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, 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) 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, 2001, there were issued and outstanding 8,932,453 shares of the
issuer's Class A Common Stock and 7,056,217 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,
2001 2000
--------- ---------
UNAUDITED
Current assets:
Cash and cash equivalents $ -- $ 3,002
Accounts receivable--trade, net 88,225 77,662
Inventories 386,719 298,487
Prepaid expenses and other current assets 16,950 4,331
--------- ---------
Total current assets 491,894 383,482
Property, plant and equipment, net 336,222 312,065
Investments in joint ventures 33,790 32,720
Other assets 11,482 6,676
--------- ---------
Total assets $ 873,388 $ 734,943
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Book overdraft $ 3,586 $ --
Notes payable to banks 52,500 19,700
Accounts payable--trade 19,043 24,540
Employee compensation and related costs 18,803 13,725
Other accrued expenses 10,288 7,250
Current portion of long-term debt 15,935 10,102
Deferred income taxes -- 93
--------- ---------
Total current liabilities 120,155 75,410
Long-term debt, less current portion 323,089 280,790
Deferred income taxes 29,899 21,850
Deferred executive compensation 4,789 8,575
Other liabilities 4,207 150
--------- ---------
Total liabilities 482,139 386,775
--------- ---------
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--8,932,453 and 8,274,235 shares 89,742 83,161
Class B Common Stock, without par value:
Authorized--12,000,000 shares;
issued and outstanding--7,056,217 and 7,306,012 shares 11,333 11,732
Paid-in capital 10,122 5,780
Retained earnings 281,986 249,105
Accumulated other comprehensive income:
Cumulative translation adjustment (1,934) (1,610)
--------- ---------
391,249 348,168
--------- ---------
Total liabilities and shareholders' equity $ 873,388 $ 734,943
========= =========
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,
----------------------- ------------------------
2001 2000 2001 2000
-------- -------- -------- ---------
Gross revenues $123,573 $104,297 $380,705 $316,863
Less excise taxes 5,584 4,888 17,056 14,392
-------- -------- -------- --------
Net revenues 117,989 99,409 363,649 302,471
Cost of goods sold 60,571 53,391 193,417 161,896
-------- -------- -------- --------
Gross profit 57,418 46,018 170,232 140,575
Selling, general and administrative expenses 37,074 28,701 107,822 85,600
-------- -------- -------- --------
Operating income 20,344 17,317 62,410 54,975
Other income (expense):
Interest (6,187) (4,577) (15,425) (11,248)
Equity income from joint ventures 244 814 7,343 6,269
Other 56 (44) (863) 2,357
-------- -------- -------- --------
Income before income taxes 14,457 13,510 53,465 52,353
Provision for income taxes 5,566 5,201 20,584 20,156
-------- -------- -------- --------
Net income $ 8,891 $ 8,309 $ 32,881 $ 32,197
======== ======== ======== ========
Earnings per share-Basic $ .56 $ .53 $ 2.08 $ 2.08
======== ======== ======== ========
Earnings per share-Diluted $ .54 $ .52 $ 2.02 $ 2.01
======== ======== ======== ========
Weighted average number of shares outstanding-Basic 15,970 15,556 15,792 15,506
======== ======== ======== ========
Weighted average number of shares outstanding-Diluted 16,428 16,039 16,288 15,998
======== ======== ======== =======
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,
-----------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net income $ 32,881 $ 32,197
Adjustments to reconcile net income to net cash
used in operating activities:
Deferred income taxes 2,413 1,519
Depreciation and amortization 15,844 13,973
Equity income from joint ventures (7,343) (6,269)
Other (25) (2,400)
Changes in assets and liabilities
Accounts receivable--trade (9,906) 13,688
Inventories (68,889) (59,070)
Other assets (7,233) (16,541)
Accounts payable--trade and accrued expenses 1,755 (7,858)
Deferred executive compensation (3,786) 945
Other liabilities 57 (81)
-------- --------
Net cash used in operating activities (44,232) (29,897)
-------- --------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (40,372) (54,116)
Proceeds from sale of assets 2,425 4,830
Business acquisition (14,191) --
Distributions from joint ventures 5,232 4,463
Contributions to joint ventures (589) (12,592)
-------- --------
Net cash used in investing activities (47,495) (57,415)
-------- --------
Cash flows from financing activities:
Book overdraft 3,586 4,826
Net additions under notes payable to banks 32,672 37,500
Proceeds from issuance of long-term debt 55,000 50,000
Principal repayments of long-term debt (7,684) (9,820)
Proceeds from issuance of Class A Common Stock 255 276
Exercise of Class A Common Stock options 5,927 873
Other (1,031) (887)
-------- --------
Net cash provided by financing activities 88,725 82,768
-------- --------
Net decrease in cash and cash equivalents (3,002) (4,544)
Cash and cash equivalents at the beginning of the period 3,002 4,544
-------- --------
Cash and cash equivalents at the end of the period $ -- $ --
======== ========
4
5
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
March 31, 2001, its results of operations for the three and nine month periods
ended March 31, 2001 and 2000 and its cash flows for the nine month periods
ended March 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, 2000, on file at the Securities and Exchange
Commission. Certain fiscal 2000 balances have been reclassified to conform with
current year presentation.
