-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sd3DnbtYFDUqRXkTx7EDsv2S9bjOmE6VF1FYEC1mc9YpJSeCym4eZB3P/Rx/gWaL Y3l/5fA5v8Kfs6fh/krHrQ== 0000950149-99-000952.txt : 19990517 0000950149-99-000952.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950149-99-000952 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONDAVI ROBERT CORP CENTRAL INDEX KEY: 0000902276 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] IRS NUMBER: 942765451 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21624 FILM NUMBER: 99621833 BUSINESS ADDRESS: STREET 1: 7801 ST HELENA HWY STREET 2: PO BOX 106 CITY: OAKVILLE STATE: CA ZIP: 94562 BUSINESS PHONE: 7072599463 MAIL ADDRESS: STREET 1: 7801 ST HELENA HWY CITY: OAKVILLE STATE: CA ZIP: 94562 10-Q 1 THE ROBERT MONDAVI CORPORATION 1 ================================================================================ 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 March 31, 1999 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) 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 April 30, 1999, there were issued and outstanding 8,136,862 shares of the issuer's Class A Common Stock and 7,306,012 shares of the issuer's Class B Common Stock. ================================================================================ 2 PART I ITEM 1. FINANCIAL STATEMENTS. THE ROBERT MONDAVI CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
MARCH 31, JUNE 30, --------- -------- 1999 1998 --------- -------- UNAUDITED Current assets: Cash and cash equivalents $ -- $ 2,683 Accounts receivable--trade, net 70,011 68,656 Inventories 287,393 256,770 Prepaid expenses and other current assets 6,341 8,239 -------- -------- Total current assets 363,745 336,348 Property, plant and equipment, net 238,719 215,301 Investments in joint ventures 21,679 18,666 Other assets 5,768 5,512 -------- -------- Total assets $629,911 $575,827 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Book overdraft $ 10,042 $ -- Accounts payable--trade 12,992 18,888 Employee compensation and related costs 8,873 9,881 Other accrued expenses 1,315 7,800 Current portion of long-term debt 10,389 10,984 Deferred taxes 9,592 10,200 Deferred revenue 1,742 2,618 -------- -------- Total current liabilities 54,945 60,371 Long-term debt, less current portion 256,557 222,557 Deferred income taxes 15,888 14,245 Deferred executive compensation 7,350 6,713 Other liabilities 259 339 -------- -------- Total liabilities 334,999 304,225 -------- -------- 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--8,132,662 and 8,058,869 shares 80,153 79,040 Class B Common Stock, without par value: Authorized--12,000,000 shares; issued and outstanding--7,306,012 shares 11,732 11,732 Paid-in capital 5,144 4,776 Retained earnings 198,693 176,737 Accumulated other comprehensive income: Cumulative translation adjustment (810) (683) -------- -------- 294,912 271,602 -------- -------- Total liabilities and shareholders' equity $629,911 $575,827 ======== ========
See Notes to Consolidated Financial Statements. 2 3 THE ROBERT MONDAVI CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED ---------------------------------------- MARCH 31, MARCH 31, ------------------ ------------------- 1999 1998 1999 1998 ------- ------- -------- -------- Gross revenues $93,454 $79,647 $277,970 $246,050 Less excise taxes 4,293 3,638 12,577 11,489 ------- ------- -------- -------- Net revenues 89,161 76,009 265,393 234,561 Cost of goods sold 48,345 40,829 149,352 124,100 ------- ------- -------- -------- Gross profit 40,816 35,180 116,041 110,461 Selling, general and administrative expenses 24,328 21,469 73,498 62,687 ------- ------- -------- -------- Operating income 16,488 13,711 42,543 47,774 Other income (expense): Interest (3,877) (3,493) (10,766) (8,886) Equity in net income of joint ventures (245) (327) 4,581 2,871 Other (165) 28 (658) (710) ------- ------- -------- -------- Income before income taxes 12,201 9,919 35,700 41,049 Provision for income taxes 4,696 3,868 13,744 16,008 ------- ------- -------- -------- Net income $ 7,505 $ 6,051 $ 21,956 $ 25,041 ======= ======= ======== ======== Earnings per share-Basic $ .49 $ .40 $ 1.43 $ 1.64 ======= ======= ======== ======== Earnings per share-Diluted $ .47 $ .38 $ 1.39 $ 1.58 ======= ======= ======== ======== Weighted average number of shares outstanding-- Basic 15,437 15,292 15,404 $ 15,243 ======= ======= ======== ======== Weighted average number of shares outstanding-- Diluted 15,954 15,839 15,840 15,856 ======= ======= ======== ========
See Notes to Consolidated Financial Statements. 3 4 THE ROBERT MONDAVI CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
