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National Wine & Spirits Inc · 10-K · For 3/31/00

Filed On 6/28/00, 5:23pm ET   ·   Accession Number 927946-0-85   ·   SEC File 333-74589

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  As Of                Filer                Filing    For/On/As Docs:Size              Issuer               Agent

 6/28/00  National Wine & Spirits Inc       10-K        3/31/00    6:224K                                   Ice Miller Dona..Ryan/FA

Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         58    248K 
 2: EX-3.1      Amended and Restated Articles of Incorporation         8     30K 
 3: EX-3.2      Amended and Restated By-Laws                          16     66K 
 4: EX-12       Statement Regarding Computation of Ratios              1      6K 
 5: EX-24       Specific Power of Attorney                             6     21K 
 6: EX-27       FDS National Wine & Spirits Inc.                       1      7K 


10-K   —   Annual Report
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
3Item 1. Business
15Item 2. Properties
16Item 3. Legal Proceedings
"Item 4. Submission of Matters to a Vote of Security Holders
17Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
"Item 6. Selected Consolidated Financial Data
19Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
27Item 7a. Quantitative and Qualitative Disclosures About Market Risk
28Item 8. Financial Statements and Supplementary Data
47Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
48Item 10. Directors & Executive Officers of the Registrant
50Item 11. Executive Compensation
51Item 12. Security Ownership of Certain Beneficial Owners and Management
52Item 13. Certain Relationships and Related Transactions
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended March 31, 2000. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 333-74589 NATIONAL WINE & SPIRITS, INC. ----------------------------- (Exact name of registrant as specified in its charter) Indiana 35-2064429 35-2064429 ------------------ ---------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) P.O. Box 1602, 700 W. Morris Street, Indianapolis, Indiana 46206 ---------------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) (317) 636-6092 -------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 by Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any Amendment to this Form 10-K. [ X ] The registrant is a privately held corporation. As such, there is no practicable method to determine the aggregate market value of the voting stock held by non-affiliates of the registrant. The number of shares of Common Stock, $.01 par value, of National Wine & Spirits, Inc. outstanding as of March 31, 2000 was 5,330,521, of which 104,520 were voting stock. Documents Incorporated by Reference: None
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TABLE OF CONTENTS Page ---- Part I Item 1. Business 3 Item 2. Properties 15 Item 3. Legal Proceedings 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 17 Item 6. Selected Consolidated Financial Data 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Item 7a. Quantitative and Qualitative Disclosures About Market Risk 27 Item 8. Financial Statements and Supplementary Data 28 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 47 Part III Item 10. Directors and Executive Officers of the Registrant 48 Item 11. Executive Compensation 50 Item 12. Security Ownership of Certain Beneficial Owners and Management 51 Item 13. Certain Relationships and Related Transactions 52 Part IV Item 14. Exhibits, Financial Statements, Schedules and Report on Form 8-K 54 2
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Part I Disclosure Regarding Forward-Looking Statements This Form 10-K, including, but not limited to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" sections, contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology, such as "may," "intend," "will," "expect," "anticipate," "should," "plans to," "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. In particular, any statement, express or implied, concerning future operating results or the ability to generate revenues, income or cash flow to service the Notes are forward-looking statements. Although the Company believes that the expectations will prove to have been correct. All forward-looking statements are expressly qualified by such cautionary statements, and the Company undertakes no obligation to update such forward-looking statements.  Item 1. Business General National Wine & Spirits, Inc. (NWS) is one of the largest distributors of wine and spirits in the United States. NWS is the largest distributor of spirits in Indiana with 56% market share and Michigan with 57% market share, and one of the largest in Illinois with 30% market share. NWS' markets include Chicago and Detroit, which are the largest and the sixth largest metropolitan markets for spirits in the United States, respectively. NWS conducts its operations through its wholly owned subsidiaries, NWS Corporation in Indiana ("NWS-Indiana"), NWS Illinois, LLC ("NWS-Illinois") and NWS Michigan, Inc. ("NWS- Michigan"). NWS is the exclusive distributor in one or more of its markets for many of the world's leading suppliers of brand name domestic and imported spirits, including Diageo-UDV (Diageo), formed through the merger of United Distillers (Guinness) and International Distillers and Vintners (Grand Metropolitan), Fortune Brands, Allied Domecq, and Seagram. NWS' featured brands include: o Absolut; o Chivas Regal; o Crown Royal; o DeKuyper; o Jim Beam; o Jose Cuervo; o Smirnoff; o Kahlua; o Maker's Mark; and o Canadian Club. 3
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NWS also is the exclusive distributor in Indiana and Illinois for many of the world's leading wineries, including: o Banfi Vintners, featuring Riunite and other Italian and Chilean wines; o Canandaigua, featuring Inglenook, Paul Masson, and Almaden wines; o Seagram, featuring premium European and California wines; and o Sebastiani, featuring Vendange and Talus o Kendall Jackson NWS operates 12 strategically located distribution facilities and a fleet of approximately 350 delivery vehicles to provide overnight or second-day delivery to over 36,000 retail locations, including package liquor stores, drug and grocery stores, mass merchandisers, hotels and restaurants and bars. NWS' customers include both local and regional businesses as well as national chains such as American Stores (Osco), Walgreens, CVS, Sam's Club, Meijer, Morton's, Ruth's Chris, T.G.I.Friday's, and Hyatt. In select locations, NWS also distributes premium domestic and imported beer and other products. From 1996 to 2000, NWS' total revenue increased steadily from $443.3 million to $625.8 million, representing a compound annual growth rate of 9.0%, while NWS' EBITDA increased from $14.4 million to $26.5 million, representing a compound annual growth rate of 16.4%. NWS achieved this performance by successfully integrating several strategic acquisitions since 1992, actively developing new geographic market areas, pursuing new supplier and brand relationships, implementing advanced product handling technology and proprietary information systems, and providing high levels of supplier and customer service. Under the three-tier regulatory framework established by federal and state law, suppliers of alcohol-based beverages are generally prohibited from selling their products directly to retail outlets or consumers, effectively requiring suppliers to use distributors such as NWS. This regulatory framework effectively insulates distributors from vertical competition from suppliers or retail customers. In some states, referred to as "control states", state law has historically mandated the state to act as the exclusive wholesale distributor and/or retailer of alcohol-based beverages. In 1996, Michigan became the first control state to privatize aspects of the wholesale distribution of spirits, and NWS has become the leading distributor of spirits in that state. Industry Overview The United States alcohol-based beverage industry generated total annual retail sales of approximately $113.5 billion in 1999. Sales of wine and spirits, in which NWS primarily competes, accounted for approximately 14% and 31%, respectively, or an estimated $50.2 billion of total retail sales in 1999. In the United States spirits market, total revenues on a per case basis have increased since 1994, more than offsetting a general decline in the volume of spirits sold. Wine consumption has increased nationally and in Indiana, Illinois and Michigan since 1993 and management believes the demand for high quality wine will continue to grow. Similar to the trend in the spirits industry, consumers have been purchasing higher quality and more expensive wines. 4
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Since the repeal of Prohibition in 1933, the federal and state governments have regulated the sale of spirits, wine, and beer. State regulatory frameworks fall into three types: control, open and open-franchise. In nearly all circumstances, suppliers may not legally sell directly to retailers. In the 18 control states, the state controls either the distribution, the retail sale or both. In open states, including Indiana and Illinois, the distributors and retailers are privately owned businesses. In the open-franchise states, there are laws and regulations, which restrict the suppliers' ability to change distributors. Given the three tier regulatory structure, the wine and spirits distribution industry varies greatly from distribution businesses serving other industries such as food, drugs, non-alcohol-based beverages and paper products. Margins in these other industries are often much lower, as suppliers can compete with or bypass distributors. Some distributors in other industries are also more sensitive to economic cycles relative to NWS and its competitors. Competitive Strengths Market Leadership. NWS is the largest distributor of spirits in Indiana and Michigan and one of the largest in Illinois. NWS' market leadership reflects its strong relationships with both suppliers and customers and provides NWS with numerous advantages over smaller distributors, including significant economies of scale and increased purchasing power. NWS maintains and seeks to enhance its market leadership by providing high levels of service to its suppliers and customers and through its investments in technology and information systems. Strong Supplier Relationships NWS' success is due in part to its long-standing relationships with its major wine and spirits suppliers, many of which extend back more than 25 years. The strength of these relationships was recently demonstrated when each of NWS' three largest suppliers, Seagram, Fortune Brands and Diageo, selected NWS over numerous competitors to be its exclusive distributor of spirits in Michigan. In Indiana and Michigan, NWS is the exclusive distributor of seven out of the top ten brands of spirits sold in the United States, including Absolut, Jim Beam, Jose Cuervo, Popov, Seagram's Gin, Seagram's 7 Crown and Smirnoff. In Illinois, NWS is the exclusive distributor of four out of the top ten U.S. brands. NWS also represents a significant share of each of its major suppliers' total United States business. In calendar 1999, NWS distributed approximately 17% of all cases of spirits sold in the United States by Seagram, and 11% of all cases of spirits sold by Fortune Brands. Stable Industry and Diversified Customer Base. Total wine and spirits industry revenues have grown steadily over the past 25 years, even during periods of economic decline. NWS offers products to over 36,000 retail locations and no single customer or chain represented more than 6.2% of NWS' 2000 total revenue. Moreover, the three-tier regulatory framework established by federal and state law generally prohibits vertical integration by suppliers and retailers and thereby enhances the stability of the wine and spirits distribution industry. NWS believes that the nature of the wine and spirits distribution industry and NWS' diverse customer base provide it with increased stability and predictability of cash flow relative to distributors in many other industries. Customer Service Focus. NWS' commitment to highly effective customer service has also been a major factor in its historical success. Management emphasizes on-time delivery, product availability, the ability to accept last-minute orders and special orders for low volume or unusual items, and reliability on a long-term basis. NWS provides numerous value-added services to its customers, including category management, customized advertising and point-of-sale materials, customized packaging and on-line electronic ordering. Management believes that highly effective customer service strengthens customer relationships, thereby improving product positioning and sell-through to the consumer. 5
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Advanced Infrastructure, Distribution Network and Information Systems. NWS maintains an extensive distribution network consisting of master warehouses, hyper-terminals and cross-docking facilities strategically located across Indiana, Illinois and Michigan and a fleet of approximately 350 delivery vehicles. This distribution system generates significant operating leverage by enabling NWS to deliver hundreds of suppliers' products from each master warehouse and optimize delivery routes by maximizing the density of customer locations served from each facility. NWS is investing more than $6 million over 18 months to expand existing Indianapolis facilities as well as upgrade and computerize material handling systems. NWS also utilizes supplier and customer ordering via electronic data interchange, internet interfaces and on-line reporting systems used by suppliers to track sales. In addition to enhancing supplier and customer relationships, the implementation of these systems has improved NWS' efficiency and enabled NWS to remain a low cost provider. Experienced Management Team. The seven individuals who comprise NWS' senior management team have an average of over 24 years of experience in the alcohol-based beverage industry and 12 years of experience with NWS. In addition, NWS' senior management team has successfully integrated eight acquisitions since 1992. Management's experience and expertise have enabled NWS to establish and maintain long-term relationships with both suppliers and customers and take advantage of consolidation and privatization opportunities. Operating Strategy Continue to Maximize Operating Leverage. As the largest or one of the largest wine and spirits distributors in each of its markets, NWS continuously seeks to minimize its operating costs by leveraging its resources in the areas of warehousing, transportation, general and administrative functions and information systems to create economies of scale. The fixed nature of many of these costs enables NWS to generate a higher level of profitability on incremental increases in volume and price. In addition, NWS' facilities in Illinois and Michigan have additional capacity, which positions NWS to take advantage of future expansion opportunities in these markets with relatively low capital expenditures. Growth through Addition of New Brands Long-term relationships are critical to maintaining supplier and brand continuity with distributors. Although brand movements among distributors are relatively rare as the result of these relationships, consolidation of distributors or suppliers can affect existing relationships and present NWS with opportunities to add brands affected by the consolidation. Selectively Pursue Strategic Acquisitions and Joint Ventures. NWS plans to continue to strengthen its competitive position by selectively acquiring other distributors and entering into strategic joint ventures both in its current markets and in contiguous markets. These strategic opportunities may arise for several reasons, including: (1) suppliers sometimes encourage the consolidation of distributors in order to reduce costs and improve efficiency. (2) most distributors are family businesses, and acquisition opportunities can develop as owners approach retirement age without a definite succession plan; and (3) many distributors lack the resources and supplier support to meet the demands of large suppliers, including expanding outside of their brand lines or geographic markets. Management believes NWS' reputation with suppliers and customers, as well as its financial position, market share and established infrastructure, make NWS an attractive buyer of, or strategic partner for, other distributors. 6
