Back to GetFilings.com
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, 2001.
[ ] 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
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
700 W. Morris Street, P.O. Box 1602, 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 June 29, 2001 was 5,330,521, of which 104,520
were voting stock.
Documents Incorporated by Reference: None
- 1 -
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 17
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 18
Item 6. Selected Consolidated Financial Data 18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
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 46
PART III
Item 10. Directors and Executive Officers of the Registrant 47
Item 11. Executive Compensation 49
Item 12. Security Ownership of Certain Beneficial Owners
and Management 50
Item 13. Certain Relationships and Related Transactions 51
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 53
- 2 -
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 Company's debt
are forward-looking statements. A variety of factors could cause the Company's
actual results to differ from the reported results expressed in such
forward-looking statements. These factors are discussed in the cautionary
statements contained in Exhibit 99 to this filing. 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 54% market share and Michigan with 52% 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
o Canadian Club
NWS also is the exclusive distributor in Indiana and Illinois for many of
the world's leading wineries, including:
- 3 -
o Banfi Vintners, featuring Riunite and other Italian and Chilean wines
o Canandaigua, featuring Sebastiani, Inglenook, Paul Masson, and Almaden
wines
o Seagram, featuring premium European and California wines
o Kendall Jackson
NWS operates 12 strategically located distribution facilities and a fleet
of approximately 334 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 1997 to 2001, NWS' total revenue increased steadily from $490.8
million to $660.8 million, representing a compound annual growth rate of 7.7%,
while NWS' EBITDA increased from $14.2 million to $28.1 million, representing a
compound annual growth rate of 18.6%. NWS achieved this performance by
successfully integrating several strategic acquisitions, 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 retail
sales of approximately $122.3 billion in calendar 2000. Sales of wine and
spirits, in which NWS primarily competes, accounted for approximately 15% and
31%, respectively, or $55.4 billion of total retail sales in 2000. 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. In both the wine and spirits industries, consumers have been purchasing
higher quality and more expensive products.
In June of 2000, Seagram announced its intention to merge with Vivendi and
divest of their wine and spirits business. Subsequently, Diageo and Pernod
Ricard jointly bid and agreed to purchase the brands with the intention of
assigning them to their respective companies. The most notable Seagram brands
that Diageo purchased are Crown Royal, Seagrams V.O., 7 Crown, Captain Morgan
and Myers's Rum. The notable brands Pernod purchased include Chivas Regal, The
Glenlivet, Martell Cognacs and Seagrams Gin. The purchase agreement is subject
to final regulatory approval which is expected in late summer 2001. Absolut
Vodka, which had a marketing arrangement with Seagram, has assigned the U.S.
marketing rights to Future Brands L.L.C., a joint venture with V & S (parent of
Absolut) and Jim Beam Brands.
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 or 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 that restrict the suppliers' ability to change
distributors.
- 4 -
Given the three tier regulatory structure, the wine and spirits
distribution industry varies greatly from other industries such as food, drugs,
non-alcohol-based beverages and paper products. As suppliers can compete
directly with the distributors in these other industries by shipping directly to
retailers, distributor margins can be much lower than those in the wine and
spirits industry. In addition, the liquor industry as a whole has shown a
remarkable resilience to economic downturns relative to other industries.
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 eight out of the top ten brands of spirits sold in
the United States, including Absolut, Jim Beam, Jose Cuervo, Seagram's Gin,
Seagram's 7 Crown, Captain Morgan and Smirnoff. In Illinois, NWS is the
exclusive distributor of six out of the top ten U.S. brands. NWS also represents
a significant share of each of its major suppliers' total United States
business.
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 6.7% of NWS' 2001 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.
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 334 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.
- 5 -
Experienced Management Team. The seven individuals who comprise NWS' senior
management team have an average of over 25 years of experience in the
alcohol-based beverage industry and 15 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.
(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.
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%.
