<PAGE> 1
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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, 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 October 31, 1998 there were issued and outstanding 8,107,757 shares of the
issuer's Class A Common Stock and 7,306,012 shares of the issuer's Class B
Common Stock.
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<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS.
THE ROBERT MONDAVI CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, JUNE 30,
1998 1998
------------- -------------
UNAUDITED
<S> <C> <C>
Current assets:
Cash and cash equivalents $ -- $ 2,683
Accounts receivable--trade, net 56,915 68,656
Inventories 266,456 256,770
Prepaid expenses and other current assets 6,444 8,239
------------- -------------
Total current assets 329,815 336,348
Property, plant and equipment, net 226,457 215,301
Investments in joint ventures 23,149 18,666
Other assets 5,443 5,512
------------- -------------
Total assets $ 584,864 $ 575,827
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Book overdraft $ 3,846 --
Accounts payable--trade 28,684 18,888
Employee compensation and related costs 8,861 9,881
Other accrued expenses 8,229 7,800
Current portion of long-term debt 10,792 10,984
Deferred taxes 9,979 10,200
Deferred revenue 2,539 2,618
------------- -------------
Total current liabilities 72,930 60,371
Long-term debt, less current portion 209,556 222,557
Deferred income taxes 14,843 14,245
Deferred executive compensation 6,913 6,713
Other liabilities 332 339
------------- -------------
Total liabilities 304,574 304,225
------------- -------------
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 -- 8,097,301 and 8,050,126 shares 79,595 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 4,834 4,776
Retained earnings 184,733 176,737
Accumulated other comprehensive income:
Cumulative translation adjustment (604) (683)
------------- -------------
280,290 271,602
------------- -------------
Total liabilities and shareholders' equity $ 584,864 $ 575,827
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 3
THE ROBERT MONDAVI CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Gross revenues $ 74,781 $ 68,836
Less excise taxes 3,420 3,286
---------- ----------
Net revenues 71,361 65,550
Cost of goods sold 38,888 34,018
---------- ----------
Gross profit 32,473 31,532
Selling, general and administrative expenses 20,027 18,727
---------- ----------
Operating income 12,446 12,805
Other income (expense):
Interest (3,305) (2,527)
Equity in net income of joint ventures 3,935 2,546
Other (75) (277)
---------- ----------
Income before income taxes 13,001 12,547
Provision for income taxes 5,005 4,893
---------- ----------
Net income $ 7,996 $ 7,654
========== ==========
Earnings per share-Basic $ .52 $ .50
========== ==========
Earnings per share-Diluted $ .51 $ .48
========== ==========
Weighted average number of shares outstanding-Basic 15,361 15,190
========== ==========
Weighted average number of shares outstanding-Diluted 15,709 15,843
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
THE ROBERT MONDAVI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,996 $ 7,654
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes 377 1,207
Depreciation and amortization 3,586 3,357
Equity in net income of joint ventures (3,935) (2,546)
Other -- (355)
Changes in assets and liabilities:
Accounts receivable--trade 11,741 14,052
Inventories (10,146) (65,874)
Other assets 1,795 (1,274)
Accounts payable--trade and accrued expenses 9,263 58,262
Deferred revenue (79) 53
Deferred executive compensation 200 114
Other liabilities (7) 1,512
---------- ----------
Net cash provided by operating activities 20,791 16,162
---------- ----------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (14,673) (15,967)
Proceeds from sale of assets -- 6,390
Contributions to joint ventures (9) (3)
---------- ----------
Net cash used in investing activities (14,682) (9,580)
---------- ----------
Cash flows from financing activities:
Book overdraft 3,846 13,322
Net repayments under notes payable to banks -- (8,750)
Principal repayments of long-term debt (13,193) (11,283)
Exercise of Class A Common Stock options 555 537
Other -- (558)
---------- ----------
Net cash used in financing activities (8,792) (6,732)
---------- ----------
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 $ -- $ --
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 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, 1998 and its results of operations and its cash flows
for the three month periods ended September 30, 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, 1998, on file at the
Securities and Exchange Commission. Certain fiscal 1998 balances have been
reclassified to conform with 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 increased net income for the
three months ended September 30, 1997, by $1.8 million, or $0.11 per share.
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 months ended September
30, 1998 and 1997 was as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
UNAUDITED UNAUDITED
---------- ----------
<S> <C> <C>
Net income $ 7,996 $ 7,654
Foreign currency translation adjustment, net of tax 79 (102)
---------- ----------
Comprehensive income $ 8,075 $ 7,552
========== ==========
</TABLE>
NOTE 2--INVENTORIES:
Inventories are valued at the lower of cost or market and inventory
costs are determined using the 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):
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
------------- -------------
<S> <C> <C>
UNAUDITED
Wine in production $ 171,732 $ 170,708
Bottled wine 78,870 70,572
Crop costs and supplies 15,854 15,490
------------- -------------
$ 266,456 $ 256,770
============= =============
</TABLE>
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
FIRST QUARTER OF FISCAL 1999 COMPARED TO FIRST QUARTER OF FISCAL 1998
NET REVENUES Net revenues increased by 8.9%, reflecting a 5.5% increase in sales
volume and a shift in sales mix to the Robert Mondavi Winery and Robert Mondavi
Coastal brands, which have higher net revenues per case.