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As an example of this strategy, in December, 1998, NWS formed a new Kentucky distributorship, Commonwealth Wine & Spirits, LLC, in partnership with two existing Kentucky-based distributors, The Vertner Smith Company and Kentucky Wine & Spirits. NWS invested $7.5 million ($4.5 million in cash and a $3.0 million cash franchise fee), in exchange for 25% of the new company. Vertner and Kentucky W&S equally own the remaining 75%. Continue to Invest in Logistics Technology and Information Systems. The wine and spirits distribution industry is a relatively mature industry, which is not extensively automated. Many of NWS' competitors continue to rely primarily on manual processes and limited technology. NWS plans to expand on its recent investments in sales and logistics technology and sales and marketing information systems to further reduce costs and improve service to its customers and suppliers. Capitalize on Further Privatizations. NWS' established reputation and relationships with its major suppliers has made it the leading spirits distributor in Michigan, the first control state to privatize aspects of its wholesale spirits distribution business. NWS believes that other control states may choose to privatize all or part of their wholesale distribution business, which may allow NWS to expand its geographic markets without acquiring or merging with existing distributors. Should any such privatization opportunities arise, particularly in the central United States, NWS plans to selectively pursue such opportunities by leveraging its experience in Michigan, its strong relationships with suppliers and its distribution expertise. Suppliers and Products NWS represents many of the largest suppliers of wine and spirits in the United States, and offers hundreds of brands and more than 12,000 individual products. The breakdown of sales among wine, spirits and other products distributed by NWS in 1998, 1999, and 2000 is as follows: [Enlarge/Download Table] Wine (in thousands) Spirits (in thousands) Other (in thousands) ------------------- ---------------------- -------------------- 1998 1999 2000 1998 1999 2000 1998 1999 2000 Product sales .......... $125,861 $143,339 $149,160 $342,594 $355,807 $377,437 $36,686 $36,375 $ 78,390 Distribution fees ...... -- -- -- $ 16,270 17,832 20,770 -- -- -- Percentage of total Company revenue ...... 24.1% 25.9% 23.8% 68.8% 67.5% 63.6% 7.1% 6.6% 12.6% In Michigan, spirits distributors have exclusive relationships with suppliers by law, and receive distribution fees from suppliers as set by the state, rather than purchasing from the suppliers for resale to customers. This arrangement has the effect of understating the importance of spirits in NWS' overall product mix. For purposes of illustrating the scale of NWS' operations in Michigan, the total wholesale prices of products delivered by NWS for Michigan in 1998, 1999, and 2000 was $280.5 million, $305.2 million, and $365.1 million, respectively, based on the fixed wholesale prices of the spirits delivered by NWS. NWS' products include the following brands, among many others: Product Type Brand Names Vodka: Absolut Popov Vox Smirnoff Grey Goose Stolichnaya Gordons Belvedere Bourbon and Blended Whiskey: Crown Royal Seven Crown Jim Beam Wild Turkey Seagram's V.O. Windsor Canadian Knob Creek 7
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Scotch and Single Malt Whiskey: Chivas Regal Glenlivet Grant's Isle of Jura Balvenie J&B Rare Bowmore Springbank Glenfiddich Gin: Boodles Gilbey's Seagram's Gordons Rum: Captain Morgan Myers Malibu Ronrico Tequila: Herradura Patron Jose Cuervo Margaritaville Cognacs/Brandy: Hine Martell Remy Martin Specialty Spirits: Chambord DeKuyper Cordials Bailey's Irish Cream Jagermeister Campari TGI Friday's Hiram Walker Cordials Kahlua Wine: Almaden Inglenook Banfi Perrier Jouet Beringer Sebastiani Caymus Stags Leap Chateau Lafite Sterling Rothschild Veuve Clicquot Gundlach Bundschu Kendall Jackson Specialty Beer: Goose Island Rogue Ales Grolsch Sierra Nevada Petes Wicked Ale Non-Alcohol: Cameron Springs Perrier Evian Stewart's Sobe Nantucket Nectars NWS has entered into written distribution agreements with several of its principal suppliers which generally may be extended on an annual basis but are terminable upon 30 days or 60 days written notice to NWS. In addition, NWS has informal arrangements with many of its suppliers whereby NWS distributes the suppliers' products pursuant to purchase orders without written distribution agreements. Although the written agreements provide NWS with the non-exclusive right to distribute the suppliers' products in a particular state, in practice the suppliers have generally selected a distributor to be the exclusive distributor of specified products in each state. In each of Indiana, Illinois and Michigan, NWS is presently acting as the exclusive distributor with respect to virtually all of the products it distributes in that state. The following chart summarizes information about the leading spirits suppliers in the United States, their rank in Indiana, Illinois and Michigan, the length of NWS' relationship with those suppliers and their impact on 2000 case sales. 8
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[Enlarge/Download Table] Length of State Rank Company Percentage of Supplier (calendar 1998) Relationship Company 2000 (by U.S. Rank)(1) IN IL MI (in years)(2) Cases (3) Representative Brands ----------------- -- -- -- ------------- --------- --------------------- 1. Diageo (4)............. 3 * 1 26 11.4% Smirnoff and Jose Cuervo 2. Seagram................ 2 2 3 26 23.1 Absolut and Crown Royal 3. Fortune Brands......... 1 6 2 24 11.7 Jim Beam ----------- <FN> (1) Based on calendar 1999 industry sales information. (2) All of the relationships expressed in this column represent the duration of NWS' relationship with the suppliers or their predecessors in the Indiana market. (3) Represents Wine and Spirits cases only. (4) Diageo represents that portion of Diageo PLC formed by merger between United Distillers and International Distillers & Vintners. NWS does not represent Diageo's interest in the Schieffelin & Somerset joint venture which remains a separate organization. * Not represented by NWS in the referenced state. </FN> Top United States wine brands and wineries represented by NWS include Beringer, Canandaigua, Inglenook, Sebastiani, and Kendall Jackson. NWS currently does not distribute wine in Michigan. Major wine producers served by NWS in Indiana and Illinois include: [Enlarge/Download Table] Length of Company U.S. State Representation Relationship Supplier/Winery Rank(1) IN IL(2) (in years)(3) Representative Brands --------------- ------- -- ----- ------------- --------------------- Canandaigua Brands...... 2 X X 26 Inglenook and Paul Masson Sebastiani Vineyards.... 5 X X 16 Sebastiani and Vendange Sutter Home Winery...... 4 X 6 Sutter Home Banfi Vintners.......... 7 X X 26 Riunite and Concha y Toro Beringer Wine Estates... 8 X 25 Beringer and Meridian Kendall Jackson......... 11 X X 1 Kendall Jackson and Cambria Seagram................. 12 X X 26 Sterling and Mumm ----------- <FN> (1) Source: 1998 Wine Market Impact Databank Review and Forecast. (2) NWS does not represent the entire brand portfolio in Illinois. (3) All of the relationships expressed in this column represent the duration of NWS' relationship with the suppliers or their predecessors in the Indiana market. </FN> 9
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Related Operations In addition to its core alcohol-based beverage distribution operations, NWS has conducted related beverage operations through a division, Cameron Springs Water Company, and through NWS' U.S. Beverage operations. Cameron Springs, a bottled water supplier in Indiana, was sold to Perrier Group for approximately $10.5 million in cash, which was in excess of net book value as of June 2000. U.S. Beverage commenced operations as a division of NWS in March, 1997 to market and sell imported, specialty and microbrewed beers and specialty malt products nationally. The brand distribution contracts related to the U.S. Beverage operations are held by an entity, which is 50% owned by NWS-Illinois. In select markets, NWS sells and distributes premium cigars primarily as a complement to NWS' distribution of fine wines and spirits. In 1998, U.S. Beverage entered into a multiyear agreement with Bass, PLC granting U.S. Beverage the exclusive U.S. distribution rights for Hooper's Hooch flavored malt beverage. The Hooper's Hooch business and its growth have provided U.S. Beverage with the critical mass to support its nationwide sales and marketing force. In April, 2000, U.S. Beverage entered into an agreement with the Goose Island Brewing Company by which U.S. Beverage will become the exclusive sales and marketing firm for the Goose Island brand throughout the United States. This arrangement facilitates the expansion of U.S. Beverage's sales force in the Central U.S. and will increase revenues by $10 million annually. Customers Most states, including Indiana, Illinois and Michigan, require wine and spirits retailers to purchase alcohol-based beverages from licensed distributors. Suppliers in these states may not legally sell directly to retail customers. NWS' customers fall into two broad categories depending on where the alcohol-based beverage ultimately will be consumed: on-premise and off-premise. Off-premise customers include package liquor stores, grocery stores, drug stores and mass merchandisers. On-premise customers include hotels, restaurants and bars, and similar establishments. NWS currently serves over 36,000 retail locations in Indiana, Illinois and Michigan. No single customer represented more than 6.2% of NWS' 2000 net sales. As is customary in the industry, NWS' products are generally purchased under standard purchase orders and not under long-term supply contracts. As a result, backlog is not meaningful in the wholesale distribution industry. The following table summarizes NWS' customer base: [Enlarge/Download Table] Percentage of Type of Customer Company 2000 Revenue Representative Customers ---------------- -------------------- ------------------------ Off-Premise Package Stores 44.3% Gold Standard and Cap'n Cork Grocery stores, drug stores and mass merchandisers 30.0% Kroger, Dominicks, Marsh, American Stores (Osco), Walgreens, CVS, Sam's Club, Meijer Other 0.4% 7-Eleven, White Hen, Village Pantry ----- Percent of total 74.7% ===== On-Premise Restaurants and Bars 23.5% Charlie Trotter's, Hard RockCafe, House of Blues, Mortons, Lettuce Entertain U, Levy, Ruth's Chris Hotels 1.3% Four Seasons, Hyatt, Hilton, Other 0.5% Crooked Stick Golf Course, the United ----- Center, American Legion Percent of total 25.3% ===== 10
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Management believes that the number and diversity of NWS' customers and the nature of NWS' business strengthens NWS' liquidity. The prompt payment of NWS' invoices is governed by law in all states in which NWS operates. Indiana has a 15-day credit law beyond which retail customers are restricted from buying alcohol-based beverages from any distributor in the market. Illinois has a similar 30-day credit law. Typically, NWS' bad debt expenses are incurred less than 30 days after shipment since the credit laws prohibit extension of terms. Average bad debt expense for the past five years has been less than 0.10% of revenue. Marketing and Sales Supplier and Customer Services. NWS' marketing and sales programs add value for suppliers and customers beyond storage and distribution. Through its approximately 600-person marketing and sales force, NWS acts as the field marketing and merchandising arm of its suppliers by maintaining regular contact with NWS' off-premise and on-premise customers. NWS customizes national marketing programs developed by its suppliers for specific retail locations in seeking to derive maximum benefit for the supplier and customer at each specific retail location. NWS provides its customers with a wide variety of services, including conducting promotional events, building product displays, designing shelf sets, cross-marketing between off-premise and on-premise locations, and, in Michigan, accounts receivable collection. Management believes that NWS is a market leader in developing and implementing marketing programs to improve alcohol-based beverage sales for both suppliers and customers. Marketing and Sales Teams. NWS divides its marketing and sales forces by product brands and geographic region. Field sales representatives provide the primary source of contact with the customer's retail locations. Brand managers, who concentrate on a small number of suppliers and brands, are responsible for product pricing, promotion and all other marketing and sales activity related to their brands. NWS recently formed a National Accounts Division, which is responsible for customers with a national profile. Sales and marketing personnel are compensated under various compensation plans, which typically combine base pay with a productivity bonus. Members of senior management also are very active in maintaining supplier and customer relationships with incentive compensation based on subsidiary, division or company-wide performance. Sales and Marketing Information Systems. NWS' management information systems are very important to NWS' sales and marketing efforts. Through its proprietary information systems, NWS seeks to offer improved levels of service to suppliers and customers through prompt and accurate product deliveries, demographic information regarding the purchase and sale of alcohol-based beverages and other important sales and consumption information. Retail locations can utilize this information to make decisions regarding product placement in the wine and spirits sections of their stores, while suppliers can utilize this information to quickly analyze sell-through by product in a particular customer location. Warehousing and Distribution NWS utilizes a series of four master warehouses, three hyper-terminals and five cross-docking facilities strategically located throughout Indiana, Illinois and Michigan to store and ship its products pending sale to customers. NWS uses common carriers to transport products from suppliers to its master warehouses. Master warehouses located in Chicago, Indianapolis and Detroit serve as the primary storage facilities for NWS' inventory. A smaller master warehouse is located in Champaign, Illinois. Upon receipt of the product at one of the master warehouses, the products are inspected and stored on pallets or in racks. Temperature-sensitive products, such as fine wines, are stored in temperature-controlled areas of the warehouses. Hyper-terminals located in Peoria, Illinois, South Bend, Indiana and Grand Rapids, Michigan stock only high volume products and provide an extension of the master warehouses. NWS strives to optimize inventory levels, taking into account minimum out-of-stock percentages, projected sales, including seasonal demands, periodic supplier shipments to meet supplier sales requirements and working capital requirements. 11
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NWS' customers ordinarily receive either next day or second-day delivery. In general, orders are collected during the day for batch routing and order "picking" at night. The Chicago and Detroit master warehouses each use an automated material handling system, including scanners, automated conveyors, dispensers and sorters. Products from the master warehouses are then shuttled nightly to either a hyper-terminal or a cross-docking facility where the orders are consolidated and loaded onto delivery trucks. Cross-docking facilities located in Belleville, Illinois, Evansville, Indiana, and Traverse City, Saginaw and Escanaba, Michigan further extend the service areas of the master warehouses. Orders for delivery out of the various cross-docking facilities are picked in the master warehouses, shipped in during the night, and then transferred onto local delivery trucks for final delivery. NWS owns or leases a total fleet of approximately 350 delivery trucks, consisting of 280 delivery trucks, 18 tractors, 33 trailers, 31 vans and 5 pick-up trucks. To maximize prompt and efficient product delivery, NWS' fleet is allocated among NWS' master warehouses, hyper-terminals and cross-docking facilities located throughout Indiana, Illinois and Michigan. As a result of a number of factors including state laws and regulations, NWS maintains independent distribution networks in Indiana, Illinois and Michigan. The Indiana distribution network operates with the Indianapolis master warehouse feeding the South Bend hyper-terminal and the Evansville cross-docking facility. The Michigan distribution network operates with the Detroit master warehouse feeding the Grand Rapids hyper-terminal and the cross-docking facilities located in Escanaba, Saginaw and Traverse City. The Illinois distribution network is separated into the metropolitan Chicago area, and all other service areas. The Chicago area is serviced out of the Chicago master warehouse, while the downstate areas are serviced by the smaller Champaign master warehouse, the Peoria hyper-terminal and the Belleville cross-docking facility. Management Information Systems NWS employs customized management information systems to more efficiently utilize its material handling and distribution system. NWS' information systems help streamline its distribution network from receipt of order through final delivery by calculating and implementing efficient product selection, optimizing delivery routes to meet specific delivery times, and allocating the proper types and volume of products on specific delivery trucks. These information systems, when used in connection with NWS' material handling systems, have allowed NWS to more efficiently manage its inventory and minimize its handling costs per case primarily by reducing labor costs. NWS' commitment to technology has also advanced its sales and marketing initiatives. NWS' sales force is equipped with laptop computers, which expedites order entry and provides instant feedback to customers regarding order activity. NWS provides its customers and suppliers with the ability to directly enter and track orders via electronic data interchange. In addition, NWS' proprietary information systems provide its sales and marketing personnel, customers and suppliers with access to a database of information regarding the purchase and sale of alcohol-based beverages in specific geographic markets. NWS' suppliers have immediate access to information regarding product and demographic trends within specific geographic markets and NWS' customers have access to information regarding popular products or other trends from similarly situated retail locations. Management believes that its management information systems enhance its operating performance and improve its relationships with customers and suppliers. Competition The wine and spirits wholesale distribution business is highly competitive. The principal competitive factors include service, breadth and availability of product brands offered and, to a lesser extent, price. Distributors compete for new suppliers or brands based on reputation, market share, access to customers and ability to satisfy supplier demands. Given its size, supplier relationships, distribution networks and low operating costs, NWS is well positioned to compete in Indiana, Illinois and Michigan. NWS' primary competition in Illinois includes Romano Brothers and Judge & Dolph. Romano Brothers has recently joined with Glazer's Wholesale Distributing of Dallas, Texas to enter the Indiana market by acquiring a controlling interest in Olinger Distributing, the second largest Indiana distributor and the only meaningful Indiana competitor. None of the ten largest United States distributors competes with NWS in Michigan. 12
