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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 September 30, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number: 33-61516
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) 226-1395
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 October 31, 2001, there were issued and outstanding 9,182,019 shares of
the issuer's Class A Common Stock and 6,855,717 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
SEPTEMBER 30, JUNE 30,
2001 2001
------------- ---------
UNAUDITED
Current assets:
Cash and cash equivalents $ -- $ 7,189
Accounts receivable--trade, net 60,868 104,555
Inventories 436,381 358,756
Prepaid expenses and other current assets 12,842 10,400
--------- ---------
Total current assets 510,091 480,900
Property, plant and equipment, net 325,439 338,935
Investments in joint ventures 37,995 31,311
Other assets 13,022 13,212
--------- ---------
Total assets $ 886,547 $ 864,358
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Book overdraft $ 16,114 $ --
Notes payable to banks -- 15,800
Accounts payable--trade 92,828 29,752
Employee compensation and related costs 16,985 19,835
Other accrued expenses 10,155 11,849
Current portion of long-term debt 15,666 15,823
Deferred revenue 502 511
--------- ---------
Total current liabilities 152,250 93,570
Long-term debt, less current portion 301,424 335,970
Deferred income taxes 23,350 23,454
Deferred executive compensation 5,897 5,128
Other liabilities 3,761 3,767
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Total liabilities 486,682 461,889
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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--9,181,217 and 9,151,217 shares 91,262 91,214
Class B Common Stock, without par value:
Authorized--12,000,000 shares;
issued and outstanding--6,855,717 and 6,885,717 shares 11,011 11,059
Paid-in capital 10,547 10,547
Retained earnings 289,923 292,399
Accumulated other comprehensive income:
Cumulative translation adjustment (2,878) (2,750)
--------- ---------
399,865 402,469
--------- ---------
Total liabilities and shareholders' equity $ 886,547 $ 864,358
========= =========
See Notes to Consolidated Financial Statements.
2
THE ROBERT MONDAVI CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2001 2000
-------- --------
Gross revenues $ 84,779 $ 99,185
Less excise taxes 3,876 4,545
-------- --------
Net revenues 80,903 94,640
Cost of goods sold 47,405 52,857
-------- --------
Gross profit 33,498 41,783
Selling, general and administrative expenses 28,741 26,369
Special charges 11,200 --
-------- --------
Operating income (loss) (6,443) 15,414
Other income (expense):
Interest (5,148) (4,251)
Equity in net income of joint ventures 7,784 5,441
Other (154) (589)
-------- --------
Income (loss) before income taxes (3,961) 16,015
Provision (benefit) for income taxes (1,485) 6,166
-------- --------
Net income (loss) $ (2,476) $ 9,849
======== ========
Earnings (loss) per share--Basic $ (.15) $ .63
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Earnings (loss) per share--Diluted $ (.15) $ .61
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Weighted average number of shares outstanding--Basic 16,037 15,617
======== ========
Weighted average number of shares outstanding--Diluted 16,403 16,084
======== ========
See Notes to Consolidated Financial Statements.
3
THE ROBERT MONDAVI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net income (loss) $ (2,476) $ 9,849
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Deferred income taxes 492 465
Depreciation and amortization 5,777 4,990
Equity in net income of joint ventures (7,784) (5,441)
Special charges and asset write-downs 14,070 --
Other 149 204
Changes in assets and liabilities:
Accounts receivable--trade 43,687 11,737
Inventories (80,338) (58,855)
Other assets (2,930) (3,226)
Accounts payable--trade and accrued expenses 58,523 59,730
Deferred executive compensation 769 767
Other liabilities (6) (194)
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Net cash provided by operating activities 29,933 20,026
-------- --------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (15,950) (14,420)
Proceeds from sale of assets 12,327 --
Acquisition of company -- (14,191)
Distributions from joint ventures 1,000 --
Contributions to joint ventures (9) (27)
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Net cash used in investing activities (2,632) (28,638)
-------- --------
Cash flows from financing activities:
Book overdraft 16,114 11,587
Net repayments under credit lines (47,800) (3,600)
Principal repayments of long-term debt (2,703) (3,644)
Exercise of Class A Common Stock options -- 1,173
Other (101) 94
-------- --------
Net cash provided by (used in) financing activities (34,490) 5,610
-------- --------
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.
4
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
September 30, 2001, its results of operations for the three month periods ended
September 30, 2001 and 2000 and its cash flows for the three month periods ended
September 30, 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
the 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 $2,638 decrease in both revenues and selling, general and
administrative expenses for the three months ended, September 30, 2000.
NOTE 2 INVENTORIES
Inventories consist of the following:
SEPTEMBER, JUNE 30,
2001 2001
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UNAUDITED
Wine in production $288,995 $226,214
Bottled wine 132,406 109,674
Crop costs and supplies 14,980 22,868
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$436,381 $358,756
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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 September 30, 2001, was $9,404 of inventory cost step-up remaining from
applying purchase accounting to the Arrowood acquisition.