NINE MONTHS ENDED ------------------------ MARCH 31, ------------------------ 1999 1998 -------- -------- Cash flows from operating activities: Net income $ 21,956 $ 25,041 Adjustments to reconcile net income to net cash used in operating activities: Deferred income taxes 1,035 1,596 Depreciation and amortization 11,242 10,166 Equity in net income of joint ventures (4,581) (2,871) Other 775 22 Changes in assets and liabilities: Accounts receivable--trade (1,355) 2,861 Inventories (31,456) (68,831) Other assets 1,898 312 Accounts payable--trade and accrued expenses (13,021) (1,859) Deferred revenue (876) 791 Deferred executive compensation 637 342 Other liabilities (80) (644) -------- -------- Net cash used in operating activities (13,826) (33,074) -------- -------- Cash flows from investing activities: Acquisitions of property, plant and equipment (35,233) (36,889) Proceeds from sale of assets -- 7,396 Distributions from joint ventures 2,251 1,362 Contributions to joint ventures (27) (209) -------- -------- Net cash used in investing activities (33,009) (28,340) -------- -------- Cash flows from financing activities: Book overdraft 10,042 8,180 Net additions under notes payable to banks -- (8,750) Proceeds from issuance of long-term debt 42,850 61,704 Principal repayments of long-term debt (9,445) -- Proceeds from issuance of Class A Common Stock 293 200 Exercise of Class A Common Stock options 820 1,361 Other (408) (1,431) -------- -------- Net cash provided by financing activities 44,152 61,264 -------- -------- Net decrease in cash and cash equivalents (2,683) (150) Cash and cash equivalents at the beginning of the period 2,683 150 -------- -------- Cash and cash equivalents at the end of the period $ -- $ -- ======== ========
See Notes to Consolidated Financial Statements. 4 5 THE ROBERT MONDAVI CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 March 31, 1999, its results of operations for the three and nine month periods ended March 31, 1999 and 1998 and its cash flows for the nine month periods ended March 31, 1999 and 1998. 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, 1998, on file at the Securities and Exchange Commission. Certain fiscal 1998 balances have been reclassified to conform with the current year presentation. Effective July 1, 1998, the Company changed its wine inventory costing method from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. The primary reasons for the change in accounting method are: management's belief that the FIFO method of accounting better matches revenues and expenses of the Company's wines sold, and therefore provides a better method of reporting the Company's results of operations; the FIFO method of accounting will reduce intra-year cost of sales volatility; and the FIFO method of accounting will provide improved financial comparability to other publicly-traded companies in the industry. The accounting change has been applied to prior years by retroactively restating the financial statements. The effect of this restatement increased current assets, current liabilities and retained earnings by $28.5 million, $10.2 million and $18.3 million, respectively, as of July 1, 1998. The restatement decreased net income by $0.5 million, or $0.03 per share, for the three months ended March 31, 1998, and increased net income by $2.2 million, or $0.14 per share, for the nine months ended March 31, 1998. Effective July 1, 1998, the Company also adopted Statement of Financial Accounting Standards No. 130 (FAS 130), "Reporting Comprehensive Income." The adoption of FAS 130 did not have a material impact on the Company's consolidated financial statements. Comprehensive income for the three and nine months ended March 31, 1999 and 1998 were as follows (in thousands):
UNAUDITED --------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED --------------------------------------- MARCH 31, MARCH 31, ------------------ ----------------- 1999 1998 1999 1998 ------ ------ ------- ------- Net income $7,505 $6,051 $21,956 $25,041 Foreign currency translation adjustment, net of tax (218) (169) (127) (583) ------ ------ ------- ------- Comprehensive income $7,287 $5,882 $21,829 $24,458 ====== ====== ======= =======
5 6 NOTE 2--INVENTORIES: 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. Inventories consist of the following (in thousands):
MARCH 31, JUNE 30, --------- -------- 1999 1998 --------- -------- UNAUDITED --------- Wine in production $207,769 $170,708 Bottled wine 71,076 70,572 Crop costs and supplies 8,548 15,490 -------- -------- $287,393 $256,770 ======== ========