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There are significant barriers to entry into the wholesale wine and spirits distribution business. These barriers include established supplier-distributor relationships, specialized distribution equipment such as material handling systems and delivery vehicles, important industry knowledge regarding pricing, inventory management, and distribution logistics. Historically, it is extremely rare for organizations not already engaged as wine and spirits distributors to enter other markets. New distributors typically enter existing markets through acquisition. Environmental Matters NWS currently owns and leases a number of properties, and historically it has owned and/or leased others. Under applicable environmental laws, NWS may be responsible for remediation of environmental conditions relating to the presence of hazardous substances on such properties. The liability imposed by such laws is often joint and several without regard for whether the property owner or operator knew of, or was responsible for, the presence of such hazardous substances. In addition, the presence of such hazardous substances, or the failure to properly remediate such substances, may adversely affect the property owner's ability to borrow using the real estate as collateral and to transfer its interest in the real estate. Although NWS is not aware of the presence of hazardous substances requiring remediation, there can be no assurance that releases unknown to NWS have not occurred. Except for blending and bottling of a few of its own brands, NWS does not manufacture any of the wine or spirit products it sells and believes that it has conducted its business in substantial compliance with applicable environmental laws and regulations. Employees As of March 31, 2000, NWS had approximately 1,550 employees. Approximately 142 employees in Michigan and 403 employees in Illinois are represented by labor unions. In Illinois, NWS has relationships with three unions: (1) Teamsters Union Local 744, expiring March 2, 2002; (2) Liquor and Allied Workers Union Local 3, annual agreements; and (3) Teamsters, Chauffeurs & Helpers Union Local 50, expiring August 31, 2001. In Michigan, NWS has relationships with three unions: (1) Teamsters Union Local 337, expiring March 2, 2001; (2) Teamsters Union Local 299, expiring March 2, 2001; and (3) Teamsters Union Local 486, expiring March 2, 2001. Employees of NWS in Indiana are not represented by any labor unions. NWS has not experienced any work stoppages in more than 16 years as a result of labor disputes and considers its employee relations to be good. Regulatory Considerations The manufacturing, importation, distribution and sale of alcohol-based beverages is subject to regulation by the federal government through the Department of the Treasury, Bureau of Alcohol, Tobacco and Firearms, as well as by state and local regulatory agencies. Suppliers, distributors and customers must be properly licensed in order to sell alcohol-based beverages. 13
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In most states, the alcohol-based beverage industry operates within what is commonly referred to as a three-tier system of distribution. The three tiers are identified as follows: (1) tier one is comprised of suppliers which produce alcohol-based beverages and/or importers of alcohol-based beverages; (2) tier two is comprised of distributors, such as NWS; and (3) tier three is comprised of retail licensees. Under this system, suppliers sell to distributors, distributors sell to retailers, and retailers sell to consumers. Suppliers may not sell to retailers or consumers and distributors may not sell directly to consumers. Most states prohibit suppliers or distributors from having an interest in retail licensees. NWS directly and through its affiliates holds federal basic permits and state permits/licenses as a distributor and importer. Also, NWS-Illinois holds out-of-state shipper permits that allow it to ship products from one state to a licensed distributor in any one of the other states. NWS is required to have each of its officers, directors and principal stockholders who owns 5% or more of the issued and outstanding stock qualified by federal and state governmental agencies to have an interest in a licensed company. NWS' officers, directors and principal stockholders have been, or are in the process of being, deemed to be qualified parties by ATF and state regulatory agencies. Suppliers and retail licensees selling directly to consumers are more heavily regulated than distributors by governmental authorities. Distributors like NWS face scrutiny in a number of important areas, including initial licensing or permitting and sales and marketing activities with or on behalf of retail customers. The distributors may not give or transfer anything of value to their customers in exchange for business or other consideration. The definition of "value" differs from state to state. NWS participates in significant promotional activities for suppliers and customers. Suppliers also are increasingly asking distributors to be responsible for activities and related costs formerly undertaken by suppliers as suppliers pursue ways to reduce their operating costs. These increased demands will likely challenge distributors, including NWS, which desire to meet the wishes of their suppliers and customers. As a result, NWS regularly provides training and education programming for its sales and marketing personnel. NWS believes that it is in compliance with applicable regulations in all material respects. Consistent with industry practice, the sales and marketing activities permitted by distributors for the benefit of tier one suppliers are generally regulated by state licensing authorities, many of which regularly advise distributor representatives of activities that would not be the subject of enforcement action for failure to comply with all regulations they administer. NWS relies on such enforcement guidance, which is subject to change at the discretion of the regulatory authorities, in determining the scope of its permitted sales and marketing activities. As part of its regulatory compliance program, NWS is in frequent contact with regulatory agencies so that NWS can: (1) be kept current on regulatory developments affecting NWS; (2) obtain answers from the agencies to questions from company personnel regarding compliance issues; and (3) encourage enforcement of applicable laws and regulations on a consistent basis throughout its markets. 14
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NWS believes that prompt and consistent enforcement by the regulatory agencies is important and benefits NWS. Reorganization of the Company Historically, NWS' operations in Indiana, Michigan and Illinois have been conducted through wholly owned subsidiaries for Indiana, NWS-Indiana, and Michigan, NWS-Michigan, and through an affiliate for Illinois, NWS-Illinois. Prior to the reorganization, James E. LaCrosse, or a trust for the benefit of his family, and Norma M. Johnston owned substantially all of the voting and non-voting shares of common stock of NWS-Indiana and, together with Martin H. Bart, owned substantially all of the voting and non-voting shares of common stock of NWS-Illinois. In December, 1998, a reorganization took place which created a new holding company, NWS, into which all of the shares of capital stock in NWS-Indiana and NWS-Illinois owned by Mr. LaCrosse, or a trust for the benefit of his family, or Mrs. Johnston were contributed in exchange for shares of NWS. NWS-Indiana subsequently distributed all of its shares in NWS-Michigan to NWS. Finally, NWS-LLC was created as a new limited liability company subsidiary of NWS-Illinois into which substantially all of NWS' Illinois operations were transferred. Currently, NWS-LLC is owned 75% by NWS-Illinois and 25% by Mr. Bart. Allocations of profits and losses are different, currently 96% for NWS-Illinois and 4% for Mr. Bart. The profit and loss allocations would be subject to change in the future depending on the relative capital accounts of the members, which in turn would affect the amount of Mr. Bart's minority interest reflected in NWS' financial statements. NWS is substantially wholly owned by Mr. LaCrosse, or a trust for the benefit of his family, and Mrs. Johnston. The primary purpose of the reorganization was to establish a holding company structure for NWS-Indiana and all of its significant affiliated companies. The reorganization was accounted for as a combination of entities under common control, similar to a pooling-of-interest. As such, the NWS financial statements have been presented to reflect this accounting treatment.  Item 2. Properties NWS' distribution facilities consist of four master warehouses, three hyper-terminals and five cross-docking facilities. NWS' corporate headquarters are located in Indianapolis, Indiana. The master warehouses, located in Indianapolis, Chicago, Detroit and Champaign, serve as the primary storage facilities and regional offices for NWS. The Chicago warehouse contains approximately 650,000 square feet of warehousing space, including a designated temperature controlled area for temperature-sensitive products. The Indianapolis warehouse contains approximately 265,000 square feet of warehousing space, including a designated temperature controlled area for temperature-sensitive products. The Indianapolis warehouse is currently being expanded to 325,000 square feet of warehousing space and expected to be completed in fall, 2000. In calendar 1997, NWS completed its new Detroit warehouse consisting of approximately 237,000 square feet of warehousing space, including a material handling system and eight shipping docks. The Champaign warehouse contains 50,000 square feet of warehousing space and is designed to hold more high volume products for delivery to customers in central and southern Illinois. In September, 1999, NWS purchased a strategically located office building for future expansion. The building, which is approximately 20,000 square feet, was purchased for $1.55 million and is currently being leased entirely to eSkye.com, Inc. under a three-year agreement. 15
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The following chart lists NWS' warehouses and delivery, production and office facilities: [Download Table] Total Owned/ Square Location Leased Feet Principal Function -------- ------ ---- ------------------ Indiana Indianapolis Owned 265,000 Master Warehouse/Office South Bend Owned 76,800 Hyper-Terminal/Office Evansville Owned 5,800 Cross-Docking Facility Evansville Owned 2,400 Office Ft. Wayne Leased 5,500 Office Merrillville Leased 2,600 Office Indianapolis Owned 3,500 Office (Cameron Springs) Indianapolis Owned 15,000 Production Plant (Cameron Springs) Indianapolis Owned 20,000 Leased Office Property Illinois Chicago Owned 650,000 Master Warehouse/Office Champaign Leased 50,000 Master Warehouse/Office Peoria Leased 35,000 Hyper-Terminal/Office Belleville Leased 16,000 Cross-Docking Facility/Office Rockford Leased 5,000 Office Springfield Leased 1,000 Office Michigan Detroit (Brownstown) Leased 237,000 Master Warehouse/Office Grand Rapids Leased 100,000 Hyper-Terminal/Office Escanaba Leased 7,500 Cross-Docking Facility/Office Saginaw Leased 1,000 Cross-Docking Facility Traverse City Leased 5,000 Cross-Docking Facility NWS' lease agreements for the Detroit master warehouse and the Grand Rapids hyper-terminal each have a ten-year term, expiring April 20, 2007 and January 31, 2007, respectively, and provide NWS with an option to purchase. The Merrillville lease expires in August, 2000, which will be replaced with a 7,900 square foot leased office facility in Crown Point, Indiana.  Item 3. Legal Proceedings The Company has been named as a co-defendant in a lawsuit against a supplier, which seeks damages of $20,000,000. This suit was filed by the supplier's former distributor. The Company believes that the suit is without merit. The Company is also a party to various other lawsuits and claims arising in the normal course of business. While the ultimate resolution of lawsuits or claims against the Company cannot be predicted with certainty, management is vigorously defending all claims and does not expect that these matters will have a material adverse effect on the financial position or results of operations of the Company. The Company settled a lawsuit in April 1999 brought by several drivers of NWS-LLC for $475,000. The settlement released the Company from all claims, including legal fees.  Item 4. Submission of Matters to a Vote of Security Holders None. 16
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Part II  Item 5. Market for Registrant's Common Equity and Related Stockholder Matters There is no established trading market for the common stock of NWS.  Item 6. Selected Consolidated Financial Data You should read the following summary historical financial information in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto included elsewhere herein. Distribution fees include our per case distribution fee for cases of spirits delivered in and on behalf of the State of Michigan. We do not take title to or finance any inventory in Michigan. Please also note that we have elected "S" corporation status under the Internal Revenue Code and consequently, we do not incur liability for federal and state income taxes. The following will also assist in the review of the following financial information: o For purposes of calculating earnings to fixed charges, earnings consist of net income plus fixed charges. Fixed charges consist of interest expense, amortization of debt expense and discount or premium relating to indebtedness and the portion of rental expense on operating leases which we estimate to be representative of the interest factor attributable to rental expense. 17
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[Enlarge/Download Table] Years Ended March 31, ----------------------------------------------------------------- 1996 1997 1998 1999 2000 (Dollars and cases in thousands, except per case amount) Statement of Income Data: Net product sales $ 443,257 $ 488,071 $ 505,141 $ 535,521 $ 604,987 Distribution fees -- 2,729 16,270 17,832 20,770 --------- --------- --------- --------- --------- Total revenue 443,257 490,800 521,411 553,353 625,757 Cost of products sold 364,792 402,072 411,734 436,734 488,444 --------- --------- --------- --------- --------- Gross profit 78,465 88,728 109,677 116,619 137,313 Selling, general and administrative expenses 68,925 80,299 99,118 104,634 119,751 --------- --------- --------- --------- --------- Income from operations 9,540 8,429 10,559 11,985 17,562 Interest expense (7,935) (8,486) (9,672) (11,037) (13,274) Gain on sale of assets 172 41 4,139 188 173 Other income 1,247 1,619 2,085 341 1,394 --------- --------- --------- --------- --------- Income before extraordinary item 3,024 1,603 7,111 1,477 5,855 Extraordinary item -- -- -- 318 -- --------- --------- --------- --------- --------- Net income $ 3,024 $ 1,603 $ 7,111 $ 1,159 $ 5,855 ========= ========= ========= ========= ========= Other Financial Data: EBITDA (1) $ 14,442 $ 14,186 $ 17,674 $ 20,359 $ 26,467 EBITDA margin 3.3% 2.9% 3.4% 3.7% 4.2% Cash provided (used) by operating (6,727) 6,939 9,783 6,013 17,103 activities Cash used by investing (5,077) (9,937) (9,908) (20,846) (8,170) activities Cash provided (used) by financing activities 11,789 4,918 (1,900) 15,371 (7,282) Depreciation and amortization 4,902 5,757 7,115 8,374 8,905 Capital expenditures(2) 3,609 10,447 13,952 7,858 6,672 Ratio of earnings to fixed Charges 1.4x 1.2x 1.6x 1.1x 1.4x Adjusted EBITDA(1) 14,987 15,641 18,244 20,905 27,406 Operating Statistics: Product Sales Operations Cases shipped (spirits 6,109 6,099 6,343 6,182 6,394 and wine) Gross profit margin 17.7% 17.6% 18.5% 18.4% 19.3% Fee Operations Cases shipped -- 396 2,545 2,731 2,786 (spirits) Distribution fee per case -- $ 6.50 $ 6.50 $ 6.50 $ 6.50 [Enlarge/Download Table] Years Ended March 31, ----------------------------------------------------------------- 1996 1997 1998 1999 2000 (In thousands) Balance Sheet Data: Cash................... $ 1,475 $ 3,395 $ 1,370 $ 1,908 $ 3,559 Total assets........... 143,316 160,366 169,102 180,376 191,140 Total debt............. 86,908 99,545 102,434 117,222 112,471 Stockholders' equity... 14,209 10,470 14,582 17,774 21,126 18
