

Continue to endorse the Executive Committee Chairman, Officers and members to act on behalf of the Board of Directors between regular meetings of the board consistent with the by-laws

Recognize the following positions as forming a quorum for actions by the Executive Committee. This group will meet on the first Thursday of each month by conference call

Chairman of the BoardImmediate past Chairman of the BoardChair Executive CommitteeVice Chairman of the BoardTreasurer

NABI staff will promptly advise the Board of all actions taken on its behalf

Remind Executive Committee members of the need to remain engaged and responsive to requests for their input and approval27 Significant turmoil in the budget and funding authorization area Agency is being asked to justify its allocation of resources Prior approval of Labels under reviewLast year processed 103,000 labels average of 7,000 per weekLabel review staff has been held at about 10 positionsAlternatives such as requiring label filing without approval, shifting review to market samplingThe value of the system for use by other federal, state, and local agencies is recognizedUser fees may be proposed once again

TTB Update28 EU wine negotiations 2nd phase labeling talks underway in Brussels March 23.Traditional terms, semi generics, champagne, Vintage dated varietals. Currently barred by US regulations for wines with an national appellation. EU petitioned the US in 2010 to provide reliefTTB is writing a proposed rule to respond to the petition and seems agreeable to support a change. This would also mean that domestics could label nationally with a vintage date.

TT B Update29 World Wine Trade Group Negotiating and MOU among the members to forgo certification requirements among member states. Currently Argentina requires certificate of analysis from the US.South Africa has not signed the mutual acceptance agreement with the group. Therefore South African imports are still required to certify for entry. SA Parliament has been slow to act.TTB Update30 Certification for 2006 Brunello has been received from government of ItalyTTB is requiring two more years of certification. The 2008 vintage will be the last to need a certification.The Italian government could certify all stocks currently in inventory as meeting the standard and no further certifications would be required. TTB Update31 French Pinot Noir French are not providing certifications. Import of this category (Languedoc-Roussillon Region) continues to require that the importer holds a certification from the French government. TTB acknowledges mixed and misleading messages between FDA under 7% wine products, FMB, wine and distilled spirits specialty labeling.

TTB Update32 FTC Federal Register notice comment on information collection on compliance with self-regulatory advertising code. Up to 14 of the largest beverage alcohol advertisers will be selected. Smaller companies previously audited likely excluded. Comments due April 26, 2011 Commission not backing off its position that the voluntary standards should move from 70 % to 75% above LDA. Census data may counter this position. Still working on caffeinated alcohol beverages would not comment on follow on actions.

Federal Trade Commission Update33Near term Events FDAs First Public Meeting on the FDA Food Safety Modernization Act: Focus on Imports March 29, 2011, Silver Spring, MD

FTC Notice Seeking Comments on Proposed Information Requests to Beverage Alcohol Manufacturer: Comment due April 26, 2011. FDA issues guidance on calorie labeling for food items on menus for businesses with 20 or more units: Imminent Petitions submitted by Center for digital decency and Berkley Media Estimated burden cost $253KIndustry has recommended use of the King Country, WA standardThe FDA has announced that information about menu labeling will be posted to: http://www.fda.gov/Food/LabelingNutrition/ucm217762.htmFDA deferred to TTB and exempted beverage alcohol from the menu requirement pending comments in their notice.34 FDA to Convene Public Hearing on Ensuring the Safety of Imported Foods and Animal Feed: Comparability of Food Safety Systems and Import Practices of Foreign Countries:College Park, MD, March 30-31,2011

( future events continued)The Agricultural Marketing Service (AMS), US Department of Agriculture (USDA), National Organic Program Continued need for the regulations;Complaints or comments received; Complexity of regulations; Extent of overlap in the regulation, duplicate, or conflict Length of time last evaluated or the degree to which technology, economic conditions or other factors have changed in the area affected by the regulations.

Comment by April 26, 2011

Both Bernie and Bill attended this event35(Near Term events continues)Follow up on TTB advance notice of proposed rulemaking to define estate bottled to encompass terms including estate, estates, estate grown, proprietor grown, vintner grown, orchard, farm, single farm, single ranch, proprietors blend, Old vine, Barrel fermented, Old clone, reserve, select harvest, bottle aged.NABI commented on this advanced noticeThese terms are in broad use and harm could result in new definitionsNo evidence they are misleading by consumer complaints36The New CARE ActHR 1161Introduced by Congressman Chaffetz (R-UT) on March 17.Wholesalers have legal protections, franchise laws in placeOne Third fewer wholesalers over 20 yearsCraft brewers, small wineries proliferating, wholesalers no long the only source of productTexas case rejected by the Supreme CourtDoesnt seem that sponsors asked state administrators for inputNo crisis of deregulationWholesalers will seek additional co-sponsors50 + co-sponsors as of April 29, 2011

37Gray Market ProjectFocus on the FDA Compliance Policy guideRequire that Importers provide the manufacturer registration number and other information required by the Bioterrorism ActRequire FDA coordination with the authorized US based manufacturers agent when Key information is missing from prior noticesEngage Hill and Administration officials with the goal of developing critical changes to the CPGRetain Capital Counsel to complete the final phase of this project38Member benefitCongress in you PocketFor BlackberryAvailable soon on the NABI websiteMember resources pagehttp://www.congressinyourpocket.com/blackberry.cfm

39Other BusinessRenewal of office lease for 3 yearsActivities of the Wine and Beer CommitteesBenefit for Jeff Becker May 2, 2011American Beverage Licensees Opening night reception, June 18, Milwaukee, WIPerformance Plans40