- 6 -
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 1999, 2000 and 2001 is as follows:
Wine (in thousands) Spirits (in thousands) Other (in thousands)
------------------- ---------------------- --------------------
1999 2000 2001 1999 2000 2001 1999 2000 2001
---- ---- ---- ---- ---- ---- ---- ---- ----
Product sales...........$143,339 $149,160 $160,840 $355,807 $377,437 $397,754 $36,375 $78,390 $80,646
Distribution fees....... --- --- --- $ 17,832 20,770 21,573 --- --- ---
Percentage of total
Company revenue....... 25.9% 23.8% 24.3% 67.5% 63.6% 63.5% 6.6% 12.6% 12.2%
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 1999, 2000 and 2001 was $305.2 million, $365.1 million and $355.0
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
Old Grand Dad Knob Creek
Scotch and Single Malt Whiskey: Chivas Regal Glenlivet
Grant's Isle of Jura
Balvenie J&B Rare
Bowmore Dalmore
Glenfiddich Macallan
- 7 -
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 Paul Masson
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
K Cider Hooper's Hooch
Non-Alcohol: Evian Stewart's
Perrier Nantucket Nectars
NWS has entered into written distribution agreements with several of its
principal suppliers that 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 2001
case sales.
- 8 -
Length of
U.S. Company
Rank State Representation Relationship Representative
Supplier (1) IN IL MI (in years)(2) Brands
- -------- --- -- -- -- ------------- --------------
Diageo (3)........ 1 X X 27 Smirnoff, Jose Cuervo
Seagram........... 2 X X X 27 Absolut, Crown Royal
Fortune Brands.... 6 X X X 25 Jim Beam, DeKuyper's
(1) Source: 2001 Adams Handbook Advance.
(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) 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 that remains a separate organization.
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:
Length of
U.S. State Company
Rank Representation Relationship Representative
Supplier (1) IN IL (in years)(2) Brands
- -------- --- -- -- ------------- --------------
Constellation Brands..... 2 X X 27 Inglenook, Paul Masson, Sebastiani
Beringer Wine Estates.... 6 X 26 Beringer, Meridian
Banfi Vintners........... 7 X X 27 Riunite, Concha y Toro
Seagram.................. 9 X X 27 Sterling, Mumm
Southcorp Wines (3)...... 10 X X 10 Lindeman's, Rosemount Estate
Kendall Jackson.......... 11 X X 2 Kendall Jackson, Cambria
Stimson Lane............. 12 X 15 Chateau St. Michelle, Columbia Crest
(1) Source: 2001 Adams Handbook Advance.
(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) NWS does not represent the entire brand portfolio in Illinois.
- 9 -
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
$10.4 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 became the exclusive sales
and marketing firm for the Goose Island brand throughout the United States. In
May of 2001, U.S. Beverage announced a long-term agreement with Grolsch
International BV to provide national distribution, marketing and sales for
premium Grolsch beers. In calendar 2000, Grolsch sold 2.0 million cases
nationwide, representing approximately $35 million in sales.
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 6.7% of NWS' 2001 total revenue. 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:
Percentage of
Type of Customer Company 2001 Revenue Representative Customers
- ---------------- -------------------- ------------------------
Off-Premise
Package Stores 40.2% Gold Standard and Cap'n Cork
Grocery stores, drug stores
and mass merchandisers 24.5 Kroger, Dominicks, Marsh, American
Stores (Osco), Walgreens, CVS, Sam's Club, Meijer
Other 6.0 7-Eleven, White Hen, Village Pantry
----
Percent of total 70.7%
====
On-Premise
Restaurants and Bars 23.2% Charlie Trotter's, Hard RockCafe,
House of Blues, Mortons, Lettuce Entertain U,
Levy, Ruth's Chris
Hotels, Entertainment 3.1 Four Seasons, Hyatt, Hilton, the United Center
Other 3.0 Crooked Stick Golf Course, American Legion
----
Percent of total 29.3%
====
- 10 -
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
Brand Management. NWS was one of the first distributors to recognize the
benefits of a dedicated approach to brand management and separating it from
sales execution. Our approach has contributed to our success. Suppliers
appreciate and depend upon the local expertise and understanding of the
intricacies of the market. Our brand managers, through interaction with our
sales teams and analysis of the competitive landscape, adjust suppliers'
national brand strategies to plans that work in our respective states.
Sales Teams. NWS sales organizational design is predicated upon category
knowledge and expertise, trade channel knowledge and effectiveness, and
geographic coverage. 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
provides its customers with a wide variety of services in addition to order
taking, merchandising, and delivery. These services include item selection and
SKU optimization using space and financial tools, fact-based business
presentations to capitalize on fair share, consumer pull-through marketing
programs and communicating business-building solutions.