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NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA (1) EBITDA is defined as income from operations plus depreciation and amortization. Adjusted EBITDA is defined as EBITDA plus non-cash LIFO charges, as follows: [Download Table] Years Ended March 31, ------------------------------------------------------- 1996 1997 1998 1999 2000 (In thousands) EBITDA................. $ 14,442 $ 14,186 $ 17,674 $ 20,359 $ 26,467 LIFO charge............ 545 1,455 570 546 939 --------- --------- --------- --------- --------- Adjusted EBITDA..... $ 14,987 $ 15,641 $ 18,244 $ 20,905 $ 27,406 ========= ========= ========= ========= ========= EBITDA is presented because it is a widely accepted financial indicator used by investors and analysts to analyze and compare companies on the basis of debt service capability. Adjusted EBITDA is presented because we believe it may assist in evaluating our ability to service our indebtedness, including the exchange notes. EBITDA and Adjusted EBITDA are not intended to represent cash flows for the periods presented, nor have they been presented as an alternative to operating income as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance and cash flow prepared in accordance with generally accepted accounting principles. The EBITDA and Adjusted EBITDA information reflected above may not be comparable to similarly titled measures used by other companies. (2) The breakdown of our capital expenditures by significant project is set forth below: [Download Table] Years Ended March 31, ------------------------------------------------------- 1996 1997 1998 1999 2000 (In thousands) Business expansion... $ 786 $ 5,855 $10,758 $4,856 $3,112 Information systems.. 1,553 2,446 1,781 1,281 970 Maintenance.......... 1,270 2,146 1,413 1,721 2,590 ------- -------- --------- -------- ------- $3,609 $10,447 $13,952 $7,858 $6,672 ======= ======== ========= ======== =======  Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion in conjunction with "Selected Consolidated Financial Data" and NWS' historical consolidated financial statements and the accompanying notes included elsewhere in this Form 10-K. Unless otherwise indicated, all references to years are to NWS' fiscal year ended March 31. Disclosure Regarding Forward-Looking Statements This Form 10-K, including, but not limited to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" sections, contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the 19
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use of forward-looking terminology, such as "may," "intend," "will," "expect," "anticipate," "should," "plans to," "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. In particular, any statement, express or implied, concerning future operating results or the ability to generate revenues, income or cash flow to service the Notes are forward-looking statements. Although the Company believes that the expectations will prove to have been correct. All forward-looking statements are expressly qualified by such cautionary statements, and the Company undertakes no obligation to update such forward-looking statements. Overview NWS is one of the largest distributors of wine and spirits in the United States. Substantially all of NWS' current operations are in Illinois, Indiana and Michigan. NWS' reported revenues include net product sales in Indiana and Illinois, the U.S. Beverage sales operation, and distribution fees in Michigan. In Indiana and Illinois, NWS' net product sales are comprised of sales to retail customers of wine and spirits products and, to a much lesser extent, beer, water and other related products. NWS purchases these products from suppliers and resells them to customers at more than 24,000 retail locations in Indiana and Illinois through NWS' approximately 600 person sales organization. U.S. Beverage purchases products from brewers and resells them through distributors across the United States. In Michigan, which privatized aspects of its wholesale distribution of spirits in 1996, NWS serves as an "authorized distribution agent" for the state and collects a flat $6.50 per case delivery fee set by the state and paid by suppliers for each case of spirits delivered to approximately 12,000 locations throughout Michigan. NWS does not take title to or finance any inventory in Michigan and operates with a relatively small sales force. The Company experienced increases in both product and distribution fee revenue for the year ended March 31, 2000, over the prior fiscal year. This increase in revenue resulted from increased case sales along with a greater average case sale price. Price increases in the product markets, along with a shift by consumers to premium products were responsible for the revenue gains. Distribution fee revenue and case volume increased for the year ended March 31, 2000, over the comparable fiscal year due to the acquisition of new suppliers. The distribution fee product mix has shifted to a higher percentage of bottle business i.e. less than a full case sale, thus increasing labor and operational cost. In FY 2000, NWS obtained additional brands in Illinois, Indiana, and Michigan. NWS became the exclusive distributor for Kendall Jackson Winery in Indiana and parts of Illinois (the Chicago-land area and most of downstate), adding approximately $22.0 million in revenue on 200,000 cases. In Michigan, the brands of Allied Domecq were added (July), generating $1.6 million in revenue on more than 250,000 cases. Through the sale of the Black Velvet, Christian Brothers (both in May), and Arrow brands (February) by Diageo, NWS lost approximately 350,000 cases in Michigan and 29,000 in Indiana (costing approximately $5.1 million in annual revenue). Robert Mondavi Winery and Ketel One left the Indiana operation (in June and July, respectively) taking with it approximately 60,000 cases and $4.8 million in annual sales. 20
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Results of Operations The following table includes information regarding total cases shipped by NWS in 1998, 1999 and 2000: [Enlarge/Download Table] Years ended March 31, 1998 1999 2000 ---------- -------------------- ---------------- Percent Percent Cases Cases Change Cases Change (Cases in thousands) Wine (product sales operations) 2,981 2,928 (1.8)% 3,044 4.0 Spirits (product sales operations) 3,362 3,254 (3.2) 3,350 3.0 ------ ------ ----- ------ ---- Spirits (distribution fee operations) 2,545 2,731 7.3 2,786 2.0 Total wine and spirits 8,888 8,913 0.3 9,180 3.0 Other* 1,971 2,764 40.2 4,274 54.6 ------ ------ ----- ------ ---- Total 10,859 11,677 7.5% 13,454 15.2 ====== ====== ===== ====== ==== <FN> *U.S. Beverage's results are included in the other category for the current year and prior years. </FN> Quarterly Results of Operations; Seasonality NWS' revenues are influenced by a number of factors, particularly the Christmas holiday season, which tend to result in seasonally high levels of volume and profitability in NWS' fiscal third quarter with seasonal losses in NWS' fiscal fourth quarter. The following table presents unaudited quarterly financial information for each of the eight quarters in the period ended March 31, 2000. In the opinion of NWS' management, this information has been prepared on the same basis as the consolidated historical financial statements appearing elsewhere in this Form 10-K and includes all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial results set forth herein. Results of operations for any quarter are not necessarily indicative of the results of any future period. [Enlarge/Download Table] Years ended March 31, --------------------------------------------------------------------------------- 1999 2000 -------------------------------------- -------------------------------------- Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Revenues $35,899 $122,005 $179,473 $115,976 $170,059 $130,397 $193,509 $131,792 Operating income (loss) 3,908 503 7,760 (186) 6,718 2,580 8,453 (189) EBITDA(1) 5,912 2,544 9,789 2,114 8,840 4,831 10,677 2,119 Operating working capital 76,963 78,491 91,381 77,436 89,522 87,128 104,355 78,184 (end of period)(2) <FN> (1) See Note 1 to "Selected Consolidated Financial and Other Data" for a definition of EBITDA and other information regarding EBITDA. (2) Operating working capital is defined as the sum of accounts receivable and inventory less accounts payable. </FN> 21
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Fiscal 2000 Compared with Fiscal 1999 Revenue The Company reported product sales for the year ended March 31, 2000 of $605.0 million, an increase of $69.5 million, or 13.0% over the prior year period. This increase primarily resulted from the continued shift by consumers to more premium brands, price increases during the year in the Indiana and Illinois markets, and strong increases in the U.S. Beverage sales of Hooper's Hooch. U.S. Beverage had product sales of $28.8 million as compared to $9.2 million over the prior year period. Distribution fees for the year ended March 31, 2000 increased $2.9 million, or 16.5%, to $20.8 million from the prior year period. Gross Profit. Gross profit on total revenue increased 17.7% to $137.3 million, from $116.6 million in the prior year period. Gross profit percentage on product sales for the year ended March 31, 2000, was 19.3% as compared to 18.4% for the prior year period. Increase sales of premium brands along with margins on Hooper's Hooch were primarily responsible for the percentage increase. Gross profit on product sales increased by $17.8 million from the prior year period. Operating Expenses. Operating expenses for the year ended March 31, 2000 increased to $119.8 million, or 14.4% over the comparable year. The expansion of our U.S. Beverage operation along with the creation of a sales department for our fee market contributed to this increase in expenses. Employee costs and outside professional expenses were increased due to the expansion of our business units and to meet the increased public reporting requirements. Total operating expenses were 19.1% for total revenue for March 31, 2000, as compared to 18.9% for the prior annual period. Selling expenses increased $4.6 million, or 12.0% for the year ended March 31, 2000,over the prior annual period. U.S. Beverage's selling expenses increased $1.9 million as required brand promotion support for the Hooper's Hooch brand increased. The increased expenses were primarily brand promotion, point of sale material, and greater brand advertising costs. U.S. Beverage's case sales for the year ended March 31, 2000 increased 385.2% over the prior annual period. The creation of a sales department for the brokerage operation in our fee market resulted in an increase of $1.5 million for March 31, 2000, from the comparable annual period. These brokerage expenses were primarily employee salaries with additional expenditures in brand advertising and promotion. The remaining increase of $1.2 million of selling expense over the prior annual period resulted from additional promotional and advertising costs. The introduction of new brands and the increased cost of existing brand promotion, were primarily responsible for these larger product market selling expenses. Warehouse and delivery expenses increased 7.7% or $2.7 million in the year ended March 31, 2000 over the comparable annual period. The volume increase that was experienced in our Illinois market prior to the tax increase on July 1, 1999, was primarily responsible for the product market increase of $1.8 million over the comparable annual period. The fee market increase of $0.9 million over the prior year period was the result of acquiring product lines that had increased splits, or less than full case orders, which drove up labor costs. Total warehouse and delivery expense was 6.1% of total revenue for the year ended March 31, 2000, as compared to 6.4% the prior annual period. Total administrative costs increased $7.8 million or 25.1% for the year ended March 31, 2000, over the comparable annual period. The Company has developed and expanded the corporate services area in the year ended March 31, 2000, which has increased corporate wages and related employee costs. Professional fees have increased due to the additional reporting and compliance requirements associated with the senior note issuance. These administrative expenses have also included first time costs associated with non-employee directors. Expansion in our U.S. Beverage operation has required additional administrative support, primarily employees and their associated benefit costs. Administrative expense, as a percentage of total revenue was 6.2% for the year ended March 31, 2000, as compared to 5.6% for the comparable annual period. 22
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Income from Operations Total operating income increased $5.6 million, or 46.5% for the year ended March 31, 2000, over the comparable annual period. Product markets operating income were up $6.7 million for the current year as compared to the prior annual period. Revenue gains and an increased gross profit percentage more than offset the increases in operating expenses for the product markets. Operating income for the fee market decreased $1.1 million for the current year as compared to the prior year. The increased cost of the sales department along with increased labor costs in the operational area outpaced the increase in fee revenue. Interest Expense Interest expense increased $2.2 million for the year ended March 31, 2000 over the prior annual period. The Company had the senior notes outstanding for approximately two months for the year ended March 31, 1999, whereas they were outstanding for the entire year that ended March 31, 2000. Prior to the issuance of the senior notes the marginal rate was 8.25%, while the senior notes carry a 10.125% fixed rate. The Company's revolving credit facility's rate is related to the prime lending rate. The revolver's rate was 9.5% at March 31, 2000, and 8.25% at March 31, 1999. Other Income Other income increased by $1.0 million to $1.6 million for the year ended March 31, 2000, from the prior annual period. The Company settled a lawsuit brought by several drivers in our Illinois market for $0.5 million in the year ended March 31, 1999. The Company also wrote off intangible assets, non-compete and organizational costs in the amount of $0.3 million for the year ended March 31, 1999. These expenses in the year ended March 31, 1999, that were one time costs, along with an increase in rental income of $0.1 million for the year ended March 31, 2000, were primarily responsible for the increase in other income. Minority Investment in Kentucky Distributor The Company's share of income from Commonwealth Wine & Spirits, L.L.C. remained constant at $0.1 million for the year ended March 31, 2000 as cash compared to the prior annual period. Distributions received from Commonwealth were $0.5 million and $0.2 million for the years ending March 31, 2000 and March 31, 1999, respectively. Net Income Net income was $5.9 million for the year ended March 31, 2000, which was an increase of $4.7 million over the comparable annual period. For financial analysis purposes only, the Company's earnings before interest, taxes, depreciation and amortization (EBITDA) for the year ended March 31, 2000 increased $6.1 million, or 30.0% to $26.5 million as compared to the prior annual period. Inflation Inflation has not had a significant impact on the Company's operations but there can be no assurance that inflation will not have a negative effect on the Company's financial condition, results of operations or debt service capabilities in the future. Year 2000 The Company did not experience any significant disruptions at December 31, 1999 and is not aware of any material Year 2000 issues from our customers or suppliers that would impact the Company's financial condition, results of operations, or debt service capabilities. At March 31, 2000, the Company had incurred less than $75,000 in costs directly associated with the remediation of its systems. Management does not believe that future Year 2000 assessment and remediation costs will be material, and intends to fund any such costs from its existing resources. These costs do not include the cost of upgrading or replacing systems for other business reasons. 23
