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, 1998 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, 1998 there were issued and outstanding 8,007,289 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, 1998 1997 -------- -------- UNAUDITED Current assets: Cash and cash equivalents $ -- $ 150 Accounts receivable--trade, net 56,361 59,222 Inventories 232,984 167,695 Deferred income taxes 3,103 1,677 Prepaid expenses and other current assets 5,281 5,593 -------- -------- Total current assets 297,729 234,337 Property, plant and equipment, net 206,491 186,990 Investments in joint ventures 20,919 19,212 Other assets 5,621 4,386 -------- -------- Total assets $530,760 $444,925 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Book overdraft $ 8,180 $ -- Notes payable to banks -- 8,750 Accounts payable--trade 13,270 14,769 Employee compensation and related costs 9,127 10,608 Other accrued expenses 5,310 5,446 Current portion of long-term debt 10,274 6,790 Deferred revenue 2,855 2,064 -------- -------- Total current liabilities 49,016 48,427 Long-term debt, less current portion 216,287 158,067 Deferred income taxes 12,485 10,848 Deferred executive compensation 5,737 5,395 Other liabilities 373 1,017 -------- -------- Total liabilities 283,898 223,754 -------- -------- 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--8,001,555 and 7,499,024 shares 78,292 76,138 Class B Common Stock, without par value: Authorized--12,000,000 shares Issued and outstanding--7,306,012 and 7,676,012 shares 11,731 12,324 Paid-in capital 4,546 3,289 Retained earnings 152,293 129,420 -------- -------- 246,862 221,171 -------- -------- Total liabilities and shareholders' equity $530,760 $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 NINE MONTHS ENDED MARCH 31, MARCH 31, ------------------------- ------------------------- 1998 1997 1998 1997 --------- --------- --------- --------- Gross revenues $ 79,647 $ 74,399 $ 246,050 $ 228,262 Less excise taxes 3,638 3,510 11,489 11,192 --------- --------- --------- --------- Net revenues 76,009 70,889 234,561 217,070 Cost of goods sold 40,049 38,964 127,653 121,489 --------- --------- --------- --------- Gross profit 35,960 31,925 106,908 95,581 Selling, general and administrative expenses 21,469 18,936 62,687 56,341 --------- --------- --------- --------- Operating income 14,491 12,989 44,221 39,240 Other income (expense): Interest (3,493) (2,749) (8,886) (7,742) Equity in net income of joint ventures (327) 200 2,871 3,284 Other 28 (57) (710) (566) --------- --------- --------- --------- Income before income taxes 10,699 10,383 37,496 34,216 Provision for income taxes 4,171 4,050 14,623 13,345 --------- --------- --------- --------- Net income $ 6,528 $ 6,333 $ 22,873 $ 20,871 ========= ========= ========= ========= Earnings per share - Basic $ .43 $ .42 $ 1.50 $ 1.39 ========= ========= ========= ========= Earnings per share - Diluted $ .41 $ .40 $ 1.44 $ 1.34 ========= ========= ========= ========= Weighted average number of common shares outstanding - Basic 15,292 15,091 15,243 15,028 ========= ========= ========= ========= Weighted average number of common shares outstanding - Diluted 15,839 15,732 15,856 15,632 ========= ========= ========= ========= 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, ----------------------- 1998 1997 -------- -------- Cash flows from operating activities: Net income $ 22,873 $ 20,871 Adjustments to reconcile net income to net cash used in operating activities: Deferred income taxes 211 (611) Depreciation and amortization 10,166 9,233 Equity in net income of joint ventures (2,871) (3,284) Other 22 2 Changes in assets and liabilities: Accounts receivable--trade 2,861 (10,285) Inventories (65,278) (38,694) Other assets 312 (1,288) Accounts payable--trade and accrued expenses (3,006) 4,155 Income taxes payable 1,147 1,599 Deferred revenue 791 919 Deferred executive compensation 342 (982) Other liabilities (644) (61) -------- -------- Net cash used in operating activities (33,074) (18,426) -------- -------- Cash flows from investing activities: Acquisitions of property, plant and equipment (36,889) (30,167) Proceeds from sale of assets 7,396 -- Distributions from joint ventures 1,362 892 Contributions to joint ventures (209) (456) -------- -------- Net cash used in investing activities (28,340) (29,731) -------- -------- Cash flows from financing activities: Book overdraft 8,180 7,556 Net additions (repayments) under notes payable to banks (8,750) 2,000 Proceeds from issuance of long-term debt 95,000 58,100 Principal repayments of long-term debt (33,296) (21,279) Proceeds from issuance of Class A Common Stock 200 126 Exercise of Class A Common Stock options 1,361 1,979 Other (1,431) (325) -------- -------- Net cash provided by financing activities 61,264 48,157 -------- -------- 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 March 31, 1998, its results of operations for the three and nine month periods ended March 31, 1998 and 1997 and its cash flows for the nine month periods ended March 31, 1998 and 1997. 