5
NOTE 3 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 changes included the restructuring of its 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 eliminates 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
restructuring, the Company recorded special charges totaling $11.2 million
during the quarter, primarily reflecting fixed asset write-offs and lease
cancellation fees. Additional charges, including employee separation expenses,
totaling between $0.5 million to $1.0 million are expected to be incurred during
the second 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 $3.8 million in inventory and fixed asset
write-downs during the quarter that were classified as cost of goods sold.
NOTE 4 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 investments in debt and equity
securities. Comprehensive income for the three months ended September 30, 2001
and 2000 were as follows:
UNAUDITED
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
2001 2000
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Net income (loss) $(2,476) $ 9,849
Foreign currency translation adjustment, net of tax (128) (709)
------- -------
Comprehensive income (loss) $(2,604) $ 9,140
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6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
During the first quarter of fiscal 2002, the Company recorded $11.2 million, or
$0.43 per diluted share, in special charges related to the restructuring of its
Disney California Adventure project. 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.
FIRST QUARTER OF FISCAL 2002 COMPARED TO FIRST QUARTER OF FISCAL 2001
NET REVENUES Sales volume decreased by 15.1% and net revenues decreased by
14.5%, 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 increased by 0.6% to $48.46 per case, mainly reflecting
the carry-over effect of price increases implemented during the third quarter of
fiscal 2001. 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.
Effective July 1, 2001, the Company implemented EITF 00-14 and EITF 00-25, which
require certain sales incentives and fees paid to retailers to be recorded as
reductions of revenue. Prior period financial statements have been restated to
reflect this change. For a further discussion of the impact of these items, see
Note 1 of Notes to Consolidated Financial Statements.
COST OF GOODS SOLD Cost of goods sold as reported decreased by 10.3%. Adjusted
cost of goods sold decreased by 17.3%, reflecting decreased sales volume
combined with lower grape costs.
GROSS PROFIT As a result of the above factors, the reported gross profit
percentage was 41.4% compared to 44.1% last year. The adjusted gross profit
percentage was 47.1% compared to 45.3% last year.
OPERATING EXPENSES Operating expenses as reported increased by 51.5% and the
reported ratio of operating expenses to net revenues increased to 49.4% from
27.9% a year ago. Adjusted operating expenses increased by 9.0% and the adjusted
ratio of operating expenses to net revenues increased to 35.5% from 27.9% a year
ago. The increase in adjusted operating expenses reflects the addition of $1.8
million of Golden Vine Winery operating expenses and a 2.2% increase in all
other operating expenses.
INTEREST Interest expense increased by 21.1%, reflecting increased average
borrowings outstanding.
EQUITY IN NET INCOME OF JOINT VENTURES Equity in net income of joint ventures as
reported increased by 43.1% to $7.8 million mainly due to improved income from
Opus One during the period. A significant portion of the improvement during the
period related to an earlier Opus One fall release. Adjusted equity in net
income of joint ventures increased by 34.6% to $9.1 million, reflecting the Opus
One improvement and adjusted equity income from Ornellaia.
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.
7
NET INCOME (LOSS) AND EARNINGS (LOSS) PER SHARE As a result of the above
factors, the Company reported a net loss of $2.5 million, or ($0.15) per diluted
share, compared to net income of $9.8 million, or $0.61 per diluted share, a
year ago. Adjusted net income totaled $8.2 million, or $0.50 per diluted share,
compared to $11.3 million, or $0.70 per diluted share, a year ago.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $7.2 million during the first three
months of fiscal 2002 as cash used in financing and investing activities
exceeded cash provided by operating activities. Cash provided by operations
totaled $29.9 million, reflecting a decrease in accounts receivable and the
impact of harvest, with significant increases in inventory and amounts payable
to growers. Cash used in investing activities totaled $2.6 million, reflecting
purchases of production equipment and vineyard development costs, which were
partially offset by proceeds from the sale of certain vineyard assets. Cash used
in financing activities totaled $34.5 million, primarily reflecting repayment of
debt.
The Company maintains master lease facilities that provide the capacity to fund
up to $199.4 million. The combined facilities enable the Company to lease
certain real property to be constructed or acquired. At September 30, 2001,
$137.5 million of the combined facilities had been utilized.
The Company's short-term credit lines expire in December 2001. The Company
expects to renew or obtain new credit lines prior to the expiration of the
existing short-term credit lines.
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
or the results of its operations.
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
September 30, 2001.
8
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: November 14, 2001 By /s/ HENRY J. SALVO, JR.
-------------------------
Henry J. Salvo, Jr.,
Executive Vice President and
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.
9