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Environmental Matters The Company currently owns and leases a number of properties, and historically it has owned and/or leased others. Under applicable environmental laws, the Company may be responsible for remediation of environmental conditions relating to the presence of certain hazardous substances on such properties. The liability imposed by such laws is often joint and several without regard for whether the property owner or operator knew of, or was responsible for, the presence of such hazardous substances. In addition, the presence of such hazardous substances, or the failure to properly remediate such substances, may adversely affect the property owner's ability to borrow using the real estate as collateral and to transfer its interest in the real estate. Although the Company is not aware of the presence of hazardous substances requiring remediation, there can be no assurance that releases unknown to the Company have not occurred. Except for blending and bottling of a few of the Company's private label brands, the Company does not manufacture any of the wine or spirit products it sells and believes that it has conducted its business in substantial compliance with applicable environmental laws and regulations. Other As a matter of policy, the Company plans to review and evaluate all professional services firms every three years. This review will include but is not limited to legal, audit and information systems services. The next scheduled review will occur after Fiscal 2000 books are closed at March 31, 2000. Fiscal 1999 Compared with Fiscal 1998 Revenue. NWS reported total sales in 1999 of $553.4 million compared to $521.4 million for 1998, a gain of $31.9 million or 6.1%. Product sales in the year ended March 31, 1999 were $535.5 million, an increase of $30.4 million, or 6.0%, over the comparable prior year period. This increase resulted primarily from the continued shift by consumers to more premium brands, a strong increase at U.S. Beverage with the addition of six months of sales of Hooper's Hooch beverage, and the addition Sebastiani Wines in the Chicago market for the entire year, which more than offset a slight decline in total wine and spirits cases sold. Contributing to the decline in the sale of spirits cases was the additional customer purchases of spirits cases in the fourth quarter of fiscal 1998 in advance of an announced price increase on certain key brands. This increased case sales in fiscal 1998 and decreased case sales in the year ended March 31, 1999. In addition, U.S. Beverage contributed $9.2 million of revenue; all of which was incremental compared to the prior year. Distribution fees increased to $17.8 million for fiscal 1999 compared to $16.3 million for 1998, a 9.6% increase due to increased volume of existing brands and the addition of new suppliers throughout the year. Our addition of new supplier brands in Michigan, McCormick and Austin-Nichols, did not occur until the middle of the second quarter of 1999 and the addition of Laird did not occur until the end of the fourth quarter. Therefore, the additional volume is only partially reflected in our 1999 results. The loss of the J&B brand in Michigan, which was due to supplier realignment, did not occur until November, but management does not expect it to have a material impact on our distribution fee operations. The loss of other brands due to Diageo's divestitures did not occur until after the fiscal year end. 24
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Gross Profit. Gross profit on NWS' total revenue increased to $116.6 million in the year ended March 31, 1999 from $109.7 million in the comparable prior year period. This represented a 6.3% increase, due to relatively flat gross margins on our increased product sales from 18.5% to 18.4% and the additional volume in Michigan with no corresponding cost of products sold. Additionally, the U.S. Beverage business contributed slightly with margins of 19.5% for the year ended March 31, 1999. As a result of this improvement and since gross profit in Michigan is 100% of fee revenues; our overall gross profit margin grew from 21.0% for the year ended March 31, 1998 to 21.1% for fiscal 1999. Cost of products sold included a non-cash LIFO charge of $0.5 million in 1999 compared with $0.6 million for the comparable prior year period. Operating Expenses. Overall, selling, general and administrative expenses increase $5.5 million to $104.6 million for 1999 from $99.1 million for the prior year. As a percent of total revenue, selling, general, and administrative expenses decreased from 19.0% for 1998 to 18.9% for 1999. Selling expenses for product markets increased $5.2 million, or from 6.4% to 7.0% of total revenues, for 1999 primarily as a result of increased manpower to support the Illinois and Indiana product markets, including additional sales staff in Illinois to support the newly acquired Sebastiani brand line. Additionally, U.S. Beverage contributed $3.9 million to overall selling, warehouse and delivery expenses in the prior year. Finally, in order to acquire additional lines in Michigan, we created a sales team for the first time in that market. This increased selling expenses by $0.4 million for the year. While small, selling expenses are expected to grow as we continue to increase our sales force in Michigan. The recent acquisition of R.M. Gilligan is expected to accelerate the growth of the Michigan-based sales force. Total administrative expenses increased by $1.8 million to 5.6% of NWS' total revenue during 1999. The increase in administrative expenses was primarily a result of the installation of new computer systems in Indiana and general employee benefit cost increases. Start-up expenses decreased 100%, or $3.3 million for 1999 as U.S. Beverage moved out of its start-up phase and incurred ongoing operating expenses and NWS-Michigan completed its start-up in fiscal 1998. Income from Operations. Operating income increased 13.5% or $1.4 million for 1999 over 1998. As a percent of total revenue, income from operations improved from 2.0% for 1998 to 2.2% for 1999. The increased revenues for the year and improved gross margins more than offset the increase in selling, general and administrative expenses. Interest Expense Interest expense increased 14.1% to $11.0 million during the year ended March 31, 1999. The increase was attributable to slightly higher interest rates on our $110.0 million in senior notes sold in January, 1999, when compared to the bank debt the senior notes replaced, additional borrowings to finance the capital expenditures needed for our Michigan operations, an upgrade to the Chicago material handling system and our recent Kentucky investment. Other Income. Other income decreased by $5.7 for 1999 compared to the prior year primarily due to a $4.1 million gain on the sale of certain licensed brands, trademarks, and tradenames in Illinois in 1998. Excluding the one-time gain, other income was down $1.6 million. This was the result of other income of $0.6 million from a gain on Heaven Hill bulk inventories and $0.5 million in interest income during 1998. Additionally, results for 1999 include the $0.5 million expense to resolve the Illinois driver lawsuit and $0.5 million in reorganization costs. Minority Investment in Kentucky Distributor. NWS' share of partnership income in Commonwealth Wine & Spirits, LLC was approximately $0.1 million for the year. The six-month period ended March 31, 1999 was Commonwealth's first two quarters of operation. Extraordinary Item. NWS recorded a loss on extinguishment of debt of $0.3 million as a result of the $110 million senior note offering. 25
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Net Income. For the year ended March 31, 1999, NWS reported $1.2 million in net income compared to $7.1 million for 1998. Without the one-time gain in 1998, net income was down 61.0% or $1.8 million for 1999. Liquidity and Capital Resources The Company's primary cash requirements have been to fund accounts receivable and inventories in Indiana and Illinois and to fund capital expenditures and acquisitions. NWS has historically satisfied its cash requirements principally through cash flow from operations, trade terms and bank borrowings. As indicated above, NWS' business is highly seasonal. NWS' operating working capital fluctuates with seasonal trends as illustrated in the quarterly table above. As a result, NWS' working capital requirements and borrowings under its credit facility have fluctuated over the course of each year. In fiscal 2000, NWS' minimum and maximum amount of borrowings under the current $60.0 million credit facility, at any one time was $1.0 million in March, 2000, and $35.8 million in December, 1999. At March 31, 2000, NWS' outstanding borrowings under its credit facility were $1.0 million. Net cash provided by operating activities for the annual period ended March 31, 2000, was $17.1 million as compared to $6.0 million for the prior annual period. Increases in cash provided were from greater accounts payable, net income, accrued expenses, and lower prepaid expenses and other receivables. Decreases in cash from operating activities were the result of increased inventories and increased accounts receivable. As part of our seasonality, NWS typically receives replenishment of inventory in March, which is also the largest revenue month in our fourth quarter. As a result, accounts receivable and inventories increase with corresponding increases in accounts payable, which funds the increased assets. Net cash used for investing activities for the year ended March 31, 2000 was $8.2 million as compared to $20.8 million the prior annual period. Investments that were made in fiscal 1999 were primarily responsible for this decrease in cash used. The Company had invested $7.5 million in fiscal 1999 for an equity investment in Commonwealth Wine & Spirits, L.L.C. The Company invested $1.6 million in the year ended March 31, 2000, for the stock of R.M. Gilligan, Inc. The Company had increase proceeds from the sale of property and equipment in the current year primarily from the sale of a building in our Illinois market. Investments in intangible assets were $3.9 million lower in the current year due to the $5.9 million investment in fiscal 1999 that were primarily the costs of issuing the senior notes in January, 1999. Net cash used by financing activities was $7.3 million for the year ended March 31, 2000, as compared to cash provided of $15.4 million for the prior annual period. Upon the issuance of the senior notes in January, 1999, the Company repaid its outstanding bank and other debt and amounts outstanding under its revolving credit facility. The net result of this refinancing and other debt repayments during the year ended March 31, 1999, was net cash provided of $19.5 million. Net repayments for the year ended March 31, 2000, were $4.8 million, which was a use of cash, resulting in a difference from the prior year of $24.3 million. The Company had distributions to stockholders during the year that were for tax liabilities and used to repay shareholder receivables. The $2.4 million increase in cash from the change in notes receivable from stockholders consisted of repayments for $3.5 million and net advances of $1.1 million. Total assets increased to $191.1 million at March 31, 2000, a $10.8 million increase from the prior year. This increase was primarily the result of increased accounts receivable of $7.9 million and inventories of $3.2 million. March, 2000, was a strong revenue month as compared to March, 1999, with a corresponding increase in purchases of inventory. Property and equipment declined by $2.6 million due to decreased capital expenditures and the sale of a building in our Illinois market. Intangibles increased $1.9 million primarily consisting of goodwill, which resulted from the R.M. Gilligan, Inc. acquisition. In October, 1999, the Company invested $500,000 in convertible preferred stock of eSkye.com, Inc. The Company invested an additional $2,012,500 in convertible preferred stock in May 2000. 26
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Current liabilities increased $12.4 million from the prior year. Accounts payable increased $10.4 million due to the increased purchases of inventory in March, 2000, as compared to March, 1999. Accrued excise taxes increased $1.1 million from the prior year, and was also directly related to the increased purchase of inventory. Total debt decreased to $112.5 million, at March 31, 2000, as compared to $117.2 million the prior year. Increased cash flow contributed to a decrease in the revolving credit facility of $3.7 million.  Item 7a. Quantitative and Qualitative Disclosures About Market Risk Not Applicable. 27
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Item 8. Financial Statements and Supplementary Data Report of Independent Auditors The Board of Directors and Stockholders National Wine & Spirits, Inc. We have audited the accompanying consolidated balance sheets of National Wine & Spirits, Inc. as of March 31, 2000 and 1999, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended March 31, 2000. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of National Wine & Spirits, Inc. at March 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 2000 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Indianapolis, Indiana May 19, 2000 28
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[Enlarge/Download Table] National Wine & Spirits, Inc. Consolidated Balance Sheets March 31 2000 1999 ------------------------------ Assets Current assets: Cash $ 3,559,000 $ 1,908,000 Accounts receivable, less allowance for doubtful accounts of $1,412,000 ($1,298,000 in 1999) 44,952,000 37,042,000 Inventory 71,167,000 67,961,000 Prepaid expenses and other 3,571,000 4,776,000 ------------- ------------- Total current assets 123,249,000 111,687,000 Property and equipment, net 46,735,000 49,307,000 Other assets: Notes receivable 1,142,000 1,486,000 Cash surrender value of life insurance, net of loans 2,270,000 1,849,000 Investment in Kentucky distributor 7,072,000 7,438,000 Investment in eSkye.com, Inc. 500,000 -- Intangible assets, net of amortization 9,988,000 8,080,000 Deferred pension costs -- 387,000 Deposits and other 184,000 142,000 ------------- ------------- Total other assets 21,156,000 19,382,000 ------------- ------------- Total assets $ 191,140,000 $ 180,376,000 ============= ============= Liabilities and stockholders' equity Current liabilities: Accounts payable $ 37,935,000 $ 27,567,000 Accrued payroll and payroll taxes 6,757,000 5,912,000 Excise taxes payable 5,200,000 4,055,000 Other accrued expenses and taxes 7,651,000 7,459,000 Current maturities of long-term debt 900,000 1,050,000 ------------- ------------- Total current liabilities 58,443,000 46,043,000 Deferred pension liability -- 387,000 Long-term debt 111,571,000 116,172,000 ------------- ------------- Total liabilities 170,014,000 162,602,000 Stockholders' equity: Voting common stock, $.01 par value 1,000 1,000 Nonvoting common stock, $.01 par value 53,000 53,000 Additional paid-in capital 25,009,000 25,009,000 Accumulated deficit (825,000) (1,883,000) ------------- ------------- 24,238,000 23,180,000 Notes receivable from stockholders (3,112,000) (5,406,000) ------------- ------------- Total stockholders' equity 21,126,000 17,774,000 ------------- ------------- Total liabilities and stockholders' equity $ 191,140,000 $ 180,376,000 ============= ============= <FN> See accompanying notes. </FN> 29
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[Enlarge/Download Table] National Wine & Spirits, Inc. Consolidated Statements of Income Years Ended March 31 2000 1999 1998 ------------------------------------------------- Net product sales $ 604,987,000 $ 535,521,000 $ 505,141,000 Distribution fees 20,770,000 17,832,000 16,270,000 ------------- ------------- ------------- Total revenue 625,757,000 553,353,000 521,411,000 Cost of products sold 488,444,000 436,734,000 411,734,000 ------------- ------------- ------------- Gross profit 137,313,000 116,619,000 109,677,000 Selling, general and administrative expenses: Warehouse and delivery 38,401,000 35,655,000 34,196,000 Selling 42,434,000 37,872,000 32,328,000 Administrative 38,916,000 31,107,000 29,274,000 Start-up costs -- -- 3,320,000 ------------- ------------- ------------- 119,751,000 104,634,000 99,118,000 ------------- ------------- ------------- Income from operations 17,562,000 11,985,000 10,559,000 Interest expense: Related parties (425,000) (461,000) (507,000) Third parties (12,849,000) (10,576,000) (9,165,000) ------------- ------------- ------------- (13,274,000) (11,037,000) (9,672,000) Other income (expense): Gain on sale of assets 173,000 188,000 4,139,000 Interest income 892,000 977,000 1,246,000 Rental and other income (expense) 371,000 (756,000) 839,000 Equity in earnings of Kentucky distributor 131,000 120,000 -- ------------- ------------- ------------- Total other income 1,567,000 529,000 6,224,000 ------------- ------------- ------------- Income before extraordinary item 5,855,000 1,477,000 7,111,000 Extraordinary item: Loss on extinguishment of debt -- (318,000) -- ------------- ------------- ------------- Net income $ 5,855,000 $ 1,159,000 $ 7,111,000 ============= ============= ============= <FN> See accompanying notes. </FN> 30
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[Enlarge/Download Table] National Wine & Spirits, Inc. Consolidated Statements of Stockholders' Equity Accumulated Notes $.01 Par Value Additional Other Receivable Total Common Stock Paid-in Accumulated Comprehensive from Stockholders' Voting Nonvoting Capital Deficit Income (Loss) Stockholders Equity --------------------------------------------------------------------------------------------- Balance at March 31, 1997 $ 1,000 $ 53,000 $23,202,000 $(2,357,000) $ (438,000) $(9,991,000) $10,470,000 Comprehensive income: Net income -- -- -- 7,111,000 -- -- 7,111,000 Decrease in unrecognized net pension -- -- -- -- 438,000 -- 438,000 loss Total comprehensive -- -- -- -- -- -- 7,549,000 income Increase in notes receivable from stockholders -- -- -- -- -- (612,000) (612,000) Distributions to stockholders -- -- -- (2,825,000) -- -- (2,825,000) --------------------------------------------------------------------------------------------- Balance at March 31, 1998 1,000 53,000 23,202,000 1,929,000 -- 10,603,000) 14,582,000 Net income -- -- -- 1,159,000 -- -- 1,159,000 Decrease in notes receivable from stockholders -- -- -- -- -- 5,197,000 5,197,000 Distributions to stockholders -- -- -- (4,971,000) -- -- (4,971,000) Conversion of notes payable to stockholders' -- -- 1,807,000 -- -- -- 1,807,000 equity --------------------------------------------------------------------------------------------- Balance at March 31, 1999 1,000 53,000 25,009,000 (1,883,000) -- (5,406,000) 17,774,000 Net income -- -- -- 5,855,000 -- -- 5,855,000 Decrease in notes receivable from stockholders -- -- -- -- -- 2,294,000 2,294,000 Distributions to stockholders -- -- -- (4,797,000) -- -- (4,797,000) --------------------------------------------------------------------------------------------- Balance at March 31, 2000 $ 1,000 $ 53,000 $25,009,000 $ (825,000) $ -- $(3,112,000) $21,126,000 ============================================================================================= <FN> See accompanying notes. </FN> 31