Sales, Marketing and Information Systems. Our investment in technology, in
the areas of and sales and marketing is a critical factor in our success and
customer satisfaction. NWS is generally recognized as an industry innovator and
leader in MIS in the wine and spirits distribution tier. Our proprietary sales
system manages sales data to the SKU level in all retail accounts we service
(approximately 36,000) and is refreshed nightly based on deliveries. This system
provides our brand teams the necessary information to develop targeted,
effective brand plans. Moreover, our sales managers depend on the information to
monitor and control retail execution within their sales teams. Most recently we
have moved this information to the Internet to allow for greater speed and
accessibility to management, retail, and supplier partners. We have also
invested to significantly improving our category management expertise. This has
improved our service and effectiveness particularly in the off-premise national
and regional chain accounts.
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 -
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 334 delivery trucks, consisting of 246 delivery
trucks, 17 tractors, 25 trailers, 42 vans and 4 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
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.
- 12 -
The wine and spirits wholesale distribution business is highly competitive.
NWS' primary competition in Illinois includes Romano Brothers and Judge & Dolph,
and to a lesser degree Pacific Wine. In Indiana, the only competitor of
consequence is Olinger (a partnership of Glazer and Romano). The Olinger
operation has become a more formidable competitor in Indiana with the corporate
strength and relationships that Glazer and Romano lend. None of the ten largest
United States distributors competes with NWS in Michigan. Distributors compete
for new suppliers or brands based on reputation, market share, access to
customers and ability to satisfy supplier demands. This will be particularly
relevant in the short term as the industry continues to consolidate as evidenced
by the pending sale of the Seagram brands. Given its size, supplier
relationships, effective sales and marketing organization and low cost efficient
distribution networks, NWS is well positioned to compete in Indiana, Illinois
and Michigan.
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, 2001, NWS had approximately 1,521 employees. Approximately
147 employees in Michigan and 435 employees in Illinois are represented by labor
unions. In Illinois, NWS has relationships with three unions:
(1) Teamsters Union Local 744, expiring March 30, 2002;
(2) Liquor and Allied Workers Union Local 3, annual agreements expiring
September 30, 2001 and October 31, 2001; and
(3) Teamsters, Chauffeurs & Helpers Union Local 50, expiring August 31,
2001.
In Michigan, NWS has relationships with four unions:
(1) Teamsters Union Local 337, expiring March 2, 2005;
(2) Teamsters Union Local 406, expiring March 1, 2002
(3) Teamsters Union Local 299, expiring March 2, 2004; and
(4) Teamsters Union Local 486, expiring March 2, 2004.
Employees of NWS in Indiana are not represented by any labor unions.
NWS has not experienced any work stoppages in more than 18 years as a
result of labor disputes and considers its employee relations to be good.
- 13 -
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 (BATF), as
well as by state and local regulatory agencies. Suppliers, distributors and
customers must be properly licensed in order to sell alcohol-based beverages.
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 that produce alcohol-based
beverages and/or importers of alcohol-based beverages.
(2) Tier two is comprised of distributors, such as NWS.
(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 BATF 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.
- 14 -
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.
(3) Encourage enforcement of applicable laws and regulations on a
consistent basis throughout its markets.
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. Mr. LaCrosse, or a trust for
the benefit of his family, and Mrs. Johnston substantially wholly own NWS.
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 351,000 square feet of warehousing space, including a designated
temperature controlled area for temperature-sensitive products. The Detroit
warehouse consists of approximately 238,000 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.
- 15 -
The following chart lists NWS' warehouses and delivery, production and
office facilities:
Total
Owned/ Square
Location Leased Feet Principal Function
-------- ------ ---- ------------------
Indiana Indianapolis Owned 351,000 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
Crown Point Leased 7,900 Office
Indianapolis Owned 3,500 Leased Office (Perrier)
Indianapolis Owned 15,000 Leased Warehouse (Perrier)
Indianapolis Owned 20,000 Leased Office Property
Connecticut Stamford Leased 5,700 Office
Illinois Chicago Owned 650,000 Master Warehouse/Office
Chicago Leased 1,840 Leased Office Property
Champaign Leased 50,000 Master Warehouse/Office
Peoria Leased 56,000 Hyper-Terminal/Office
Belleville Leased 14,200 Cross-Docking Facility/Office
Rockford Leased 5,000 Office
Springfield Leased 1,000 Office
Michigan Detroit (Brownstown) Leased 238,000 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
Farmington Hills Leased 7,000 Office
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.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various 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.
