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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2001
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 33-61516
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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) 259-9463
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
------------ ------------
As of January 31, 2002, there were issued and outstanding 9,202,914 shares of
the issuer's Class A Common Stock and 6,852,647 shares of the issuer's Class B
Common Stock.
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PART I
Item 1. Financial Statements.
THE ROBERT MONDAVI CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
December 31, June 30,
2001 2001
---- ----
Unaudited
Current assets:
Cash and cash equivalents $ - $ 7,189
Accounts receivable--trade, net 82,563 104,555
Inventories 437,088 358,756
Prepaid expenses and other current assets 8,973 10,400
---------- ---------
Total current assets 528,624 480,900
Property, plant and equipment, net 323,983 338,935
Investments in joint ventures 33,971 31,311
Other assets 13,435 13,212
---------- ---------
Total assets $900,013 $864,358
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Book overdraft $ 5,304 $ -
Notes payable to banks - 15,800
Accounts payable--trade 52,235 29,752
Employee compensation and related costs 15,821 19,835
Other accrued expenses 16,337 12,360
Current portion of long-term debt 9,673 15,823
----------- ---------
Total current liabilities 99,370 93,570
Long-term debt, less current portion 356,994 335,970
Deferred income taxes 23,470 23,454
Deferred executive compensation 6,182 5,128
Other liabilities 3,676 3,767
---------- ---------
Total liabilities 489,692 461,889
---------- ---------
Commitments and contingencies
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--9,200,559 and 9,151,217 shares 91,676 91,214
Class B Common Stock, without par value:
Authorized--12,000,000 shares;
issued and outstanding--6,852,647 and 6,885,717 shares 11,006 11,059
Paid-in capital 10,593 10,547
Retained earnings 300,175 292,399
Accumulated other comprehensive income:
Cumulative translation adjustment (3,071) (2,750)
Forward contracts (58) -
---------- ---------
410,321 402,469
---------- ---------
Total liabilities and shareholders' equity $ 900,013 $ 864,358
========== =========
See Notes to Consolidated Financial Statements.
THE ROBERT MONDAVI CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (in thousands, except per share data)
Three Months Ended Six Months Ended
December 31, December 31,
2001 2000 2001 2000
---- ---- ---- ----
Gross revenues $137,822 $147,406 $222,601 $246,591
Less excise taxes 6,711 6,927 10,587 11,472
--------- --------- --------- ---------
Net revenues 131,111 140,479 212,014 235,119
Cost of goods sold 72,914 79,989 120,319 132,846
--------- --------- --------- ---------
Gross profit 58,197 60,490 91,695 102,273
Selling, general and administrative expenses 34,873 33,838 63,614 60,207
Special charges 1,040 - 12,240 -
--------- --------- ------ ---------
Operating income 22,284 26,652 15,841 42,066
Other income (expense):
Interest (5,415) (4,987) (10,563) (9,238)
Equity income from joint ventures 15 1,658 7,799 7,099
Other (482) (330) (636) (919)
--------- --------- --------- ---------
Income before income taxes 16,402 22,993 12,441 39,008
Provision for income taxes 6,150 8,852 4,665 15,018
--------- --------- --------- ---------
Net income $ 10,252 $ 14,141 $ 7,776 $ 23,990
========= ========= ======== =========
Earnings per share-Basic $ .64 $ .90 $ .48 $ 1.53
======== ========= ======== =========
Earnings per share-Diluted $ .63 $ .87 $ .48 $ 1.48
======== ========= ======== =========
Weighted average number of shares outstanding-Basic 16,040 15,792 16,038 15,704
========= ========= ========= =========
Weighted average number of shares outstanding-Diluted 16,305 16,333 16,354 16,216
========= ========= ========= =========
See Notes to Consolidated Financial Statements.
THE ROBERT MONDAVI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended
December 31,
2001 2000
---- ----
Cash flows from operating activities:
Net income $ 7,776 $ 23,990
Adjustments to reconcile net income to net cash
used in operating activities:
Deferred income taxes (1,542) 2,033
Depreciation and amortization 11,313 10,027
Equity income from joint ventures (7,799) (7,099)
Special charges and asset write-downs 14,070 -
Other 448 32
Changes in assets and liabilities, net of acquisitions:
Accounts receivable--trade 21,992 (12,770)
Inventories (82,426) (85,460)
Other assets 3,301 (3,969)
Accounts payable--trade and accrued expenses 22,325 46,532
Deferred executive compensation 1,054 552
Other liabilities (91) (344)
---------- ---------
Net cash used in operating activities (9,579) (26,476)
---------- ---------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (20,142) (28,112)
Proceeds from sale of assets 12,327 2,370
Business acquisition - (14,191)
Distributions from joint ventures 7,092 5,190
Contributions to joint ventures (1,018) (580)
---------- ---------
Net cash used in investing activities (1,741) (35,323)
---------- ---------
Cash flows from financing activities:
Book overdraft 5,304 1,582
Net additions under notes payable to banks 10,000 56,800
Principal repayments of long-term debt (10,926) (5,101)
Proceeds from issuance of Class A Common Stock 296 255
Exercise of Class A Common Stock options 113 5,205
Other (656) 56
---------- ---------
Net cash provided by financing activities 4,131 58,797
---------- ---------
Net decrease in cash and cash equivalents (7,189) (3,002)
Cash and cash equivalents at the beginning of the period 7,189 3,002
---------- ---------
Cash and cash equivalents at the end of the period $ - $ -
========== =========
See Notes to Consolidated Financial Statements.