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[Enlarge/Download Table] National Wine & Spirits, Inc. Consolidated Statements of Cash Flows Years Ended March 31 2000 1999 1998 ---------------------------------------------- Operating activities Net income $ 5,855,000 $ 1,159,000 $ 7,111,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property and equipment 7,270,000 6,967,000 5,872,000 Gain on sale of assets (174,000) (188,000) (4,139,000) Amortization of intangible assets 1,635,000 1,407,000 1,243,000 Equity in earnings of Kentucky distributor (131,000) (120,000) -- Loss on extinguishment of debt -- 318,000 -- Changes in operating assets and liabilities: Accounts receivable (7,760,000) (5,729,000) 3,427,000 Inventories (3,206,000) 8,773,000 (4,656,000) Prepaid expenses and other receivables 1,252,000 157,000 (810,000) Accounts payable 10,329,000 (6,154,000) 2,482,000 Accrued expenses and taxes 2,033,000 (577,000) (747,000) ----------- ----------- ----------- Net cash provided by operating activities 17,103,000 6,013,000 9,783,000 Investing activities Purchases of property and equipment (6,672,000) (7,858,000) (13,952,000) Acquisition of R. M. Gilligan, Inc., net of cash received (1,630,000) -- -- Investment in Kentucky distributor -- (7,500,000) -- Proceeds from sale of property and equipment 2,242,000 338,000 253,000 Proceeds from sale of assets -- -- 3,000,000 Intangible assets (1,996,000) (5,869,000) (730,000) Deposits and other (42,000) 28,000 1,766,000 Increase in cash surrender value of life insurance (413,000) (453,000) (492,000) Investment in eSkye.com, Inc. (500,000) -- -- Distributions from Kentucky distributor 497,000 182,000 -- Collections on notes receivable 344,000 286,000 247,000 ----------- ----------- ----------- Net cash used by investing activities (8,170,000) (20,846,000) (9,908,000) Financing activities Net repayments on lines of credit (3,700,000) (62,010,000) (3,078,000) Proceeds from senior notes issuance -- 110,000,000 -- Proceeds from long-term debt -- 7,500,000 11,257,000 Principal payments on long-term debt (1,079,000) (36,017,000) (5,975,000) Proceeds from borrowings from stockholder 97,000 241,000 685,000 Repayments on borrowings from stockholder (205,000) -- -- Notes receivable from stockholders and others 2,402,000 628,000 (1,964,000) Distributions to stockholders (4,797,000) (4,971,000) (2,825,000) ----------- ----------- ----------- Net cash provided (used) by financing activities (7,282,000) 15,371,000 (1,900,000) ----------- ----------- ----------- Net increase (decrease) in cash 1,651,000 538,000 (2,025,000) Cash, beginning of year 1,908,000 1,370,000 3,395,000 ----------- ----------- ----------- Cash, end of year $ 3,559,000 $ 1,908,000 $ 1,370,000 =========== =========== =========== <FN> See accompanying notes. </FN> 32
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National Wine & Spirits, Inc. Notes to Consolidated Financial Statements March 31, 2000 1. Nature of Business and Summary of Significant Accounting Policies Nature of Business and Principles of Consolidation In December 1998, a reorganization took place, which created a new holding company, National Wine & Spirits, Inc. (NWS or the Company). All of the shares of capital stock in National Wine & Spirits Corporation (NWSC) and NWS, Inc. (NWSI) were contributed in exchange for shares of NWS. In addition, NWSC subsequently distributed all of its shares in NWS Michigan, Inc. (NWSM) to NWS. Finally, a new limited liability company subsidiary of NWS-LLC was created into which substantially all of the Illinois operations were transferred (NWS-LLC). The reorganization was accounted for as a combination of entities under common control, similar to a pooling-of-interests. As such, the financial statements have been presented to reflect this accounting treatment. The consolidated financial statements include the accounts of NWS, NWSC, NWS-LLC, and NWSM. All significant intercompany accounts and transactions have been eliminated from the consolidated financial statements. Substantially all revenues result from the sale of liquor, beer and wine. Based in Indianapolis, NWSC is a wholesale distributor of liquor and wines throughout Indiana. Based in Chicago, NWS-LLC is a wholesale distributor of liquor and wines throughout Illinois. NWSM is a wholesale distributor of liquor throughout Michigan. NWSC also operates a bottled water division and a division for distribution of cigars and accessories. NWS performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Credit losses have been within management's expectations. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 33
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National Wine & Spirits, Inc. Notes to Consolidated Financial Statements (continued) 1. Nature of Business and Summary of Significant Accounting Policies (continued) Fair Value of Financial Instruments The Company's cash, accounts receivable, short-term notes receivable, accounts payable and certain other accrued liabilities are all short-term in nature and the carrying amounts approximate fair value. Long-term notes receivable and payable, except for the Company's senior notes payable, have primarily variable interest rates, thus their carrying amounts approximate fair value. The carrying value of the senior notes payable approximates fair value. Inventory Substantially all inventory is stated at the lower of cost, determined by the last-in, first-out (LIFO) method, or market. Bulk whiskey represents the Company's interest in certain whiskey inventory, which is being aged by the supplying distiller. This interest serves as collateral for related notes payable to the distiller. In accordance with industry practices, storage and handling costs incurred during the aging process are included as a component of the cost of bulk whiskey. Bulk whisky represented approximately $1,497,000 and $1,692,000 of the total inventory balance at March 31, 2000 and 1999, respectively. Advertising Costs Advertising costs are charged to operations when incurred. Advertising expense was $5,685,000, $3,224,000 and $2,087,000 in March 31, 2000, 1999 and 1998, respectively. Property and Equipment Property and Equipment are recorded at cost and are depreciated using primarily the straight-line method over their expected useful lives as follows: Land improvements 15-40 years Buildings and improvements 10-40 years Furniture and equipment 5-7 years Warehouse equipment 7 years Automobiles and trucks 5 years 34
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National Wine & Spirits, Inc. Notes to Consolidated Financial Statements (continued) 1. Nature of Business and Summary of Significant Accounting Policies (continued) Intangible Assets Intangible assets, including goodwill, represent the cost of certain assets obtained in the acquisition of various distributors, costs incurred in obtaining financing and amounts paid to acquire supplier distribution rights. These costs are being amortized by the straight-line method over the terms of the agreements or their estimated useful lives, which range from two to twenty years. Accumulated amortization related to these assets was $3,490,000 and $1,852,000 at March 31, 2000 and 1999, respectively. Long-lived Assets The carrying value of the long-lived assets is periodically reviewed by management. If this review indicates that the carrying value may be impaired then the impaired amount will be written off. Income Taxes There is no provision for federal or state income taxes reflected in the financial statements because the stockholders have consented to NWS' election to be taxed as an S corporation under the applicable provisions of the Internal Revenue Code. NWS' income is taxable directly to its stockholders. Revenue Recognition NWSC and NWS-LLC purchase inventory items for resale to customers and are liable for payment to the suppliers, as well as collecting payment from customers. NWSM receives a fixed fee per case of liquor distributed for the State of Michigan (distribution fees) which is also responsible for payments to suppliers. All Michigan shipments are cash on delivery and are deposited directly to the State of Michigan. Net sales and distribution fees are recognized at the time product is shipped. Start-up Costs Start-up costs to commence operations and to reach normal capacity are expensed as incurred, in accordance with Statement of Position 98-5, Reporting on the Costs of Start-up Activities. 35
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National Wine & Spirits, Inc. Notes to Consolidated Financial Statements (continued) 1. Nature of Business and Summary of Significant Accounting Policies (continued) Reclassifications Certain amounts in the 1999 and 1998 consolidated financial statements have been reclassified to conform to the 2000 presentation. 2. Purchase of R. M. Gilligan, Inc. On April 30, 1999, NWSM purchased all of the stock of R. M. Gilligan, Inc. for $1,800,000. R. M. Gilligan, Inc. is a Michigan corporation that conducts liquor brokerage activities and receives revenue on a per case basis from NWSM's suppliers. The acquisition was accounted for using the purchase method of accounting and the results of operations have been included in the consolidated financial statements since the date of acquisition. The purchase price was allocated to the net assets acquired, including $1,547,000 to goodwill recorded in intangible assets, based upon the fair market value at the date of acquisition. Assets acquired: Cash $ 170,000 Other current assets 187,000 Property and equipment 94,000 Goodwill 1,547,000 Other assets 18,000 ----------- 2,016,000 Liabilities assumed: Current liabilities (188,000) Debt and other long-term liabilities (28,000) ----------- Purchase Price $ 1,800,000 =========== 3. Investment In Kentucky Distributorship In December 1998, NWSC formed a new distributorship in Kentucky (Commonwealth Wine & Spirits, LLC) in partnership with two existing Kentucky-based distributors, The Vertner Smith Company ("Vertner") and Kentucky Wine & Spirits ("Kentucky W&S"). Under the terms, NWSC invested $7.5 million ($4.5 million in cash and a $3 million cash franchise fee), in exchange for 25% of the new company. Vertner and Kentucky W&S equally own the remaining 75%. NWSC has accounted for its investment in Commonwealth Wine & Spirits, LLC using the equity method. 36
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National Wine & Spirits, Inc. Notes to Consolidated Financial Statements (continued) 3. Investment In Kentucky Distributorship (continued) The Company received distributions of $497,000 and $182,000 from Commonwealth Wine & Spirits, LLC in 2000 and 1999, respectively. 4. Inventory Inventory at March 31 is comprised of the following: 2000 1999 ------------------------------- Inventory at FIFO $ 79,652,000 $ 75,507,000 Less: LIFO reserve 8,485,000 7,546,000 ------------ ------------ $ 71,167,000 $ 67,961,000 ============ ============ If the Company had used the first-in, first-out (FIFO) inventory method, net income would have been $939,000, $546,000 and $570,000 greater in 2000, 1999 and 1998, respectively. 5. Property and Equipment Property and equipment at March 31 is comprised of the following: 2000 1999 ------------------------------- Land and improvements $ 1,532,000 $ 1,421,000 Buildings and improvements 26,505,000 27,709,000 Furniture and equipment 16,313,000 15,032,000 Warehouse equipment 29,250,000 27,298,000 Automobiles and trucks 7,401,000 8,311,000 Construction in progress 891,000 -- ------------ ------------ 81,892,000 79,771,000 Less: Accumulated depreciation 35,157,000 30,464,000 ------------ ------------ $ 46,735,000 $ 49,307,000 ============ ============ 37
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National Wine & Spirits, Inc. Notes to Consolidated Financial Statements (continued) 6. Debt Long-term debt at March 31 is comprised of the following: [Download Table] 2000 1999 ------------------------------- Senior notes payable (A) $110,000,000 $110,000,000 Bank revolving line of credit (B) 1,000,000 4,700,000 Term loan payable in annual installments of $500,000 in 2001 and 2002, including interest 1,000,000 1,300,000 Non-competition agreement 300,000 600,000 City of Indianapolis-First Mortgage Note, Series 1983- payable monthly, with interest computed at 80% of the bank's prime lending rate, through April 2003, secured by certain property in Indianapolis 171,000 272,000 Subordinated promissory note payable to an employee, repaid November 1999 -- 350,000 ------------ ------------ 112,471,000 117,222,000 Less: current maturities 900,000 1,050,000 ------------ ------------ $111,571,000 $116,172,000 ============ ============ (A) On January 25, 1999, the Company issued $110,000,000 of unsecured senior notes with a maturity of January 15, 2009. Interest on the senior notes is 10.125% and is payable semiannually. These senior notes are guaranteed by the Company's subsidiaries. The guarantors are all wholly owned and there are no non-guarantor subsidiaries. The guarantees are full, unconditional and joint and several. Audited financial information of guarantor subsidiaries has been omitted because management has determined that they would not be material to users of the financial statements. The Company used the net proceeds of the senior notes (approximately $106,900,000) to repay its outstanding bank and other debt and amounts outstanding under its revolving credit facilities. The early extinguishment of the bank debt and revolving credit facilities resulted in an extraordinary charge of $318,000 in 1999. The bond indenture restricts the ability of the Company and its subsidiaries to incur additional indebtedness, pay dividends, engage in mergers or consolidations, make capital expenditures and otherwise restricts corporate activities. 38
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National Wine & Spirits, Inc. Notes to Consolidated Financial Statements (continued) 6. Debt (continued) On or after January 15, 2004, the Company may redeem some or all of the senior notes at any time at stated redemption prices plus accrued interest and liquidated damages. Notwithstanding the foregoing, during the first 36 months after January 20, 1999, the Company may redeem up to 33% of the aggregate principal amount of the senior notes at a redemption price of 110.125%, plus accrued interest and liquidated damages, with the net cash proceeds of one or more public offerings of common stock of the Company. (B) On January 25, 1999, the Company entered into a credit agreement that provides a revolving line of credit for borrowings of up to $60 million through January 25, 2004. Line of credit borrowings are limited to eligible accounts receivable plus eligible inventories. The credit agreement permits the Company to elect an interest rate based upon the Eurodollar rate or the higher of the prime lending rate or the federal funds effective rate plus 0.5%. At March 31, 2000 and 1999, all borrowings bear interest at the prime lending rate plus 0.5% (9.50% at March 31, 2000). The Company also pays a commitment fee ranging from 0.25% to 0.5% of its undrawn portion of its line of credit. Credit borrowings are secured by the accounts receivable and inventory of the Company and its subsidiaries and are guaranteed by NWS' subsidiaries. Additionally, NWS-LLC has a supplier letter of credit of which $300,000 was outstanding at March 31, 2000. In addition, the agreement restricts the ability of the Company and its subsidiaries to incur additional indebtedness, pay dividends, engage in mergers or consolidations, make capital expenditures and otherwise restricts corporate activities. Principal payments due on debt at March 31, 2000 are as follows: 2001 $ 900,000 2002 571,000 2003 -- 2004 1,000,000 2005 -- Thereafter 110,000,000 ------------ $112,471,000 ============ The Company guarantees an obligation of a related entity, which has an outstanding balance of $1,000,000 at March 31, 2000. Cash paid for interest was $13,116,000, $9,780,000 and $9,643,000 in 2000, 1999 and 1998, respectively. 39
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National Wine & Spirits, Inc. Notes to Consolidated Financial Statements (continued) 7. Common Stock The Company has two authorized classes of capital stock: voting $0.01 par value common shares and nonvoting $0.01 par value common shares. Both classes of stock have the same relative rights, performance limitations and restrictions, except that nonvoting shares are not entitled to vote on any matters submitted to a vote of the stockholders, except as provided by law. Common stock at March 31, 2000 and 1999 is comprised of the following: Number of Shares Authorized Issued Outstanding Amount --------------------------------------------------------- Voting 200,000 104,520 104,520 $ 1,000 Nonvoting 20,000,000 5,226,001 5,226,001 53,000 8. Commitments The Company leases office and warehouse space under noncancellable operating leases ranging from two to ten years, some of which include renewal and purchase options and escalation clauses, expiring on various dates through 2010. The Company also leases certain trucks and equipment pursuant to noncancellable operating leases with terms ranging from three to seven years. Future minimum rent payments as of March 31, 2000 are as follows: 2001 $ 3,810,000 2002 3,694,000 2003 3,444,000 2004 3,399,000 2005 2,653,000 Thereafter 5,636,000 ------------ $ 22,636,000 ============ Rent expense was $4,171,000, $3,738,000 and $3,732,000 in 2000, 1999 and 1998, respectively. During 2000, NWSC entered into construction agreements for the expansion of its warehouse facilities in Indianapolis. The commitment under the first phase of this expansion is $3,000,000. At March 31, 2000, $891,000 of these costs were capitalized. 40