NOTE 2 ACQUISITION
On July 13, 2000, the Company acquired 100% of the outstanding shares of
Arrowood Vineyards & Winery (Arrowood). The acquisition has been accounted for
using the purchase method of accounting with the allocation of purchase price to
assets and liabilities acquired made using estimated fair values at the date of
acquisition. The Company also has the option to purchase certain tangible
assets, including vineyards and winery facilities, within the next five years
for $12,000. In addition, the Company entered into a long-term licensing
agreement for use of the Arrowood and Grand Archer brand names that includes an
option to purchase the brand names for approximately $15,000, which will be
adjusted for certain financial performance measures, in 2010.
NOTE 3 INVENTORIES
Inventories consist of the following:
MARCH 31, JUNE 30,
2001 2000
---------- --------
UNAUDITED
Wine in production $267,362 $186,609
Bottled wine 104,868 92,162
Crop costs and supplies 14,489 19,716
-------- --------
$386,719 $298,487
======== ========
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 March 31, 2001, was $11,861 of inventory cost step-up remaining from applying
purchase accounting to the acquisition of Arrowood.
5
6
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 and nine months ended March 31,
2001 and 2000 was as follows:
UNAUDITED
-----------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net income $ 8,891 $ 8,309 $ 32,881 $ 32,197
Foreign currency translation adjustment, net of tax 173 (135) (324) 12
-------- -------- -------- --------
Comprehensive income $ 9,064 $ 8,174 $ 32,557 $ 32,209
======== ======== ======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The Company recorded inventory step-up charges associated with business
acquisitions in fiscal 2001 and 2000. Under purchase accounting, the purchase
price is allocated to the assets and liabilities of the acquired company based
on their estimated fair market values at the time of the transaction. When the
inventory acquired is subsequently sold in the normal course of business, costs
of the inventory are charged to cost of goods sold, including the amount of the
inventory step-up (the difference between the original book value of the
inventory and the fair market value of the inventory upon acquisition). The
inventory step-up charges reduce the Company's reported net income. The adjusted
figures discussed throughout this report, which better reflect the results of
the Company's ongoing operations, exclude inventory step-up charges, as well as
a net gain primarily related to the sale of vineyards in fiscal 2000.
THIRD QUARTER OF FISCAL 2001 COMPARED TO THIRD QUARTER OF FISCAL 2000
NET REVENUES Net revenues increased by 18.7%, reflecting a 9.7% increase in
sales volume that was driven by the Woodbridge and Robert Mondavi Coastal
brands. Net revenues per case increased by 8.2% to $51.86, reflecting price
increases, higher retail revenues and revenues from the Golden Vine Winery,
which opened during the quarter.
COST OF GOODS SOLD Cost of goods sold as reported increased by 13.4%. Adjusted
cost of goods sold increased by 11.9%, reflecting increased sales volume
combined with a shift in sales mix to wines with higher average costs per case.
GROSS PROFIT As a result of the above factors, the reported gross profit
percentage was 48.7% compared to 46.3% reported last year. The adjusted gross
profit percentage increased to 49.3% from 46.3% last year.
OPERATING EXPENSES Operating expenses increased by 29.2% and the ratio of
operating expenses to net revenues increased to 31.4% from 28.9% a year ago.
These increases were primarily due to increased promotional spending, start-up
costs related to the Golden Vine Winery and the addition of operating expenses
from recent business acquisitions.
6
7
INTEREST Interest expense increased by 35.2% due to increased average borrowings
outstanding associated with facility expansion, business acquisitions and the
To-Kalon and Golden Vine Winery projects.
EQUITY INCOME FROM JOINT VENTURES Equity income from joint ventures as reported
decreased by 70.0% to $0.2 million due mainly to inventory step-up charges
related to the Company's investment in Ornellaia and a decrease in equity income
from the Company's other foreign joint ventures during the period. Adjusted
equity income from joint ventures increased by 8.8% to $1.3 million, reflecting
adjusted equity income from Ornellaia that was partially offset by a decrease in
equity income from the Company's other foreign joint ventures during the period.
PROVISION FOR INCOME TAXES The Company's effective tax rate remained unchanged
from the prior year at 38.5%.
