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 September 30, 1997 ------------------------------- 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 October 31, 1997 there were issued and outstanding 7,828,673 shares of the issuer's Class A Common Stock and 7,426,012 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 SEPTEMBER 30, JUNE 30, 1997 1997 -------- -------- UNAUDITED Current assets: Cash and cash equivalents $ - $ 150 Accounts receivable--trade, net 45,170 59,222 Inventories 230,481 167,695 Deferred income taxes 2,042 1,677 Prepaid expenses and other current assets 6,867 5,593 -------- -------- Total current assets 284,560 234,337 Property, plant and equipment, net 193,683 186,990 Investments in joint ventures 21,893 19,212 Other assets 4,826 4,386 -------- -------- Total assets $504,962 $444,925 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Book overdraft $ 13,322 - Notes payable to banks - 8,750 Accounts payable--trade 70,921 14,769 Employee compensation and related costs 10,930 10,608 Other accrued expenses 7,090 5,446 Current portion of long-term debt 8,631 6,790 Deferred revenue 2,117 2,064 -------- -------- Total current liabilities 113,011 48,427 Long-term debt, less current portion 144,943 158,067 Deferred income taxes 11,267 10,848 Deferred executive compensation 5,509 5,395 Other liabilities 2,529 1,017 -------- -------- Total liabilities 277,259 223,754 -------- -------- 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--7,545,940 and 7,499,024 shares 76,675 76,138 Class B Common Stock, without par value: Authorized--12,000,000 shares Issued and outstanding--7,676,012 shares 12,324 12,324 Paid-in Capital 3,433 3,289 Retained earnings 135,271 129,420 -------- -------- 227,703 221,171 -------- -------- Total liabilities and shareholders' equity $504,962 $444,925 ======== ======== 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 ----------------------- SEPTEMBER 30, ----------------------- 1997 1996 -------- -------- Gross revenues $ 68,836 $ 62,194 Less excise taxes 3,286 3,210 -------- -------- Net revenues 65,550 58,984 Cost of goods sold 36,974 33,368 -------- -------- Gross profit 28,576 25,616 Selling, general and administrative expenses 18,727 16,366 -------- -------- Operating income 9,849 9,250 Other income (expense): Interest (2,527) (2,366) Equity in net income of joint ventures 2,546 2,092 Other (277) (251) -------- -------- Income before income taxes 9,591 8,725 Provision for income taxes 3,740 3,402 -------- -------- Net income $ 5,851 $ 5,323 ======== ======== Earnings per share $ .37 $ .34 ======== ======== Weighted average number of common shares and equivalents outstanding 15,843 15,515 ======== ======== See Notes to Consolidated Financial Statements. 3 4 THE ROBERT MONDAVI CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS) THREE MONTHS ENDED ----------------------- SEPTEMBER 30, ----------------------- 1997 1996 -------- -------- Cash flows from operating activities: Net income $ 5,851 $ 5,323 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes 54 (156) Depreciation and amortization 3,357 2,878 Equity in net income of joint ventures (2,546) (2,092) Other (355) 70 Changes in assets and liabilities: Accounts receivable--trade 14,052 6,071 Inventories (62,918) (43,829) Prepaid income taxes - - 2,783 Other assets (1,274) (966) Accounts payable--trade and accrued expenses 55,095 37,309 Income taxes payable 3,167 687 Deferred revenue 53 (40) Deferred executive compensation 114 277 Other liabilities 1,512 1,457 -------- -------- Net cash provided by operating activities 16,162 9,772 -------- -------- Cash flows from investing activities: Acquisitions of property, plant and equipment (15,967) (15,198) Proceeds from sale of assets 6,390 - Contributions to joint ventures (3) (231) -------- -------- Net cash used in investing activities (9,580) (15,429) -------- -------- Cash flows from financing activities: Book overdraft 13,322 7,656 Net repayments under notes payable to banks (8,750) - Proceeds from issuance of long-term debt - 50,000 Principal repayments of long-term debt (11,283) (51,762) Exercise of stock options 537 811 Other (558) (1,048) -------- -------- Net cash provided by (used in) financing activities (6,732) 5,657 -------- -------- Net decrease in cash and cash equivalents (150) - Cash and cash equivalents at the beginning of the period 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 September 30, 1997 and its results of operations and its cash flows for the three month periods ended September 30, 1997 and 1996. 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, 1997, on file at the Securities and Exchange Commission. NOTE 2--INVENTORIES: Inventories consist of the following (in thousands): SEPTEMBER 30, JUNE 30, 1997 1997 --------- --------- Wine in production $ 181,299 $ 127,922 Bottled wine 70,603 53,734 Crop costs and supplies 10,289 14,793 --------- --------- Inventories stated at FIFO cost 262,191 196,449 Reserve for LIFO valuation method (31,710) (28,754) --------- --------- $ 230,481 $ 167,695 ========= ========= Information related to the FIFO method may be useful in comparing operating results to those of companies not on LIFO. If inventories valued at LIFO cost had been valued at FIFO cost, net income would have increased by approximately $1.8 million and $2.4 million, respectively, for the three months ended September 30, 1997 and 1996. NOTE 3 -- EARNINGS PER SHARE: During February 1997, Statement of Financial Accounting Standards No. 128 (SFAS 128), Earnings per Share, was issued. This statement supersedes Accounting Principles Board Opinion No. 15, Earnings per Share, and its related Interpretations and establishes new accounting standards for the computation and manner of presentation of the Company's earnings per share. The Company is required to adopt SFAS 