- 16 -
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
- 17 -
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.
The Company has restated its Consolidated Financial Statements for the
fiscal years 1998, 1999 and 2000. This restatement is due to material errors
that occurred in these years primarily from an overstatement of accounts
receivable during the periods being restated. During an internal review of
Company accounts receivable and billing information during fiscal 2001, the
Company discovered that accounts receivable had been overstated, records had
been altered or destroyed, and that funds had been misappropriated by two former
employees at its Indiana location. Through the review process, the Company was
able to identify uncollectible accounts receivable, missed invoices and
customers who had short paid. Total charges for fiscal 2000, 1999 and 1998 were
$1.2 million, $0.5 million and $1.0 million, respectively. For additional
discussion, see "Restatement of Consolidated Financial Statements" in Note 2 of
the Notes to Consolidated Financial Statements.
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.
- 18 -
YEARS ENDED MARCH 31,
(DOLLARS AND CASES IN THOUSANDS, EXCEPT PER CASE AMOUNT)
-----------------------------------------------------------------
1997 1998(1) 1999(1) 2000(1) 2001
STATEMENT OF INCOME DATA:
Net product sales..... $ 488,071 $ 505,141 $ 535,521 $ 604,987 $ 639,240
Distribution fees..... 2,729 16,270 17,832 20,770 21,573
--------- ---------- ---------- --------- ---------
Total revenue......... 490,800 521,411 553,353 625,757 660,813
Cost of products sold. 402,072 411,734 436,734 488,444 513,928
--------- ---------- ---------- --------- ---------
Gross profit.......... 88,728 109,677 116,619 137,313 146,885
Selling, general and
administrative
expenses............ 80,299 100,136 105,124 120,931 127,706
--------- ---------- ---------- --------- ---------
Income from operations 8,429 9,541 11,495 16,382 19,179
Interest expense...... (8,486) (9,672) (11,037) (13,274) (13,214)
Gain on sale of assets 41 4,139 188 173 7,835
Other income.......... 1,619 2,085 341 1,394 1,112
--------- ---------- ---------- --------- ---------
Income before
extraordinary item.. 1,603 6,093 987 4,675 14,912
Extraordinary item.... --- --- 318 --- ---
--------- ---------- ---------- --------- ---------
Net income............ $ 1,603 $ 6,093 $ 669 $ 4,675 $ 14,912
========= ========== ========== ========= =========
OTHER FINANCIAL DATA:
EBITDA (2)............ $ 14,186 $ 16,656 $ 19,869 $ 25,287 $ 28,069
EBITDA margin......... 2.9% 3.2% 3.6% 4.0% 4.2%
Cash provided by
operating
activities.......... 6,939 9,783 6,013 17,103 7,853
Cash provided (used)
by investing
activities.......... (9,937) (9,908) (20,846) (8,170) 2,221
Cash provided (used)
by financing
activities.......... 4,918 (1,900) 15,371 (7,282) (9,539)
Depreciation and
amortization........ 5,757 7,115 8,374 8,905 8,890
Capital expenditures
(3)................. 10,447 13,952 7,858 6,672 6,083
Ratio of earnings to
fixed charges....... 1.2x 1.5x 1.1x 1.3x 2.0x
Adjusted EBITDA (2)... 15,641 17,226 20,415 26,226 29,345
OPERATING STATISTICS:
Product Sales Operations
Cases shipped (spirits
and wine)........... 6,099 6,343 6,182 6,394 6,425
Gross profit margin... 17.6% 18.5% 18.4% 19.3% 19.6%
Fee Operations
Cases shipped
(spirits)........... 396 2,545 2,731 2,786 2,684
Distribution fee per
case................ $ 6.50 $ 6.50 $ 6.50 $ 6.50 $ 7.32
AS OF MARCH 31,
(IN THOUSANDS)
----------------------------------------------------------------
1997 1998(1) 1999(1) 2000(1) 2001
BALANCE SHEET DATA
Cash.................. $ 3,395 $ 1,370 $ 1,908 $ 3,559 $ 4,094
Total assets.......... 160,366 168,084 178,868 188,452 193,332
Total debt............ 99,545 102,434 117,222 112,471 110,571
Stockholders'
equity.............. 10,470 13,564 16,266 18,438 25,711
- 19 -
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) As more fully described in Note 2 of Notes to Consolidated Financial
Statements, the Company has restated its results for its fiscal years ended
March 31, 1998, 1999 and 2000.