NOTE 3--REORGANIZATION AND OTHER ONE-TIME CHARGES: During the second quarter of fiscal 1999, the Company implemented a series of operational and organizational changes aimed at improving its competitiveness and resources for investing in vineyards and wineries and providing stronger marketing support for its wines. These changes included the reduction of approximately 4% of the Company's workforce; the centralization of various support functions; the write-down of excess imported wine inventory; and the write-off of certain vineyard assets. The Company eliminated 36 positions, primarily in Napa Valley winery operations and in the administrative areas. These job eliminations, combined with the centralization of finance, logistics, purchasing and customer service, are intended to make the Company more efficient without affecting wine quality or service levels. As a result of these organizational changes, the Company recorded $1.5 million of employee separation expenses, which were included in operating expenses for the period ended December 31, 1998. During the second quarter of fiscal 1999, the Company also completed a strategic review of its product portfolio and decided to focus more of its resources on the Company's core brands: Robert Mondavi Winery, Robert Mondavi Coastal and Woodbridge by Robert Mondavi. As a result, the Company lowered its sales growth expectations for its Vichon Mediterranean brand. Based on revised sales forecasts, the Company determined it had approximately 475,000 gallons of excess imported wine inventory. Accordingly, the Company wrote-down the excess inventory to its fair market value based on current market prices and recent sales of similar bulk wine inventory. The resulting $4.0 million write-down was included in cost of goods sold for the period ended December 31, 1998. The Company expects to dispose of this excess inventory by the end of the next fiscal year. The Company also decided to prioritize the replanting of its internal vineyards. As a result, the Company accelerated the removal of certain vineyards for replant. The net book value of the vineyards removed totaled $0.5 million, which was included in cost of goods sold for the period ended December 31, 1998. 6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS THIRD QUARTER OF FISCAL 1999 COMPARED TO THIRD QUARTER OF FISCAL 1998 NET REVENUES Net revenues increased by 17.3%, reflecting a 15.4% increase in sales volume and a 1.9% increase in net revenues per case. COST OF GOODS SOLD Cost of goods sold increased by 18.4%, reflecting the increase in sales volume and a shift in sales mix to wines with a higher average cost per case. Effective July 1, 1998, the Company changed its wine inventory costing method from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. The change has been applied to prior periods by retroactively restating the financial statements. For a further discussion of the impact of this accounting change, see Note 1 of Notes to Consolidated Financial Statements. GROSS PROFIT As a result of the above factors, the Company's gross profit percentage was 45.8% compared to 46.3% a year ago. OPERATING EXPENSES Operating expenses increased by 13.3% due mainly to an increase in sales and marketing expenses associated with increased sales volume. The ratio of operating expenses to net revenues decreased to 27.3% from 28.2% a year ago, reflecting economies of scale in personnel and overhead costs achieved as a result of increased net revenues. INTEREST Interest expense increased by 11.0% due mainly to an increase in the Company's average borrowings that was partially offset by an increase in interest capitalized. PROVISION FOR INCOME TAXES The Company's effective tax rate was 38.5% compared to 39.0% a year ago. The lower effective rate is primarily the result of an increase in the benefit derived from manufacturing tax credits. NET INCOME AND EARNINGS PER SHARE As a result of the above factors, net income totaled $7.5 million, or $0.47 per diluted share, compared to $6.1 million, or $0.38 per diluted share, a year ago. 7 8 FIRST NINE MONTHS OF FISCAL 1999 COMPARED TO FIRST NINE MONTHS OF FISCAL 1998 REORGANIZATION AND OTHER ONE-TIME CHARGES During the second quarter of fiscal 1999, the Company implemented a series of operational and organizational changes aimed at improving its competitiveness and resources for investing in vineyards and wineries and providing stronger marketing support for its wines. As a result of these changes, the Company recorded one-time charges totaling $6.0 million, or $0.23 per diluted share, during the second quarter. Of this total, $4.5 million, or $0.17 per diluted share, related to asset impairment charges and $1.5 million, or $0.06 per diluted share, related to employee separation expenses. For a further discussion of these operational and organizational changes, see Note 3 of Notes to Consolidated Financial Statements. NET REVENUES Net revenues increased by 13.1%, reflecting an 11.6% increase in sales volume and a shift in sales mix to Robert Mondavi Winery and Robert Mondavi Coastal wines, which have higher net revenues per case. COST OF GOODS SOLD Cost of goods sold increased by 20.3%, reflecting the increase in sales volume, a shift in sales mix to wines with a higher average cost per case and the $4.5 million in asset impairment charges discussed above. Excluding these one-time charges, cost of goods sold increased by 16.7%. GROSS PROFIT As a result of the above factors, the Company's gross profit percentage was 43.7% compared to 47.1% a year ago. Excluding the one-time asset impairment charges, the gross profit percentage was 45.4%. OPERATING EXPENSES Operating expenses increased by 17.2% due mainly to an increase in sales and marketing expenses associated with increased sales volume. The ratio of operating expenses to net revenues increased to 27.7% from 26.7% a year ago, reflecting the $1.5 million in employee separation expenses discussed above combined with increased promotional spending per case, primarily in advertising. Excluding the one-time employee separation charges, operating expenses increased by 14.9% and the ratio of operating expenses to net revenues was 27.1%. INTEREST Interest expense increased by 21.2% due mainly to an increase in the Company's average borrowings that was partially offset by an increase in interest capitalized. The incremental borrowings were primarily used for vineyard development, Woodbridge facility expansion and working capital requirements. EQUITY IN NET INCOME OF JOINT VENTURES The increase in equity in net income of joint ventures was due mainly to improved income from the Opus One joint venture during the period. PROVISION FOR INCOME TAXES The Company's effective tax rate was 38.5% compared to 39.0% a year ago. The lower effective rate is primarily the result of an increase in the benefit derived from manufacturing tax credits. NET INCOME AND EARNINGS PER SHARE As a result of the above factors, net income totaled $22.0 million, or $1.39 per diluted share, compared to $25.0 million, or $1.58 per diluted share, a year ago. Excluding the reorganization and other one-time charges discussed above, net income was $25.6 million, or $1.62 per diluted share. 8 9 LIQUIDITY AND CAPITAL RESOURCES Working capital as of March 31, 1999 was $308.8 million compared to $276.0 million at June 30, 1998. The $32.8 million increase in working capital was primarily attributable to a $31.5 million increase in inventories. The Company had a book overdraft of $10.0 million at March 31, 1999, compared to a cash balance of $2.7 million at June 30, 1998. Cash and cash equivalents decreased by $2.7 million during the first nine months of fiscal 1999 as cash used in investing and operating activities exceeded cash provided by financing activities. Cash used in operations totaled $13.8 million, reflecting an increase in inventories required to support expected future sales growth that was partially offset by net income, as well as the non-cash impact on pre-tax income of depreciation and amortization. Cash used in investing activities totaled $33.0 million, which reflects vineyard development costs, purchases of barrels and production equipment for the 1998 harvest and Woodbridge facility expansion. Cash provided by financing activities of $44.2 million reflects a net increase in long-term credit line borrowings. The change to the FIFO method of accounting discussed above will result in incremental taxes of approximately $17.2 million to be paid over four years beginning in fiscal 1999. Payment of these incremental taxes will not change the Company's effective tax rate. The Company has unsecured short-term and long-term credit lines that have a maximum credit availability of $71.5 million and $80.0 million, respectively, at March 31, 1999. The short-term credit lines expire on December 24, 1999. The long-term credit lines expire on December 31, 2001. YEAR 2000 The Year 2000 issue, which is common to most companies, relates to the inability of computer systems, including information technology (IT) and non-IT systems, to properly recognize and