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): MARCH 31, JUNE 30, 1998 1997 --------- --------- Wine in production $ 183,272 $ 127,922 Bottled wine 67,708 53,734 Supplies and crop costs 14,311 14,793 --------- --------- Inventories stated at FIFO cost 265,291 196,449 Reserve for LIFO valuation method (32,307) (28,754) --------- --------- $ 232,984 $ 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 decreased by approximately $0.4 million and increased by $2.4 million, respectively, for the three months ended March 31, 1998 and 1997, and increased by approximately $2.2 million and $8.2 million, respectively, for the nine months ended March 31, 1998 and 1997. 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 adopted SFAS 128 for the quarter ending December 31, 1997 and as required under SFAS 128 the Company has restated previously reported earnings per share for all periods presented. In computing basic earnings per share for the three and nine month periods ended March 31, 1998 and 1997, no adjustments have been made to net income (numerator) or weighted-average shares outstanding (denominator). The computation of diluted earnings per share for the same periods is identical to the computation of basic earnings per share except that the number of weighted-average shares outstanding (denominator) has been increased by 547,000 and 641,000, respectively, for the three months ended March 31, 1998 and 1997, and by 613,000 and 604,000, respectively, for the nine months ended March 31, 1998 and 1997, to include the dilutive effect of stock options outstanding. 5 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. THREE MONTHS ENDED MARCH 31, 1998 GROSS REVENUES. Gross revenues increased by 7.1% to $79.6 million in the third quarter of fiscal 1998 from $74.4 million in the third quarter of fiscal 1997. The increase in gross revenues was primarily attributable to a 5.5% increase in sales volume combined with a shift in sales mix to the Robert Mondavi Winery brand. The overall rate of sales volume growth for the third quarter of fiscal 1998 was affected by a temporary shortage of Woodbridge Chardonnay that was alleviated when the 1997 vintage of Woodbridge Chardonnay was released in March. EXCISE TAXES. The Company's federal and state excise taxes increased by 3.6% to $3.6 million in the third quarter of fiscal 1998 from $3.5 million in the third quarter of fiscal 1997. The dollar increase in excise taxes generally 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 7.2% to $76.0 million in the third quarter of fiscal 1998 from $70.9 million in the third quarter of fiscal 1997. Net revenues per case increased by 1.5% in the third quarter of fiscal 1998 compared to the third quarter of fiscal 1997, reflecting the shift in sales mix discussed above. COST OF GOODS SOLD. Cost of goods sold increased by 2.8% to $40.0 million in the third quarter of fiscal 1998 from $39.0 million in the third quarter of fiscal 1997, primarily due to increased sales volume that was partially offset by lower wine costs resulting from the large 1997 harvest. If inventories valued at LIFO cost had been valued at FIFO cost, then cost of goods sold would have been $0.8 million higher and $4.0 million lower, respectively, in the third quarter of fiscal 1998 and 1997. GROSS PROFIT. Gross profit increased by 12.6% to $36.0 million in the third quarter of fiscal 1998 from $31.9 million in the third quarter of fiscal 1997. The Company's gross profit percentages for the third quarter of fiscal 1998 and 1997 were 47.3% and 45.0%, respectively. The gross profit improvement reflects the increase in net revenues per case and lower wine costs discussed above. OPERATING EXPENSES. Operating expenses increased by 13.4% to $21.5 million in the third quarter of fiscal 1998 from $18.9 million in the third quarter of fiscal 1997. The ratio of operating expenses to net revenues increased to 28.2% in the third quarter of fiscal 1998 from 26.7% in the third quarter of fiscal 1997, reflecting an increase in average selling and marketing dollars spent per case. INTEREST. Interest expense increased by 27.1% to $3.5 million for the third quarter of fiscal 1998 from $2.7 million for the third 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 and a decrease in the average interest rate. EQUITY IN NET INCOME OF JOINT VENTURES. Equity in net income of joint ventures was $(0.3) million in the third quarter of fiscal 1998 compared to $0.2 million in the third quarter of fiscal 1997. PROVISION FOR INCOME TAXES. The provision for income taxes was $4.2 million in the third quarter of fiscal 1998 compared to $4.1 million in the third quarter of fiscal 1997. The Company's effective tax rate was 39.0% in the third quarter of fiscal 1998 and 1997. 