128 for the quarter ending December 31, 1997. Early adoption is not permitted. When adopted, the Company will be required to restate previously reported earnings per share for all periods presented. The table below reflects the proforma impact to earnings per share to conform with SFAS 128 for the following periods: THREE MONTHS ENDED SEPTEMBER 30, YEAR ENDED JUNE 30, ----------------- ------------------------------ 1997 1996 1997 1996 1995 ------- ------- -------- -------- -------- Earnings per Share as previously reported $ .37 $ .34 $ 1.80 $ 1.61 $ 1.39 Proforma Earnings per Share Basic $ .39 $ .36 $ 1.87 $ 1.67 $ 1.40 Diluted $ .37 $ .34 $ 1.80 $ 1.61 $ 1.39 5 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. THREE MONTHS ENDED SEPTEMBER 30, 1997 GROSS REVENUES Gross revenues increased by 10.7% to $68.8 million in the first quarter of fiscal 1998 from $62.2 million in the first quarter of fiscal 1997. The increase in gross revenues was primarily attributable to price increases on certain of the Company's wines, a shift in sales mix to Robert Mondavi Coastal wines and a 2.2% increase in sales volume. EXCISE TAXES The Company's federal and state excise taxes increased 2.4% to $3.3 million in the first quarter of fiscal 1998, from $3.2 million in the first quarter of fiscal 1997. The dollar increase in excise taxes correlates to the increase in sales volume, since the excise tax is assessed on a per gallon basis and the excise tax rate is unchanged from the prior year. NET REVENUES As a result of the above factors, net revenues increased by 11.1% to $65.6 million in the first quarter of fiscal 1998 from $59.0 million in the first quarter of fiscal 1997. Net revenues per case increased 9.3% to $46.22 per case in the first quarter of fiscal 1998 from $42.30 per case in the first quarter of fiscal 1997, reflecting the price increases and shift in sales mix discussed above. COST OF GOODS SOLD Cost of goods sold increased by 10.8% to $37.0 million in the first quarter of fiscal 1998 from $33.4 million in the first quarter of fiscal 1997, reflecting the increase in sales volume and higher grape and bulk wine costs. If inventories valued at LIFO cost had been valued at FIFO cost, then cost of goods sold would have been $3.0 million and $3.9 million lower, respectively, in the first quarter of fiscal 1998 and 1997. GROSS PROFIT As a result of the above factors, gross profit increased by 11.6% to $28.6 million in the first quarter of fiscal 1998 from $25.6 million in the first quarter of fiscal 1997. The Company's gross profit percentages for the first quarter of fiscal 1998 and 1997 were 43.6% and 43.4%, respectively. OPERATING EXPENSES Operating expenses increased by 14.4% to $18.7 million in the first quarter of fiscal 1998 from $16.4 million in the first quarter of fiscal 1997. The ratio of operating expenses to net revenues was 28.6% in the first quarter of fiscal 1998 and 27.7% in the first quarter of fiscal 1997. The dollar increase in operating expenses was primarily attributable to an increase in average selling and marketing dollars spent per case. INTEREST Interest expense increased by 6.8% to $2.5 million in the first quarter of fiscal 1998 from $2.4 million in the first quarter of fiscal 1997. This increase was primarily attributable to an increase in the Company's average borrowings that was partially offset by an increase in interest capitalized. EQUITY IN NET INCOME OF JOINT VENTURES Equity in net income of joint ventures increased by 21.7% to $2.5 million in the first quarter of fiscal 1998 from $2.1 million in the first quarter of fiscal 1997. This increase was due mainly to improved income from Opus One during the period. PROVISION FOR INCOME TAXES The provision for income taxes was $3.7 million in the first quarter of fiscal 1998 compared to $3.4 million in the first quarter of fiscal 1997. The Company's effective tax rate was 39.0% for the first quarter of fiscal 1998 and 1997. 6 7 NET INCOME AND EARNINGS PER SHARE As a result of the above factors, net income increased to $5.9 million in the first quarter of fiscal 1998 from $5.3 million in the first quarter of fiscal 1997. Earnings per share increased to $.37 in the first quarter of fiscal 1998 from $.34 in the first quarter of fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES The 1997 harvest began earlier than normal and this had a significant impact on the Company's balance sheet at September 30, 1997, including increases in inventories and amounts payable to external growers. Working capital as of September 30, 1997, was $171.5 million compared to $186.0 million at June 30, 1997. The Company has unsecured short-term and long-term credit lines that have a maximum credit availability of $41.2 million and $50.0 million, respectively, at September 30, 1997. The short-term credit lines expire during December 1997. The Company expects to renew the short-term credit lines for at least their current availability of $41.2 million. The long-term credit lines expire on December 31, 1999. The Company anticipates that current capital combined with cash from operating activities and the availability of cash from additional borrowings will be sufficient to meet its liquidity and capital expenditure requirements at least through the end of fiscal 1998. 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 11 Statement re Computation of Per Share Earnings. 2) Form 8-K: No reports on Form 8-K were filed during the quarter ended September 30, 1997 7 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 13, 1997 By /s/ GREGORY M. EVANS --------------------- Gregory M. Evans, Senior 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 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. 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, 1997, 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. 8