THE ROBERT MONDAVI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1 BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (which include only normal recurring
adjustments) necessary to present fairly the Company's financial position at
December 31, 2001, its results of operations for the three and six month periods
ended December 31, 2001 and 2000 and its cash flows for the six month periods
ended December 31, 2001 and 2000. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted from the
accompanying consolidated financial statements. For further information,
reference should be made to the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K (the 10-K) for the
fiscal year ended June 30, 2001, on file at the Securities and Exchange
Commission. Certain fiscal 2001 balances have been reclassified to conform with
current year presentation.
Effective July 1, 2001, the Company implemented Emerging Issues Task Force
(EITF) Issue No. 00-14 (EITF 00-14) and Issue No. 00-25 (EITF 00-25), which
require certain sales incentives and fees paid to retailers to be recorded as
reductions of revenue. The Company previously reported 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 $7,903 and $10,541 decrease in both revenues and selling, general
and administrative expenses for the three months and six months ended December
31, 2000, respectively.
NOTE 2 INVENTORIES
Inventories consist of the following:
December 31, June 30,
2001 2001
---- ----
Unaudited
Wine in production $ 315,246 $ 226,214
Bottled wine 118,778 109,674
Crop costs and supplies 3,064 22,868
---------- ---------
$ 437,088 $ 358,756
========== =========
Inventories are valued at the lower of cost or market and inventory costs are
determined using the first-in, first-out (FIFO) method. Costs associated with
growing crops are recorded as inventory and are recognized as wine inventory
costs in the year in which the related crop is harvested. Included in inventory
at December 31, 2001, was $8,464 of inventory cost step-up remaining from
applying purchase accounting to the acquisition of Arrowood.
NOTE 3 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
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 derivative financial instruments associated with unrecognized firm purchase
commitments are designated as fair-value hedges. The derivative financial
instruments associated with forecasted transactions are designated as cash-flow
hedges.
At December 31, 2001, 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
$19,419. Using exchange rates outstanding as of December 31, 2001, the U.S.
dollar equivalent of the contracts totaled $19,372.
NOTE 4 OPERATIONAL CHANGES
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 its business relationship with
Disney and maintains a presence at the theme park. As a result of this change,
the Company has recorded special charges to date totaling $12,240, or $0.47 per
diluted share, primarily reflecting fixed asset write-offs, employee separation
expenses and lease cancellation fees. As of December 31, 2001, the Company has
remaining accruals totaling $820 for a lease cancellation fee and employee
separation expenses for one employee. The amounts accrued for these exit costs
were paid in full during January 2002.
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.
NOTE 5 COMPREHENSIVE INCOME
Comprehensive income includes revenues, expenses, gains and losses that are
excluded from net income, including foreign currency translation adjustments and
unrealized gains and losses on certain derivative financial instruments
designated as cash-flow hedges. Comprehensive income for the three and six
months ended December 31, 2001 and 2000 were as follows:
Unaudited
Three Months Ended Six Months Ended
December 31, December 31,
2001 2000 2001 2000
---- ---- ---- ----
Net income $ 10,251 $ 14,141 $ 7,776 $ 23,990
Foreign currency translation adjustment, net of tax (193) 212 (321) (497)
Forward contracts, net of tax (58) - (58) -
-------- -------- ------- ---------
Comprehensive income $ 10,000 $ 14,353 $ 7,397 $ 23,493
======== ======== ======= =========
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
During the first six months of 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. During the first quarter of fiscal
2002, the Company also recorded inventory and fixed asset write-downs, totaling
$3.8 million, or $0.14 per diluted share, as a result of lowering its sales
volume growth projections for the fiscal year. The adjusted figures discussed
throughout this report, which better reflect the results of the Company's
ongoing operations, exclude the special charges and asset write-downs, as well
as inventory step-up charges associated with business acquisitions for all
periods presented.