6 7 NET INCOME AND EARNINGS PER SHARE. As a result of the above factors, net income increased by 3.1% to $6.5 million in the third quarter of fiscal 1998 from $6.3 million in the third quarter of fiscal 1997. Diluted earnings per share increased to $.41 in the third quarter of fiscal 1998 from $.40 in the third quarter of fiscal 1997 (see Note 3 of the consolidated financial statements). NINE MONTHS ENDED MARCH 31, 1998 GROSS REVENUES. Gross revenues increased by 7.8% to $246.1 million in the first nine months of fiscal 1998 from $228.3 million in the first nine months of fiscal 1997. The increase in gross revenues was primarily attributable to a 2.7% increase in sales volume, price increases on certain of the Company's wines and a shift in sales mix to the Robert Mondavi Coastal, Robert Mondavi Winery and Vichon Mediterranean brands. EXCISE TAXES. The Company's federal and state excise taxes increased by 2.7% to $11.5 million in the first nine months of fiscal 1998 from $11.2 million in the first nine months of fiscal 1997. The dollar increase in excise taxes generally 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 8.1% to $234.6 million in the first nine months of fiscal 1998 from $217.1 million in the first nine months of fiscal 1997. Net revenues per case increased by 5.4% in the first nine months of fiscal 1998 compared to the first nine months of fiscal 1997, reflecting the price increases and the shift in sales mix discussed above. COST OF GOODS SOLD. Cost of goods sold increased by 5.1% to $127.7 million in the first nine months of fiscal 1998 from $121.5 million in the first nine months of fiscal 1997, primarily reflecting the increase in sales volume and a shift in sales mix to wines with a higher average cost per case that were partially offset by lower wine costs associated with the large 1997 harvest. If inventories valued at LIFO cost had been valued at FIFO cost, then cost of goods sold would have been $3.6 million and $13.5 million lower, respectively, in the first nine months of fiscal 1998 and 1997. GROSS PROFIT. Gross profit increased by 11.9% to $106.9 million in the first nine months of fiscal 1998 from $95.6 million in the first nine months of fiscal 1997. The Company's gross profit percentages for the first nine months of fiscal 1998 and 1997 were 45.6% and 44.0%, respectively. The gross profit improvement reflects the increase in net revenues per case and lower wine costs discussed above. OPERATING EXPENSES. Operating expenses increased by 11.3% to $62.7 million in the first nine months of fiscal 1998 from $56.3 million in the first nine months of fiscal 1997. The ratio of operating expenses to net revenues increased to 26.7% in the first nine months of fiscal 1998 from 26.0% in the first nine months of fiscal 1997, reflecting an increase in average selling and marketing dollars spent per case. INTEREST. Interest expense increased by 14.8% to $8.9 million in the first nine months of fiscal 1998 from $7.7 million in the first nine months 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 and a decrease in the Company's average interest rate. EQUITY IN NET INCOME OF JOINT VENTURES. Equity in net income of joint ventures was $2.9 million in the first nine months of fiscal 1998 compared to $3.3 million in the first nine months of fiscal 1997. PROVISION FOR INCOME TAXES. The provision for income taxes was $14.6 million in the first nine months of fiscal 1998 and $13.3 million in the first nine months of fiscal 1997. The Company's effective tax rate was 39.0% for the first nine months of fiscal 1998 and 1997. 7 8 NET INCOME AND EARNINGS PER SHARE. As a result of the above factors, net income increased by 9.6% to $22.9 million in the first nine months of fiscal 1998 from $20.9 million in the first nine months of fiscal 1997. Diluted earnings per share increased to $1.44 in the first nine months of fiscal 1998 from $1.34 in the first nine months of fiscal 1997 (see Note 3 of the consolidated financial statements). LIQUIDITY AND CAPITAL RESOURCES Working capital at March 31, 1998 was $248.7 million compared to $185.9 million at June 30, 1997. The increase of $62.8 million was primarily attributable to the increase in inventories resulting from the recent grape harvest. The Company had a book overdraft of $8.2 million at March 31, 1998, compared to a cash balance of $150,000 at June 30, 1997. 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, 1998. The short-term credit lines expire during December 1998. The long-term credit lines expire on December 31, 2000. During January 1998, the Company obtained $95.0 million of unsecured long-term loans. The proceeds from these loans were used to repay a portion of the Company's unsecured credit lines. The Company anticipates that current capital combined with cash from operating activities and the availability of cash under its credit lines will be sufficient to meet its liquidity and capital expenditure requirements at least through the end of fiscal 1999. 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, 1998. 8 9 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 13, 1998 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 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 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. 9