NET INCOME AND EARNINGS PER SHARE As a result of the above factors, net income
as reported totaled $8.9 million, or $0.54 per diluted share, compared to $8.3
million, or $0.52 per diluted share, a year ago. Adjusted net income totaled
$10.0 million, or $0.61 per diluted share, compared to $8.5 million, or $0.53
per diluted share, a year ago.
FIRST NINE MONTHS OF FISCAL 2001 COMPARED TO FIRST NINE MONTHS OF FISCAL 2000
NET REVENUES Net revenues increased by 20.2%, reflecting a 16.2% increase in
sales volume that was driven by the Woodbridge and Robert Mondavi Coastal
brands. Net revenues per case increased by 3.4% to $50.53, reflecting price
increases, higher retail revenues and revenues from the Golden Vine Winery,
which opened during the third quarter of fiscal 2001.
COST OF GOODS SOLD Cost of goods sold as reported increased by 19.5%. Adjusted
cost of goods sold increased 17.4%, reflecting increased sales volume combined
with a shift in sales mix to wines with higher average costs per case.
GROSS PROFIT As a result of the above factors, the reported gross profit
percentage was 46.8% compared to 46.5% reported last year. The adjusted gross
profit percentage increased to 47.7% from 46.5% last year.
OPERATING EXPENSES Operating expenses increased by 26.0% and the ratio of
operating expenses to net revenues increased to 29.7% from 28.3% a year ago.
These increases were primarily due to increased promotional spending, start-up
costs related to the Golden Vine Winery and the addition of operating expenses
from recent business acquisitions.
INTEREST Interest expense increased by 37.1% due to increased average borrowings
outstanding associated with facility expansion, business acquisitions and the
To-Kalon and Golden Vine Winery projects.
EQUITY INCOME FROM JOINT VENTURES Equity income from joint ventures as reported
increased by 17.1% to $7.3 million due mainly to improved profitability from the
Opus One joint venture that was partially offset by inventory step-up charges
related to the Company's investment in Ornellaia. Adjusted equity income from
joint ventures increased by 51.6% to $10.0 million, reflecting the Opus One
improvement and adjusted equity income from Ornellaia.
OTHER "Other" primarily consists of miscellaneous non-operating income and
expense items. "Other" as reported includes a $2.5 million net gain primarily
related to the sale of vineyards in fiscal 2000. Adjusted "other" expenses
totaled $0.9 million compared to $0.2 million last year.
7
8
PROVISION FOR INCOME TAXES The Company's effective tax rate remained unchanged
from the prior year at 38.5%.
NET INCOME AND EARNINGS PER SHARE As a result of the above factors, net income
as reported totaled $32.9 million, or $2.02 per diluted share, compared to $32.2
million, or $2.01 per diluted share, a year ago. Adjusted net income totaled
$36.6 million, or $2.24 per diluted share, compared to $30.9 million, or $1.93
per diluted share, a year ago.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $3.0 million during the first nine months
of fiscal 2001 as cash used in investing and operating activities exceeded cash
provided by financing activities. Cash used in operations totaled $44.2 million,
reflecting an increase in inventories required to support expected future sales
volume 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 $47.5 million, reflecting the Arrowood acquisition,
vineyard development and facility expansion and renovation. Cash provided by
financing activities totaled $88.7 million, reflecting an increase in
borrowings, net of cash, and stock option exercises.
On July 13, 2000, the Company acquired 100% of the outstanding shares of
Arrowood Vineyards & Winery. The acquisition was accounted for using the
purchase method of accounting.
The Company maintains master lease facilities that provide the capacity to fund
up to $148.0 million. The combined facilities enable the Company to lease
certain real property to be constructed or acquired. At March 31, 2001, $76.3
million of the combined facilities had been utilized.
The Company has unsecured short-term and long-term credit lines that have a
maximum credit availability of $91.5 million and $60.0 million, respectively.
The short-term credit lines expire as follows: $55.0 million expires on December
20, 2001 and $36.5 million expires on December 22, 2001. The long-term credit
lines expire on December 31, 2003.
On January 30, 2001, the Company entered into unsecured term loans totaling
$55.0 million. The proceeds from these loans were used to pay down credit line
borrowings.
On April 5, 2001, the Company entered into a $30.0 million unsecured term loan.
The proceeds from this loan were used to pay down credit line borrowings.
8
9
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 March 31,
2001.
9
10
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 15, 2001 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, the premium wine grape
market, the premium wine industry and the Company's anticipated future
investment in vineyards and other capital projects. Actual results may differ
materially from these 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 volume and revenue growth outlook, as could
attendance projections at Disney's California Adventure theme park. 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, 2000, 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.
10