Effective July 1, 2001, the Company implemented Emerging Issues Task Force
(EITF) Issue No. 00-14 (EITF 00-14) and Issue No. 00-25 (EITF 00-25), which
require certain sales incentives and fees paid to retailers to be recorded as
reductions of revenue. The Company previously reported 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 $7.9 million and $10.5 million decrease in both revenues and
selling, general and administrative expenses for the three months and six months
ended December 31, 2000, respectively.
Second Quarter of Fiscal 2002 Compared to Second Quarter of Fiscal 2001
NET REVENUES Sales volume decreased by 4.5% and net revenues decreased by 6.7%,
reflecting the impact of the continued economic downturn combined with a sharp
decline in the travel and entertainment sectors that began in September. Net
revenues per case decreased by 2.3% to $46.44, reflecting a shift in sales mix
to wines with lower net revenues per case.
COST OF GOODS Sold Cost of goods sold as reported decreased by 8.8%. Adjusted
cost of goods sold decreased by 8.4%, reflecting decreased sales volume combined
with lower grape costs.
GROSS PROFIT As a result of the above factors, the reported gross profit
percentage was 44.4% compared to 43.1% reported last year. The adjusted gross
profit percentage increased to 45.1% from 44.1% last year.
OPERATING EXPENSES Operating expenses as reported increased by 6.1% and the
reported ratio of operating expenses to net revenues increased to 27.4% from
24.1% a year ago. Adjusted operating expenses increased by 3.1% and the adjusted
ratio of operating expenses to net revenues increased to 26.6% from 24.1% a year
ago. The increase in the adjusted operating expense ratio primarily reflects
increased promotional spending per case.
INTEREST Interest expense increased by 8.6%, even though average borrowings
outstanding were relatively consistent with the prior year, reflecting a
reduction of capitalized interest due to the completion of certain capital and
vineyard development projects.
EQUITY INCOME FROM JOINT VENTURES Equity income from joint ventures as reported
decreased by 99.1% and adjusted equity income from joint ventures decreased by
89.6%. The decrease in both the reported and adjusted figures was due mainly to
an earlier Opus One fall release, which was essentially complete during the
first quarter of fiscal 2002.
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.
NET INCOME AND EARNINGS PER SHARE As a result of the above factors, net income
as reported totaled $10.3 million, or $0.63 per diluted share, compared to $14.1
million, or $0.87 per diluted share, a year ago. Adjusted net income totaled
$11.6 million, or $0.71 per diluted share, compared to $15.2 million, or $0.93
per diluted share, a year ago.
First Six Months of Fiscal 2002 Compared to First Six Months of Fiscal 2001
NET REVENUES Sales volume decreased by 8.7% and net revenues decreased by 9.8%,
reflecting the impact of the continued economic downturn combined with a sharp
decline in the travel and entertainment sectors that began in September. Net
revenues per case decreased by 1.2% to $47.20 per case, reflecting lower a shift
in sales mix to wines with lower net revenues per case. Due to the continued
economic slowdown and the recent decline in the travel and entertainment
sectors, the Company expects sales volume, net revenues and net income to
decrease compared to prior year levels for the fiscal year.
COST OF GOODS SOLD Cost of goods sold as reported decreased by 9.4%. Adjusted
cost of goods sold decreased 11.9%, reflecting decreased sales volume combined
with lower grape costs.
GROSS PROFIT As a result of the above factors, the reported gross profit
percentage was 43.2% compared to 43.5% reported last year. The adjusted gross
profit percentage increased to 45.9% from 44.6% last year.
OPERATING EXPENSES Operating expenses as reported increased by 26.0% and the
reported ratio of operating expenses to net revenues increased to 35.8% from
25.6% a year ago. Adjusted operating expenses increased by 5.7% and the adjusted
ratio of operating expenses to net revenues increased to 30.0% from 25.6% a year
ago. The increase in the adjusted operating expense ratio primarily reflects
increased promotional spending per case and $1.8 million of operating expenses
from the Company's Disney California Adventure project that were incurred during
the first quarter of fiscal 2002, prior to the project's operational changes.
INTEREST Interest expense increased by 14.3%, even though average borrowings
outstanding were relatively consistent with the prior year, reflecting a
reduction in capitalized interest due to the completion of certain capital and
vineyard development projects.
EQUITY INCOME FROM JOINT VENTURES Equity income from joint ventures as reported
increased by 9.9% and adjusted equity income from joint ventures increased by
6.0%. The increase in both the reported and adjusted figures was due mainly to
improved profitability from the Opus One joint venture.
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.