(2) EBITDA is defined as income from operations plus depreciation and
amortization. Adjusted EBITDA is defined as EBITDA plus non-cash LIFO
charges, as follows:
AS OF MARCH 31,
(IN THOUSANDS)
-----------------------------------------------------------------
1997 1998 1999 2000 2001
RESTATED RESTATED RESTATED
EBITDA.................. $ 14,186 $ 16,656 $ 19,869 $ 25,287 $ 28,069
LIFO charge............. 1,455 570 546 939 1,276
--------- ---------- ---------- --------- ---------
Adjusted EBITDA...... $ 15,641 $ 17,226 $ 20,415 $ 26,226 $ 29,345
========= ========== ========== ========= =========
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 senior 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.
(3) The breakdown of our capital expenditures by significant project is set
forth below:
Years Ended March 31
(in thousands)
-----------------------------------------------------------------
1997 1998 1999 2000 2001
Business expansion...... $ 5,855 $ 10,758 $ 4,856 $ 3,112 $ 2,374
Information systems..... 2,446 1,781 1,281 970 1,750
Maintenance............. 2,146 1,413 1,721 2,590 1,959
--------- ---------- ---------- --------- ---------
$ 10,447 $ 13,952 $ 7,858 $ 6,672 $ 6,083
========= ========== ========== ========= =========
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. As more fully described in Note 2 of Notes to Consolidated
Financial Statements, the Company has restated its results for the fiscal years
ended March 31, 1998, 1999 and 2000.
- 20 -
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 Company's debt
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
National Wine & Spirits, Inc. ("The Company") is one of the largest
distributors of wine and spirits in the United States. Substantially all of the
Company's current operations are in Illinois, Indiana, Michigan, and Kentucky.
The Company's reported revenues include net product sales in Indiana, Michigan
and Illinois. Product sales of low proof and non-alcoholic products commenced in
November 2000 for the Company's Michigan operation. Distribution fee revenue is
from the Michigan operations. References to U.S. Beverage relate to the
operations of the Company's national import, craft and specialty beer marketing
business performed by NWS-Illinois.
The Company increased both product and distribution fee revenue for the
year ended March 31, 2001, over the prior fiscal year. The revenue increase was
primarily from a shift by consumers to premium-priced products along with
industry-wide price increases on higher volume brands. Spirits case sales were
up 1.3% over the prior fiscal year with spirits revenue rising 5.4% for the same
comparable period. White spirits, such as vodkas, tequilas and rum drove the
spirits revenue increase. Revenue from wine sales increased 7.8% over the
comparable fiscal year, despite the loss of the Sutter Home line in the Indiana
market as of December 2000. Increased consumption of wine and a preference by
consumers for premium wines were primarily the reason for the revenue increase.
Distribution fee revenue increased slightly due to the fee increase of $0.82 per
case. Case volume decline due to the loss of the Black Velvet, Christian
Brothers and Arrow brands. Gross margin on product sales increased slightly to
19.6% for the fiscal year ended March 31, 2001 as compared to 19.3% for the
prior year. The increase in revenue and gross margin more than offset the
operating expense increases, resulting in operating income of $19.2 million, an
increase of $2.8 million over the results for fiscal 2000. Net income increased
$10.2 million for the fiscal year ended March 31, 2001 over the results for
fiscal 2000 primarily from the gain on sale of the bottled water division of
$7.5 million and the increased revenue and gross margin.