COST OF GOODS SOLD Cost of goods sold increased by 14.3%, reflecting the
increase in sales volume and a shift in sales mix to wines with higher average
costs 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 45.5% compared to 48.1% a year ago. The gross profit percentage
is expected to improve during the remainder of the fiscal year, compared to the
first quarter of fiscal 1999, due to an anticipated shift in sales mix to wines
with lower average costs per case.
OPERATING EXPENSES Operating expenses increased by 6.9% due primarily to the
increase in sales volume. The ratio of operating expenses to net revenues was
28.1% compared to 28.6% a year ago.
INTEREST Interest expense increased by 30.8% 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 the timing of Opus One's fall release, which
resulted in a higher percentage of Opus One's case shipments during the first
quarter of fiscal 1999 when compared to the corresponding period of fiscal 1998.
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.
6
<PAGE> 7
LIQUIDITY AND CAPITAL RESOURCES
The 1998 harvest began later than the previous year's harvest and as a
result, increases in inventories and amounts payable to growers during the
quarter were less significant than during the same period of the prior year.
Cash and cash equivalents decreased by $2.7 million during the quarter
as cash used in investing and financing activities exceeded cash provided by
operations. Cash provided from operations totaled $20.8 million, reflecting net
income, as well as the non-cash impact on pre-tax income of depreciation and
amortization and a seasonal decrease in accounts receivable. Cash of $14.7
million was used in investing activities for vineyard development and purchases
of barrels and production equipment for the 1998 harvest. Cash used in financing
activities of $8.8 million reflects repayments of long-term debt and a book
overdraft.
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's short-term credit lines expire on December 25, 1998. The
Company expects to renew the short-term credit lines for at least their current
availability of $71.5 million.
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 18 Letter re Change in Accounting Principle.
Exhibit 27 Financial Data Schedule (not considered to be filed)
2) Form 8-K:
No reports on Form 8-K were filed during the quarter ended
September 30, 1998
7
<PAGE> 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, 1998 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.
8
<PAGE> 1
EXHIBIT 18
LETTER RE CHANGE IN ACCOUNTING PRINCIPLE
To the Board of Directors
of The Robert Mondavi Corporation
We have been furnished with a copy of the Corporation's Form 10-Q for the
quarter ended September 30, 1998. Note 1 therein describes a change in the
method of determining the cost of inventories from the last-in, first-out (LIFO)
method to the first-in, first-out (FIFO) method. It should be understood that
the preferability of one acceptable method of inventory accounting over another
has not been addressed in any authoritative accounting literature and in
arriving at our opinion expressed below, we have relied on management's business
planning and judgement. Based upon our discussions with management and the
stated reasons for the change, we believe that such change represents, in your
circumstances, the adoption of a preferable alternative accounting principle for
inventories in conformity with Accounting Principles Board Opinion No. 20.
We have not made an audit in accordance with generally accepted auditing
standards of the financial statements of The Robert Mondavi Corporation for the
three-month periods ended September 30, 1998 or 1997 and, accordingly, we
express no opinion thereon or on the financial information filed as part of the
Form 10-Q of which this letter is to be an exhibit.
Yours very truly,
/s/ PRICEWATERHOUSECOOPERS LLP
- -------------------------------
PricewaterhouseCoopers LLP
San Francisco, CA
October 19, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 56,915
<ALLOWANCES> 0
<INVENTORY> 266,456
<CURRENT-ASSETS> 329,815
<PP&E> 318,179
<DEPRECIATION> 91,722
<TOTAL-ASSETS> 584,864
<CURRENT-LIABILITIES> 72,930
<BONDS> 209,556
0
0
<COMMON> 91,327
<OTHER-SE> 188,963
<TOTAL-LIABILITY-AND-EQUITY> 584,864
<SALES> 71,361
<TOTAL-REVENUES> 71,361
<CGS> 38,888
<TOTAL-COSTS> 38,888
<OTHER-EXPENSES> 20,027
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,305
<INCOME-PRETAX> 13,001
<INCOME-TAX> 5,005
<INCOME-CONTINUING> 7,996
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,996
<EPS-PRIMARY> .52<F1>
<EPS-DILUTED> .51<F2>
<FN>
<F1>Represents Basic EPS, calculated in accordance with SFAS No. 128.
<F2>Represents Diluted EPS, calculated in accordance with SFAS No. 128.
</FN>
</TABLE>