NET INCOME AND EARNINGS PER SHARE As a result of the above factors, net income
as reported totaled $7.8 million, or $0.48 per diluted share, compared to $24.0
million, or $1.48 per diluted share, a year ago. Adjusted net income totaled
$19.8 million, or $1.21 per diluted share, compared to $26.6 million, or $1.64
per diluted share, a year ago.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $7.2 million during the first six months
of fiscal 2002 as cash used in operating and investing activities exceeded cash
provided by financing activities. Cash used in operations totaled $9.6 million,
reflecting an increase in inventories that was partially offset by net income,
as well as the non-cash impact on pre-tax income of depreciation and
amortization, and a seasonal increase in accounts payable. The increase in
inventories reflects a seasonal increase in inventories subsequent to harvest,
as well as a build up of inventories resulting from grape commitments that were
made prior to the Company lowering its sales forecast due to softening demand
and a sharp decline in the travel and entertainment sectors. Cash used in
investing activities totaled $1.7 million, reflecting purchases of production
equipment and vineyard development cost that were partially offset by proceeds
from the sale of certain vineyard assets and distributions from joint ventures.
Cash provided by financing activities totaled $4.1 million, reflecting net
repayments of debt and a book overdraft of $5.3 million, which represents the
float on outstanding checks.
The Company maintains master lease facilities that provide the capacity to fund
up to $189.0 million. 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
$114.8 million as of December 31, 2001. At December 31, 2001, $138.3 million of
the combined facilities had been utilized.
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
$71.0 million outstanding under its long-term credit lines as of December 31,
2001.
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. No amounts were outstanding
under this credit facility as of December 31, 2001.
PART II
Item 1. 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, the results of its operations or its cash flows.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Shareholders was held on November 2, 2001, at
the Napa Valley Marriott, Napa, California. Three matters were submitted to a
vote of shareholders: election of directors; ratification of
PricewaterhouseCoopers LLP as the Company's independent auditors for the fiscal
year ending June 30, 2002; and amendments of the 1993 Non-Employee Directors'
Stock Option Plan to authorize discretionary grants of options in addition to
the non-discretionary grants authorized previously, to extend the term of the
plan by ten years to February 25, 2013, and to make certain technical changes to
conform the plan with recent changes in the federal securities laws.
Philip Greer, Frank Farella and Bartlett Rhoades were nominated as Class A
directors. 7,338,983 Class A shares were voted for Mr. Greer and 111,391 shares
were withheld. 7,337,419 Class A shares were voted for Mr. Farella and 112,955
shares were withheld. 7,336,654 Class A shares were voted for Mr. Rhoades and
113,720 shares were withheld. Accordingly, Mssrs. Greer, Farella and Rhoades
were re-elected as Class A directors.
Robert G. Mondavi, R. Michael Mondavi, Marcia Mondavi Borger, Timothy J.
Mondavi, Anthony Greener, and Gregory M. Evans were nominated as Class B
directors. 7,067,681 Class B shares were voted for each of them. Accordingly,
each of the Class B nominees was re-elected to the Board.
78,114,948 votes were cast in favor of the ratification of
PricewaterhouseCoopers LLP, 7,787 votes were cast against and 4,449 votes
abstained. Accordingly, the selection of PricewaterhouseCoopers LLP as
independent auditors was ratified.
75,611,513 votes were cast in favor of the ratification of the amendments to the
1993 Non-Employee Directors' Stock Option Plan, 2,449,150 votes were cast
against and 16,521 votes abstained. Accordingly, the amendments of the stock
plan were adopted as proposed.
Item 6. Exhibits and Reports on Form 8-K.
1) Exhibits:
None
2) Form 8-K:
No reports on Form 8-K were filed during the quarter
ended December 31, 2001.
SIGNATURES
Pursuant to the requirements 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
Dated: February 13, 2002 By /s/ HENRY J. SALVO, JR.
------------------------
Henry J. Salvo, Jr.
Chief Financial Officer
Forward-looking Statements
The above Form 10-Q 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, reduced
consumer spending, a change in consumer preferences or the length and severity
of the current economic downturn in some of the Company's key markets, including
in particular the depressed travel and entertainment sectors, could reduce
demand for the Company's wines. Similarly, competition from numerous domestic
and foreign vintners, coupled with changes in foreign currency valuations, could
affect the Company's volume and revenue growth outlook. The price of grapes, the
Company's single largest product cost, is beyond the Company's control and
higher grape costs may put more pressure on the Company's gross profit margin
than is currently forecast. Interest rates and other business and economic
conditions could change significantly the cost and risks of projected capital
spending. For additional cautionary statements identifying important factors
that could cause actual results to differ materially from such forward-looking
information, please refer to Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 2001, on file with the
Securities and Exchange Commission. 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.