As discussed elsewhere in this report and in Note 2 of Notes to
Consolidated Financial Statements, the Company has restated its results for the
2000, 1999 and 1998 fiscal years. During an internal review of Company accounts
receivable and billing information during fiscal 2001, the Company discovered
that accounts receivable had been overstated, records had been altered or
destroyed, and that funds had been misappropriated by two former employees at
its Indiana location. Through the review process, the Company was able to
identify uncollectible accounts receivable, missed invoices and customers who
had short paid. Total charges for fiscal 2000, 1999 and 1998 were $1.2 million,
$0.5 million and $1.0 million, respectively.
OUTLOOK
The Company anticipates that revenues and case volumes will continue to
grow modestly, approximately 5% and 1%, respectively. The shift towards
premium-priced spirits and wines, with increasing margin percentages should
support current EBITDA levels. The Company continues to be concerned about the
effects of the pending sale of the Seagram wine and spirits brands to Diageo and
Pernod Ricard. Jim Beam Brands (Future Brands LLC) assumed control of the
Absolut distribution rights in the United States as of May 2001 and the Company
has continued to represent the brand in our markets. The Company is confident,
based upon our history of sales performance and capabilities, that we will
continue to represent the brands which Diageo and Pernod Ricard purchased as
well. The Company represents Diageo in Indiana, Michigan and Kentucky; Beam in
Indiana, Illinois, Michigan and Kentucky; and Pernod Ricard in Illinois, Indiana
and Kentucky.
- 21 -
RESULTS OF OPERATIONS
The following table includes information regarding total cases shipped by
NWS in 1999, 2000 and 2001:
YEARS ENDED MARCH 31,
(CASES IN THOUSANDS)
--------------------------------------------------------
1999 2000 2001
---- ---- ----
PERCENT PERCENT
CASES CASES CHANGE CASES CHANGE
----- ----- ------ ----- ------
Wine (product
sales operations)..... 2,928 3,044 4.0% 3,032 (0.4)%
Spirits (product
sales operations)..... 3,254 3,350 3.0 3,393 1.3
Spirits (distribution
fee operations)....... 2,731 2,786 2.0 2,684 (3.7)
------ ------ ---- ------
Total wine
and spirits....... 8,913 9,180 3.0 9,109 (0.8)
Other*.................. 2,764 4,274 54.6 5,021 17.5
------ ------ ---- ------
Total............... 11,677 13,454 15.2% 14,130 5.0%
====== ====== ==== ======
* U.S. Beverage's results are included in the other category for the current
year and prior years.
FISCAL 2001 COMPARED WITH FISCAL 2000
Revenue. The Company reported product sales for the year ended March 31,
2001 of $639.2 million, an increase of $34.2 million, or 5.7% over the prior
year period. The increase was primarily the result of consumer demand for
premium-priced spirits and wines, along with growth of the United States
Beverage division. Price increases on popular brands, such as tequila, also
contributed to the revenue increase this year versus the prior year period.
Distribution fee revenue increased 3.9% to $21.6 million, primarily the result
of a rate increase to $7.32 a case from $6.50 per case, as authorized by the
State of Michigan. Case volume from fee operations declined due to the sale of
the Black Velvet, Christian Brothers (both in May 2000) and Arrow brands
(February 2000) by Diageo. The Company added the Allied Domecq line in Michigan
(July 2000); however, the case volume was not equal to the Diageo brands that
were sold.
Gross Profit. Gross profit dollars on product sales increased $8.8 million
for the year ended March 31, 2001, an increase of 7.5% from the prior year
period. Gross profit percentage on product sales was 19.6% for the year ended
March 31, 2001 versus 19.3% for the prior year period. The increased sales of
premium spirits and wines, which carry a higher gross profit percentage, along
with the growth of the United States Beverage division, were primarily
responsible for the gross margin dollar and percentage increase.
Operating Expenses. Total operating expenses for the year ended March 31,
2001 increased $6.8 million, or 5.6% over the operating expenses for the year
ended March 31, 2000. Expanded sales operations in the United States Beverage
division, along with increased brand promotion costs in the product markets,
were primarily responsible for the operating expense increase.
Operating expenses for the annual period ended March 31, 2001 in the fee
operations increased $1.7 million, or 8.3% from the prior year period.
Operational costs associated with increased bottle or less than full case
orders, and expansion of the sales area were primarily responsible for the cost
increases.