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National Wine & Spirits, Inc. Notes to Consolidated Financial Statements (continued) 9. Pension Plans The Company sponsors a defined benefit pension plan covering substantially all of its warehousemen and drivers. Under terms of the plan, the Company is liable for any unsatisfied liabilities of the other affiliated entities. The Company makes contributions to the plan based on amounts permitted by law. Total expenses under the plan were $272,000, $347,000 and $224,000 in 2000, 1999 and 1998, respectively. The components of net periodic pension cost of the defined benefit plan are as follows for the years ended March 31: [Download Table] 2000 1999 1998 ------------------------------------ Service cost-benefits earned during the year $ 270,000 $ 262,000 $ 114,000 Interest on projected benefit obligation 248,000 224,000 196,000 Actual return on plan assets (417,000) (464,000) (624,000) Amortization of unrecognized net transition asset 20,000 20,000 19,000 Amortization of loss -- -- 8,000 Amortization of prior service cost 35,000 35,000 19,000 Difference between expected and actual return on plan assets 150,000 247,000 471,000 ---------- ---------- ---------- Net periodic pension cost $ 306,000 $ 324,000 $ 203,000 ========== ========== ========== The change in the projected benefit obligation, plan assets, funded status and amounts recognized in the accompanying consolidated balance sheets at March 31, 2000 and 1999 for the defined benefit pension plan are as follows: [Download Table] 2000 1999 ----------------------- Change in projected benefit obligation: Benefit obligation at beginning of year $3,751,000 $3,277,000 Service cost 270,000 262,000 Interest cost 248,000 224,000 Actuarial changes (662,000) 156,000 Benefits paid (124,000) (168,000) ---------- ---------- Benefit obligation at end of year $3,483,000 $3,751,000 ========== ========== 41
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National Wine & Spirits, Inc. Notes to Consolidated Financial Statements (continued) 9. Pension Plans (continued) [Download Table] 2000 1999 ----------------------- Change in plan assets: Fair value of plan assets at beginning of year $ 3,179,000 $ 2,662,000 Actual return on plan assets 417,000 464,000 Company contributions 481,000 221,000 Benefits paid (124,000) (168,000) ---------- ---------- Fair value of plan assets at end of year $ 3,953,000 $ 3,179,000 ========== ========== Funded status of the plan (underfunded) $ 470,000 $ (572,000) Unrecognized net actuarial gain (1,092,000) (289,000) Unrecognized prior service cost 496,000 531,000 Unrecognized transition obligation 126,000 146,000 ----------- ---------- Accrued benefit cost $ -- $ (184,000) =========== =========== Weighted-average assumptions: Discount rate 6.75% 6.75% Expected return on plan assets 8.0% 8.0% Balance Sheet Classification: Current accrued liability $ -- $ 184,000 Noncurrent deferred additional liability -- 387,000 ----------- ----------- Minimum liability $ -- $ 571,000 =========== =========== Deferred pension costs (intangible asset) $ -- $ 387,000 =========== =========== The Company also sponsors a defined contribution pension plan for substantially all employees not covered by the defined benefit plan. Contributions to the plan are made at the discretion of the Company and may not exceed 5% of a participant's compensation. The Company's pension expense for the defined contribution plan was $1,293,000, $1,044,000 and $942,000 in 2000, 1999 and 1998, respectively. 42
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National Wine & Spirits, Inc. Notes to Consolidated Financial Statements (continued) 9. Pension Plans (continued) NWS-LLC contributes to union-sponsored multi-employer pension plans, which provide for contributions based on a specified rate per labor hour. Union employees constitute approximately 57% of NWS-LLC's workforce and 58% of NWSM's workforce. The union contracts for NWSM expire in 2001. Contributions charged to expense were $668,000, $602,000 and $565,000 in 2000, 1999 and 1998, respectively. Information as to NWS-LLC's portion of accumulated plan benefits and plan net assets is not currently available. Under the Employee Retirement Income Security Act of 1974 as amended, an employer upon withdrawal from a multi-employer plan is required to continue funding its proportionate share of the plan's unfunded vested benefits. NWS-LLC has no intention of withdrawing from the plans. 10. Related Party Transactions NWSC had notes receivable from its two stockholders totaling $7,571,000 and $9,975,000 at March 31, 2000 and 1999, respectively. The notes earn interest at the Company's effective borrowing rate on its revolving line of credit. Interest income earned was $809,000, $880,000 and $893,000 in 2000, 1999 and 1998, respectively. Proceeds of the notes were used by the stockholders to purchase additional capital stock of NWSC and to make loans to NWS-LLC. The notes, which are due on demand, have been reflected as a reduction of stockholders' equity in the consolidated balance sheets as it is the Company's present intent to satisfy these receivables through future stockholder distributions. Effective July 31, 1998, the Company and its stockholders executed new notes payable to stockholders to provide for a legal right of offset against the notes receivable from stockholders. Accordingly, as of March 31, 2000 and 1999, the notes payable to stockholders (principal plus accrued interest) have been offset against the notes receivable from stockholders, with the resulting net amount reflected as a reduction of stockholders' equity. The total of the subordinated notes payable was $4,459,000 and $4,569,000 at March 31, 2000 and 1999, respectively. These notes bear interest at the effective borrowing rate on the Company's revolving line of credit. Interest expense on these notes was $425,000, $461,000, and $507,000 in 2000, 1999, and 1998, respectively. The Company paid $170,000 in 2000, 1999, and 1998 for consulting fees to a minority stockholder of NWS-LLC. 43
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National Wine & Spirits, Inc. Notes to Consolidated Financial Statements (continued) 10. Related Party Transactions (continued) Effective June 25, 1997, NWS-LLC sold certain of its licensed brands, trademarks and tradenames for approximately $5,250,000. NWS-LLC recognized a gain of $4,071,000, which represents $5,250,000 less $1,179,000 in transaction costs, and the costs of assets related to the brands which were sold. The purchase price is receivable under a $2,250,000 seven-year promissory note, with the remaining balance received in cash at the sale date. At March 31, 2000 and 1999, the note receivable balance was $1,142,000 and $1,759,000, respectively. A Director of the Company is the Chairman and Chief Executive Officer of eSkye.com, Inc. The Company received 1,500,000 shares of common stock in eSkye.com, Inc. upon inception, representing founders stock. The Company accounts for its investment in eSkye.com, Inc. using the equity method. In October, 1999, the Company invested $500,000 in convertible preferred stock of eSkye.com, Inc. The Company invested an additional $2,012,500 in convertible preferred stock in May 2000. NWS leases facilities and certain office equipment to eSkye.com, Inc. under the terms of a three-year operating lease. NWS received rent from eSkye.com, Inc. of $151,000 in 2000. eSkye.com, Inc. reimbursed the Company for $384,000 of expenses paid on its behalf during 2000. The Company paid eSkye.com, Inc. $20,000 for consulting services in 2000. The Company paid $1,000,000 in April 2000 on behalf of an affiliate to Goose Island, a distiller of specialty beer, for the national distribution rights on all Goose Island malt-based products. 44
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National Wine & Spirits, Inc. Notes to Consolidated Financial Statements (continued) 11. Segment Reporting The Company's reportable segments are business units that engage in product sales and all other activities. The majority of the all other activities relate to distribution fee operations. The Company evaluates performance and allocates resources based on these segments. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. [Enlarge/Download Table] 2000 1999 1998 --------------------------------------------- Revenues from external customers Product sales $ 604,987,000 $ 535,521,000 $ 505,141,000 All other 20,770,000 17,832,000 16,270,000 Interest expense Product sales 11,698,000 9,778,000 8,480,000 All other 1,576,000 1,259,000 1,192,000 Depreciation expense Product sales 5,205,000 5,020,000 4,750,000 All other 2,065,000 1,947,000 1,122,000 Amortization expense Product sales 1,243,000 1,320,000 1,224,000 All other 392,000 87,000 19,000 Equity in earnings of Kentucky distributor Product sales 131,000 120,000 -- Loss on extinguishment of debt Product sales -- 172,000 -- All other -- 146,000 -- Segment profit (loss) Product sales 6,959,000 938,000 8,506,000 All other (1,104,000) 221,000 (1,395,000) Segment assets Product sales 177,354,000 168,581,000 155,351,000 All other 13,786,000 11,795,000 13,751,000 Expenditures on long-lived assets Product sales 5,869,000 7,798,000 5,190,000 All other 803,000 60,000 8,762,000 45
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National Wine & Spirits, Inc. Notes to Consolidated Financial Statements (continued) 12. Concentration of Risk Products purchased from four suppliers amounted to approximately 70%, 65% and 65% of all revenues in 2000, 1999 and 1998, respectively. 13. Litigation The Company has been named as a co-defendant in a lawsuit against a supplier, which seeks damages of $20,000,000. This suit was filed by the supplier's former distributor. The Company is also a party to various other lawsuits and claims arising in the normal course of business. While the ultimate resolution of lawsuits or claims against the Company cannot be predicted with certainty, management is vigorously defending all claims and does not expect that these matters will have a material adverse effect on the financial position or results of operations of the Company. The Company settled a lawsuit in April 1999 brought by several drivers of NWS-LLC for $475,000. The settlement released the Company from all claims, including legal fees. 14. Subsequent Event - Unaudited On June 5, 2000, NWSC sold its bottled water division for $10,500,000 in cash. 46
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 47
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Part III  Item 10. Directors & Executive Officers of the Registrant Directors and Executive Officers The following table sets forth information concerning the directors and executive officers of NWS: Name Age Position ---- --- -------- James E. LaCrosse 67 Chairman, President, Chief Executive Officer, Chief Financial Officer and Director Martin H. Bart 67 Vice Chairman, Senior Vice President and Director J. Smoke Wallin 33 Executive Vice President, Secretary and Director Catherine LaCrosse 33 Corporate Vice President of Sales & Marketing and Director James Beck 56 President, NWS-Indiana and Director Mitchell Stoltz 46 President, NWS-Illinois and Director David Wilson 42 Corporate Executive Vice President, Sales & Marketing Norma M. Johnston 71 Director Percy N. Stone 69 Director William Cockrum 62 Director Vaughn D. Bryson 61 Director James E. LaCrosse has served as Chairman, President, Chief Executive Officer and a Director of NWS since December, 1998. He assumed the responsibilities of Chief Financial Officer in May, 2000. Previously, Mr. LaCrosse served as Chairman and Director NWS-Indiana since its formation in 1973, and prior to 1973 was employed by various companies in a financial capacity. Mr. LaCrosse received an MBA from Harvard Business School in 1961 and a BA in economics from Wesleyan University in 1957. Martin H. Bart has served as Senior Vice President, Vice Chairman and a Director of NWS since December, 1998. Previously Mr. Bart served as Vice Chairman of NWSI from 1995 to 1998. Prior to joining NWS, Mr. Bart served in various positions with the Joseph E. Seagram & Son Company from 1956 to 1993, and retired as Executive Vice President of Sales and Marketing. Mr. Bart received a BA in economics New York University in 1955. J. Smoke Wallin has served as Executive Vice President, Secretary and a Director of NWS since December, 1998. He served as Chief Financial Officer from December 1998 until April 2000. Mr. Wallin joined NWS in 1988 and served as Executive Vice President, Corporate Group, from 1993 to 1998. He received an MBA in finance, marketing and operations from Vanderbilt University-Owen School of Management in 1993 and a BS in economics from Cornell University in 1989. Mr. Wallin is Mr. LaCrosse's son-in-law. Catherine LaCrosse has served as Director of NWS since December 1998 and Vice President, Sales & Marketing, of NWS since March, 2000. Ms. LaCrosse joined NWS in 1991 and has served in various sales and marketing positions in NWS-Indiana, NWS-Illinois and NWS-Michigan. Ms. LaCrosse received a BA in history from Indiana University in 1990. She is Mr. LaCrosse's daughter. James Beck has served as Director of NWS since December 1998 and President of NWS-Indiana since 1992. Mr. Beck joined NWS in 1972 and has served in various positions, including Executive Vice President of Sales for 14 years prior to being named President of NWS-Indiana. He has been a Director of NWS since December, 1998. Mr. Beck received a BS in education from Ball State University in 1968. 48
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Mitchell Stoltz has served as Director of NWS since December 1998 and President of NWS-Illinois since 1995. Prior to becoming President, he served as Executive Vice President of Sales and Marketing for NWS-Illinois. Before joining NWS in 1992, Mr. Stoltz served as Vice President and General Manager for Magnolia Marketing Company and as President for Admiral Wine Company. He has been a Director of NWS since December, 1998. Mr. Stoltz received an M.M. from Northwestern University Kellogg Graduate School of Management in 1985 and a BA in Business from Notre Dame University in 1976. Norma M. Johnston has been a Director of NWS-Indiana since 1976, and a Director of NWS since December, 1998. Mrs. Johnston served as Secretary of NWS from 1976 to 1998. Percy N. Stone has served as Director of NWS since July 1999. He retired as General Manager of New Business Development from Continental Can in 1984 after working in various capacities from 1957. Mr. Stone received an MBA from Harvard Business School in 1957 and a BA in chemistry and biology from Wesleyan University in 1952. William Cockrum has served as Director of NWS since July 1999. He has been an Adjunct Professor of Finance in the UCLA Anderson School of Business since 1984, teaching entrepreneurial finance, business ethics and investment management. Mr. Cockrum was recognized as top entrepreneurial professor in the nation by Business Week magazine in 1998. Prior to joining UCLA, he spent 25 years in investment banking, serving as a corporate officer at Becker Paribas, Inc. until it was acquired by Merrill Lynch in 1984. Mr. Cockrum received an MBA in finance and marketing from Harvard Business School in 1961 and a BA in economics from DePauw University in 1959. Vaughn D. Bryson has served as Director of NWS since July 1999. He serves on the boards of several public companies, particularly in the biotech industry. Mr. Bryson retired as Vice Chairman in 1996 from Vector Securities International (now Prudent Vector). Prior to that, he worked for Eli Lilly and Company from 1961 to 1993 serving as President and CEO from 1991 to 1993, Executive Vice President from 1986 to 1990, and Board Member from 1984 to 1993. Mr. Bryson is a graduate of the Stanford Sloan Program, Stanford Graduate School of Business in 1967 and received a BS in pharmacy from the University of North Carolina in 1960. David Wilson has served as Corporate Executive Vice President, Sales & Marketing, since March 2000. Mr. Wilson joined the NWS in 1996 and previously served as Executive Vice President of Spirits for NWS-Illinois. His previous experience includes 17 years with the Joseph E. Seagram Corporation in various management positions including Vice President, on-premise, North America and state general manager in Arizona-New Mexico, Indiana and Illinois. Mr. Wilson received an MBA from Bellarmine College in 1983 and a BBA in business and economics from the University of Kentucky in 1979. 49