process date sensitive information with respect to dates in the Year 2000 and thereafter. The Company believes that it will be able to achieve Year 2000 compliance by the end of 1999 and it does not expect any material disruption of its operations as a result of any failure by the Company to achieve Year 2000 compliance. However, to the extent the Company is not able to resolve any Year 2000 issues, the Company's business and results of operations could be materially affected. This could result from computer related failures in the Company's financial systems, manufacturing and warehouse management systems, phone systems and electrical supply. The Company has assessed its internal computer systems and software and is in the process of modifying or replacing portions of its software so that its operating systems will function properly with respect to dates in the Year 2000 and thereafter. The Company is also evaluating its non-IT systems with respect to the Year 2000 issue. The Company's non-IT systems include phones, voicemail, electricity, heating and air conditioning and security systems. The cost to the Company of evaluating and modifying its own systems is not expected to be material, nor does the Company believe that, with these modifications, the Year 2000 issue will pose significant operational problems for its computer and non-IT systems. However, as testing of Year 2000 functionality of the Company's systems must occur in a simulated environment, the Company will not be able to test full system Year 2000 interfaces and capabilities prior to the Year 2000. To the extent the Company is not able to address any of its Year 2000 issues, the Company believes that it could revert to manual processes previously employed or outsource work with minimal incremental cost. 9 10 The Company is also in the process of evaluating system interfaces with third-party systems, such as those with key suppliers, distributors and financial institutions, for Year 2000 functionality. If the systems of other companies with which the Company does business do not address any Year 2000 issues on a timely basis, the Company may experience a variety of problems which may have a material adverse effect on the Company. These problems may include, but are not limited to, loss of electronic data interchange capability with the Company's customers and vendors, and failure of the Company's vendors to deliver and bill for materials and products ordered by the Company. As a result, the Company may experience inventory shortages or surpluses. Should these problems arise, the Company expects to utilize voice, facsimile and/or mail communication to place orders with vendors, receive customer orders and process customer billings. In addition, the Company could utilize alternate sources of supply should its vendors not resolve their Year 2000 issues on a timely basis. 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: Exhibit 27 Financial Data Schedule (2) Form 8-K: No reports on Form 8-K were filed during the quarter ended March 31, 1999. 10 11 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: May 14, 1999 By /s/ STEPHEN A. MCCARTHY ------------------------------------ Stephen A. McCarthy, Chief Financial Officer FORWARD-LOOKING STATEMENTS The above Form 10-Q and other information provided from time to time by the Company contains 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, the premium wine grape market and the Company's anticipated future investment in vineyards and other capital projects and possible costs and operational risks associated with the Year 2000 issue. Actual results may differ materially from the Company's present expectations. Among other things, reduced consumer spending or a change in consumer preferences could reduce demand for the Company's wines. Similarly, competition from numerous domestic and foreign vintners could affect the Company's ability to sustain volume and revenue growth. 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 increase 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, 1998, 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. 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS JUN-30-1999 JUL-01-1998 MAR-31-1999 0 0 70,011 0 287,393 363,745 335,505 96,786 629,911 54,945 256,557 0 0 91,885 203,027 629,911 265,393 265,393 149,352 149,352 73,498 0 10,766 35,700 13,744 21,956 0 0 0 21,956 1.43 1.39 Represents Basic EPS, calculated in accordance with SFAS No. 128. Represents Diluted EPS, calculated in accordance with SFAS No. 128.
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