- 22 -
Selling expenses increased $5.6 million to $48.1 million for the year ended
March 31, 2001 as compared to the prior year period. Expansion of the United
States Beverage sales area due to the Grolsch brand addition along with
increased brand support for the Hooper's Hooch products were primarily
responsible for the sales expense increase. Expenses for the brokerage operation
in our fee market increased $0.3 million from the prior year period. This
represents a leveling off for the brokerage expenses, while revenue from the
brokerage operation increased $0.2 million for the annual period ended March 31,
2001, versus the comparable year period.
Warehouse and delivery expenses increased 3.3% or $1.3 million for the year
ended March 31, 2001 versus the prior year period. Operational costs associated
with the increased bottle orders in our fee market contributed to higher
warehouse costs. Total warehouse and delivery expenses, as a percentage of total
revenue, declined slightly to 6.0% during the current year period as compared to
6.1% for the prior annual period.
Total administrative expense remained stable at $40.0 million. Cost
increases in casualty and health insurance were offset by savings on
communication and wages. Administrative expense as a percentage of total revenue
was 6.1% for the year ended March 31, 2001, down slightly from 6.4% for the
prior annual period. As more fully described in Note 2 to Notes to Consolidated
Financial Statements, the Company reported losses of $0.8 million for the year
ended March 31, 2001, as compared to $1.2 million for the prior annual period.
Income from Operations. Total operating income increased $2.8 million, or
17.1% for the year ended March 31, 2001, over the prior annual period. The
revenue gains and an increased gross profit percentage more than offset the
increases in operating expenses. Operating income for the product markets
increased $3.7 million, or 23.3% from the prior annual period due to the
increased gross profit. The fee operations experienced a decline in operating
income for the year ended March 31, 2001 of $0.9 million due to increased
operational costs and the decreased case sales from the prior annual period.
Interest Expense. Interest expense remained stable, decreasing $0.1 million
for the year ended March 31, 2001 over the prior annual period. The Company
reduced the balance outstanding on the revolving credit facility with the
proceeds of the sale of the bottled water division, and was able to take
advantage of LIBOR pricing, which reduced the Company's rate relative to prime
based pricing. The Company's revolver rate was 9.5% at March 31, 2000 and was
8.5% during March 2001.
Other Income. The gain from the sale from the bottled water division of
$7.5 million was the primary reason for the increase of $7.7 million in other
income for the year ended March 31, 2001 as compared to the prior annual period.
Rental income increased slightly due to facilities rented to the purchaser of
the bottled water division and office facilities to eSkye Solutions, Inc.
Minority Investment in Kentucky Distributor. The Company's share of income
from Commonwealth Wine & Spirits, L.L.C. increased $0.2 million during the year
ended March 31, 2001 to $0.3 million as compared to the prior annual period.
Distributions received from Commonwealth were $0.8 million for the year ended
March 31, 2001 as compared to $0.5 million for the prior annual period.
Net Income. Net income increased $10.2 million for the year ended March 31,
2001, as compared to the prior annual period. The increase was due to the gain
from the sale of the bottled water division along with increased revenue and
gross profit. Net income from the product markets, excluding the gain from the
sale of the bottled water division, increased 62.2% to $9.4 million for the year
ended March 31, 2001, as compared to $5.8 million for the prior annual period.
- 23 -
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization (EBITDA) for the year ended March
31, 2001 increased $2.8 million, or 11.0% to $28.1 million as compared to the
prior annual period.
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 $120.9 million, or 15.0% 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. As more
fully described in Note 2 to Notes to Consolidated Financial Statements, the
Company reported losses of $1.2 million for the year ended March 31, 2000, as
compared to $0.5 million for the prior annual period. Total operating expenses
were 19.3% of total revenue for March 31, 2000, as compared to 19.0% 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.
- 24 -
Total administrative costs increased $8.5 million or 26.9% 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 6.4% for the year
ended March 31, 2000, as compared to 5.7% for the comparable annual period.
Income from Operations. Total operating income increased $4.9 million, or
42.5% for the year ended March 31, 2000, over the comparable annual period.