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Item 11. Executive Compensation Compensation of Directors Only outside Directors of NWS receive compensation per year for serving as directors. Each outside director received $60,000 for the fiscal year ending March 31, 2000 for serving on the board. Executive Compensation The following table sets forth the compensation paid by NWS to James E. LaCrosse, Chief Executive Officer, and to each of the four most highly compensated executive officers of NWS for 2000: [Enlarge/Download Table] Summary Compensation Table Annual Compensation ---------------------------------------------------------------- Other Annual All Other Name and Principal Position Year Salary Bonus Compensation Compensation(1) James E. LaCrosse 2000 $438,711 $249,000 $ 2,210(3) $ 220,585(2) Chairman, President, Chief Financial Officer, and CEO James Beck 2000 159,035 255,000 1,017(3) 7,788 President, NWS-Indiana J. Smoke Wallin 2000 278,231 19,000 2,775(3) 10,591 Executive Vice President and Secretary Mitchell Stoltz 2000 202,884 60,000 6,693(4) 8,596 President, NWS-Illinois David Wilson 2000 219,923 50,000 4,305 Corporate Executive Vice President, Sales & Marketing <FN> (1) Includes employer 401(k) Plan contributions in the following amounts: Mr. LaCrosse, $9,585; Mr. Wallin, $7,973; Mr. Beck, $7,788; Mr. Stoltz, $8,596; and Mr. Wilson, $4,305. Also includes company paid portion of medical premiums in the following amounts: Mr. Wallin, $2,618. (2) Includes $211,000 of life insurance premiums paid by NWS on behalf of Mr. LaCrosse and for the benefit of the LaCrosse family trust for estate planning purposes. NWS expects the premiums paid on behalf of Mr. LaCrosse in the future will remain at their current annual rate. Upon the death of Mr. LaCrosse or termination of the life insurance policies, NWS is entitled to repayment out of the proceeds of the policies of all premiums paid on behalf of Mr. LaCrosse for the benefit of the LaCrosse family trust since the inception of the policy in 1994. (3) Represents personal use of a company supplied automobile. (4) Consists of $3,093 representing personal use of a company-supplied automobile, and $3,600 representing payments by NWS of country club dues. </FN> 50
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Item 12. Security Ownership of Certain Beneficial Owners and Management NWS has two authorized classes of capital stock, voting common stock and non-voting common stock. The following table sets forth the beneficial ownership of NWS' voting common stock: (1) By each person known by NWS to beneficially own 5% or more of NWS' voting common stock, and (2) By all executive officers and directors of NWS as a group. Except for Mr. LaCrosse and Mrs. Johnston, who have sole voting and investment power with respect to their voting common stock, no other executive officer or director owns any shares of NWS' voting common stock. Number of Name and Address Shares Percent ---------------- ------ ------- James E. LaCrosse 700 West Morris Street Indianapolis, Indiana 46225.......................... 86,520 83% Norma M. Johnston 700 West Morris Street Indianapolis, Indiana 46225.......................... 18,000 17 All executive officers and directors as a group (11 persons)......................................... 104,520 100 The stockholders of NWS have entered into stockholder agreements with each other and NWS. Such agreements contain restrictions relating to transfers of stock and provide for rights to purchase and sell stock of each corporation, among other matters. In particular, the stockholder agreement with NWS governs the transferability of Mrs. Johnston's stock in NWS. The LaCrosse family is obligated to purchase Mrs. Johnston's stock at her death or during her lifetime should she decide to sell. NWS becomes obligated to purchase only if the LaCrosse family refuses or fails to purchase. The LaCrosse family and NWS also have the right to purchase Mrs. Johnston's stock at the death of Mr. LaCrosse. Any obligation of NWS to purchase the stock owned by Mrs. Johnston is subject to the terms of the indenture and the new credit facility. No right to purchase stock owned by Mr. LaCrosse or a trust for the benefit of his family exists in favor of Mrs. Johnston. The stockholders have also agreed not to take any action or effect any transfer that would cause NWS or any of its subsidiaries to fail to qualify as an S corporation or other pass-through entity for federal income tax purposes. In addition, the stockholders have entered into a tax indemnification agreement whereby they have agreed to indemnify NWS and its subsidiaries for any loss that may arise in the event NWS or any of its subsidiaries should fail to maintain its pass-through status. The LaCrosse family and NWS own life insurance policies on behalf of Mrs. Johnston in face amount of $4.0 million and $0.5 million, respectively. 51
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Item 13. Certain Relationships and Related Transactions J. Smoke Wallin, a Director of the Company, is the Chairman and Chief Executive Officer of eSkye.com, Inc. The Company received 1,500,000 shares of common stock in eSkye.com, Inc. upon inception, representing founders stock. The Company accounts for its investment in eSkye.com, Inc. using the equity method. In October, 1999, the Company invested $500,000 in convertible preferred stock of eSkye.com, Inc. The Company invested an additional $2,012,500 in convertible preferred stock in May 2000. NWS leases facilities and certain office equipment to eSkye.com, Inc. under the terms of a three-year operating lease. NWS received rent from eSkye.com, Inc. of $151,000 in 2000. eSkye.com, Inc. reimbursed the Company for $384,000 of expenses paid on its behalf during 2000. The Company paid eSkye.com, Inc. $20,000 for consulting services in 2000. From time to time, NWS-Indiana has loaned money to its principal shareholders, James E. LaCrosse and Norma M. Johnston, the primary purpose of which was to provide the necessary funds to finance start-up expenses and working capital needs of NWS-Illinois, an affiliated company owned prior to the reorganization by Mr. LaCrosse, Mrs. Johnston and Martin H. Bart. As of March 31, 2000, total indebtedness of Mr. LaCrosse and Mrs. Johnston to NWS-Indiana was $7.6 million. The indebtedness, which is presently due upon demand, bears interest at the prime lending rate of the Company's principal lending institution (9.00% at March 31, 2000). The proceeds of the loans were provided by Mr. LaCrosse and Mrs. Johnston to NWS-Illinois in the form of loans or additional capital contributions. This indebtedness to Mr. LaCrosse and Mrs. Johnston, which matures in 2009, is subordinated to the senior notes and the credit facility, and bears interest at 9.00% (prime rate at March 31, 2000). At the closing of the senior notes and the credit facility, NWS-Indiana distributed approximately $1.8 million to Mr. LaCrosse and Mrs. Johnston. Additionally, the obligations of NWS-Illinois under the subordinated shareholder notes are expressly subject to timely payment by Mr. LaCrosse and Mrs. Johnston of their obligations under their notes to NWS-Indiana. On July 27, 1998, Mr. LaCrosse transferred substantially all of his non-voting stock to a family trust for estate-planning purposes. As a part of this transfer and in addition to normal distributions for tax purposes, NWS distributed $3.5 million to the family trust and Mrs. Johnston in the annual period ended March 31, 2000. These distributions were made within the terms and conditions contained in the Company's indenture governing the senior notes (including the limitation on restricted payments) and the credit facility. The family trust remitted these funds to Mr. LaCrosse in repayment of indebtedness for the non-voting stock that was purchased on July 27, 1998. Mr. LaCrosse and Mrs. Johnston then remitted $3.5 million to NWS-Indiana to reduce their indebtedness described above. NWS-Indiana and NWS-Illinois have operated as S corporations under the Internal Revenue Code of 1986 (Code), and their respective subsidiaries have all operated as qualified subchapter S subsidiaries under the Code or other similarly taxed pass-through entities (the "S Corp. Businesses"). NWS has elected to be treated as an S corporation under the Code and has elected or will elect for each of its subsidiaries to be treated as qualified subchapter S subsidiaries. The S Corp. Businesses have not been subject to tax on their respective net taxable incomes, and the shareholders of the S Corp. Businesses have been directly subject to tax on their respective proportionate shares of such net taxable income. NWS-Indiana and NWS-Illinois have historically made cash distributions to Mr. LaCrosse, Mrs. Johnston and Mr. Bart in amounts equal to or greater than their respective tax obligations related to the S Corp. Businesses. The aggregate amount of these distributions during 1998, 1999, and 2000 were $2.8 million, $5.0 million and $4.8 million, respectively. The terms of the senior notes and the credit facility does permit NWS to make distributions to shareholders with respect to their tax liabilities subject to certain conditions and limitations each of the fiscal years ending 1998, 1999 and 2000. 52
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NWS-Illinois also paid a company owned by Mr. Bart $0.2 million during 1998 for certain consulting services provided by Mr. Bart to NWS-Illinois. During 1998, NWS-Indiana entered into a five-year non-compete agreement with James Beck, president of NWS-Indiana and a Director of NWS, under which Mr. Beck was paid $0.3 million by the Company. NWS-Indiana obtained certain inventory and other property related to the wholesale cigar distribution business previously operated by Mr. Beck. The Company pays "split-dollar" insurance premiums on eight insurance policies on the life of Mr. LaCrosse. See Item 11-Executive Compensation. The Company is entitled to receive reimbursement for all premiums paid out of the proceeds of these policies upon Mr. LaCrosse's death. NWS pays "split-dollar" insurance premiums on seven insurance policies with a fair value of $14.0 million on the lives of Mr. LaCrosse and Mrs. Johnston. NWS is entitled to receive reimbursement for all premiums paid out of the proceeds of these policies upon the death of Mr. LaCrosse and Mrs. Johnston. Premiums paid by NWS were $328,000 in 2000, and $320,000 in 1999, and $264,000 in 1998. The LaCrosse Family Trust is the beneficiary of those policies. 53
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PART IV  Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K (a) Documents filed as part of this Report. 1. Financial Statements Page(s) in this Report ----------- Report of Independent Auditors 28 Consolidated balance sheets - March 31, 2000 & 1999 29 Consolidated statements of income - Years ended March 31, 2000, 1999, & 1998 30 Consolidated statements of stockholder's equity - Years ended March 31, 2000, 1999, & 1998 31 Consolidated statements of cash flows - Years ended March 31, 2000, 1999, & 1998 32 Notes to consolidated financial statements 33 to 46 2. Financial Statement Schedule: Included as outlined in Item 8 of Part II of this Report. Schedule II - Valuation & Qualifying Accounts & Reserves 55 Schedules other than those listed above are omitted as they are not required, or not applicable, or the information is shown in the Notes to the Consolidated Financial Statements. 3. Exhibits See the Index to Exhibits on pages 57 & 58 of this Form 10-K, which is incorporated by reference herein. (b) Reports on Form 8-K. None. (c) See the Index to Exhibits on pages 57 & 58 of this Form 10-K, which is incorporated by reference herein. (d) See Exhibit 27 54
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[Enlarge/Download Table] NATIONAL WINE & SPIRITS, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Additions --------- Balance at Charged to Charged to Balance at Beginning Costs and Other End Description of Period Expenses Accounts Deductions of Period ----------- ---------- ---------- ---------- ---------- ---------- Year ended March 31, 2000 Deducted from asset account: Allowance for doubtful accounts $1,298,000 $ 544,000 $ -- $ 430,000(1) $1,412,000 LIFO reserve 7,546,000 939,000 -- -- 8,485,000 ---------- ---------- --------- --------- ---------- Total $8,844,000 $1,483,000 $ -- $ 430,000 $9,897,000 ========== ========== ========= ========= ========== Year ended March 31, 1999 Deducted from assets account: Allowance for doubtful accounts $ 900,000 $ 504,000 $ -- $ 106,000(1) $1,298,000 LIFO reserve 7,000,000 546,000 -- -- 7,546,000 ---------- ---------- --------- --------- ---------- Total $7,900,000 $1,050,000 $ -- $ 106,000 $8,844,000 ========== ========== ========= ========= ========== Year ended March 31, 1998 Deducted from assets account: Allowance for doubtful accounts $ 926,000 $ 601,000 $ -- $ 627,000(1) $ 900,000 LIFO reserve 6,430,000 570,000 -- -- 7,000,000 ---------- ---------- --------- --------- ---------- Total $7,356,000 $1,171,000 $ -- 627,000 $7,900,000 ========== ========== ========= ========= ========== <FN> (1) Uncollectible accounts written off, net of recoveries. </FN> (Remainder of page intentionally left blank.) 55
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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, on June 27, 2000. NATIONAL WINE & SPIRITS, INC. /s/ James E. LaCrosse By: ---------------------------------------- James E. LaCrosse, Chairman, President, Chief Executive Officer, and Chief Financial Officer Pursuant to the requirements of the Securities Act, this Registration Statement has been signed on the 27th day of June, 2000 by the following persons in the capacities indicated: SIGNATURE TITLE /s/ James E. LaCrosse --------------------------------- Chairman, President, Chief Executive James E. LaCrosse Officer (Principal Executive Officer), and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) --------------------------------- Director, Executive Vice President, J. Smoke Wallin* and Secretary --------------------------------- Director Martin H. Bart* --------------------------------- Director James Beck* --------------------------------- Director Mitchell Stoltz --------------------------------- Director William Cockrum --------------------------------- Director Percy N. Stone* --------------------------------- Director Norma M. Johnston* --------------------------------- Director Vaughn D. Bryson --------------------------------- Director Catherine LaCrosse Wallentine* *By: /s/ James E. LaCrosse -------------------------- ATTORNEY-IN-FACT 56
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INDEX TO EXHIBITS Exhibit No. Description ----------- ----------- 3.1 Amended and Restated Articles of Incorporation of National Wine & Spirits, Inc. 3.2 Amended and Restated Bylaws of National Wine & Spirits, Inc. 3.3 Articles of Incorporation of National Wine & Spirits Corporation (incorporated by reference Exhibit 3.3 to the Company's Registration Statement no. 333-74589 on Form S-4, filed May 13, 1999). 3.4 Bylaws of National Wine & Spirits Corporation (incorporated by reference Exhibit 3.4 to the Company's Registration Statement no. 333-74589 on Form S-4, filed May 13, 1999). 3.5 Articles of Incorporation of NWS, Inc. (incorporated by reference Exhibit 3.5 to the Company's Registration Statement no. 333-74589 on Form S-4, filed May 13, 1999). 3.6 Bylaws of NWS, Inc. (incorporated by reference Exhibit 3.6 to the Company's Registration Statement no. 333-74589 on Form S-4, filed May 13, 1999). 3.7 Articles of Incorporation of NWS Michigan, Inc. (incorporated by reference Exhibit 3.7 to the Company's Registration Statement no. 333-74589 on Form S-4, filed May 13, 1999). 3.8 Bylaws of NWS Michigan, Inc. (incorporated by reference Exhibit 3.8 to the Company's Registration Statement no. 333-74589 on Form S-4, filed May 13, 1999). 3.9 Articles of Organization of NWS-Illinois, LLC (incorporated by reference Exhibit 3.9 to the Company's Registration Statement no. 333-74589 on Form S-4, filed May 13, 1999). 3.10 Operating Agreement of NWS-Illinois, LLC (incorporated by reference Exhibit 3.10 to the Company's Registration Statement no. 333-74589 on Form S-4, filed May 13, 1999). 4.1 Indenture relating to the Exchange Notes, dated as of January 25, 1999 among National Wine & Spirits, Inc., the Subsidiary Guarantors and Norwest Bank Minnesota, N.A., as trustee (including cross-reference sheet regarding sections 310 through 318(a) of the Trust Indenture Act) (incorporated by reference Exhibit (4b) to the Company's Registration Statement no. 333-74589 on Form S-4, filed March 17, 1999). 4.2 A/B Exchange Registration Rights Agreement, dated as of January 25, 1999, among National Wine & Spirits, Inc., the Subsidiary Guarantors and the Initial Purchasers (incorporated by reference Exhibit 4(b) to the Company's Registration Statement no. 333-74589 on Form S-4, filed March 17, 1999). 4.3 Form of Exchange Notes (including related Subsidiary Guarantors) (incorporated by reference Exhibit 4(c) to the Company's Registration Statement no. 333-74589 on Form S-4, filed March 17, 1999). 4.4 Guaranty entered into as of January 25, 1999 by all Subsidiary Guarantors (incorporated by reference Exhibit 4(d) to the Company's Registration Statement no. 333-74589 on Form S-4, filed March 17, 1999). 57
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Exhibit No. Description ----------- ----------- 10.1 Purchase Agreement, dated January 20, 1999, among National Wine & Spirits, Inc., the Subsidiary Guarantors and the Initial Purchasers (incorporated by reference Exhibit 10(a) to the Company's Registration Statement no. 333-74589 on Form S-4, filed March 17, 1999). 10.2 Credit Agreement, dated January 25, 1999, among National Wine & Spirits, Inc., the Subsidiary Guarantors and NBD, as agent. (incorporated by reference Exhibit 10(b) to the Company's Registration Statement no. 333-74589 on Form S-4, filed March 17, 1999). 12 Statement regarding computation of ratios 21 List of subsidiaries (incorporated by reference Exhibit 21 to the Company's Registration Statement no. 333-74589 on Form S-4, filed March 17, 1999). 24 Powers of Attorney (contained in signature pages of this Registration Statement) 27 Financial Data Schedule 58

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3/31/9731
6/25/9744
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7/27/9852
7/31/9843
1/20/993958
1/25/993858
3/17/995758S-4
3/31/992355
4/30/9936
5/13/9957S-4/A
7/1/9922
12/31/992310-Q
For The Period Ended3/31/00155
5/19/0028
6/5/0046
6/27/0056
Filed On / Filed As Of6/28/00
3/2/0113
8/31/0113
3/2/0213
1/15/0439
1/25/0439
1/31/071615-15D
4/20/0716
1/15/0938
 
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