Product markets operating income were up $6.3 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 $4.7 million for the year ended March 31, 2000,
which was an increase of $4.0 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 $5.4 million, or 27.3% to $25.3 million as compared to the
prior annual period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements have been to fund accounts
receivable and inventories in Indiana, Illinois, and its U.S. Beverage
operations. NWS has historically satisfied its cash requirements principally
through cash flow from operations, trade terms and bank borrowings.
NWS' working capital and borrowings under its revolving credit facility
fluctuate over the course of each year. In fiscal 2001, NWS' minimum and maximum
amount of borrowings under the current $60.0 million revolving credit facility,
at any one time, was $0.0 in March 2001 and $30.3 million in December, 2000. At
March 31, 2001 NWS' did not have a balance outstanding under its revolving
credit facility.
- 25 -
Net cash provided by operating activities for the annual period ended March
31, 2001, was $7.9 million, as compared to $17.1 million for the prior annual
period. Increases in cash provided were from increased profitability and lowered
accounts receivable. The Company has emphasized collection and management of its
receivables since the incident described in Note 2 of the Consolidated Financial
Statements. Decreases in cash from operating activities were the result of
decreased accounts payable, increased gain from sale of assets and increases in
inventory levels, as compared to the change in the prior annual period. The
increased working capital needs at March 31, 2001, as compared to the working
capital needs for the prior annual period, were funded primarily by increased
profitability, including the funds from the sale of the bottled water division.
Net cash provided by investing activities increased $10.4 million for the
year ended March 31, 2001 as compared to the prior annual period. The Company
received $10.7 million from the sale of assets during the year ended March 31,
2001, primarily from the sale of the bottled water division in June 2000. The
Company invested $2.0 million in eSkye Solutions, Inc. during the year ended
March 31, 2001. The Company was able to limit spending on capital expenditures
related to additional capacity or real estate resulting in depreciation expense
exceeding expenditures for the second consecutive year. The company expects
capital expenditures in fiscal 2002 to be between $7.0 and $8.0 million.
Net cash used by financing activities was $9.5 million for the year ended
March 31, 2001, as compared to $7.3 million used during the prior annual period.
The Company was able to generate funds to completely pay down the revolving
credit facility at March 31, 2001 that resulted in a net increase of cash as
compared to the prior annual period of $2.7 million. The Company had
distributions to stockholders during the year that were for tax liabilities and
used to repay shareholder receivables. The $2.8 million increase in cash from
the change in notes receivable from stockholders consisted of repayments for
$3.6 million and net advances on account of interest of $0.8 million.
Dispositions of the $10.6 million of stockholder distributions were as follows:
$6.6 million to satisfy tax obligations, $3.6 million paid to shareholders and
returned to the Company as payment on notes receivable, and $0.4 million as
final payment to a former shareholder.
Total assets increased to $193.3 million at March 31, 2001, a $4.9 million
increase from the prior year. This increase was primarily the result of
increased inventories of $8.4 million as compared to the prior annual period.
Property and equipment declined by $3.0 million due to lowered capital
expenditures as compared to the prior year, and the sale of assets related to
the bottled water division. Total debt decreased $1.9 million to $110.6 million
at March 31, 2001 primarily the result of increased cash flow from the proceeds
of the sale of the bottled water division. The net amount of notes receivable
from stockholders, which is classified as an equity component declined by $2.9
million due to stockholder distributions that were paid back to the Company to
reduce the receivable balance. The amount of the shareholder receivables was
$4.7 million at March 31, 2001 and the notes payable to shareholders was $4.5
million on the same date.
The Company believes that cash flow from operations and existing capital
resources, including cash and borrowings available under the Company's revolving
credit facility, will be sufficient to satisfy the Company's anticipated working
capital and debt service requirements and expansion plans.
OTHER
As a matter of policy, the Company plans to review and evaluate all
professional services firms every three to four years. This review will include
but is not limited to legal, audit and information systems services. The next
scheduled review will occur during Fiscal 2002.
- 26 -
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.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
- 27 -
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, 2001 and 2000, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended March 31, 2001. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 2001 in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
The consolidated financial statements for each of the two years in the period
ended March 31, 2000 have been restated as described in Note 2.
/s/ Ernst & Young LLP
Indianapolis, Indiana
June 26, 2001
- 28 -
NATIONAL WINE & Spirits, Inc.
Consolidated Balance Sheets
MARCH 31
2000
2001 RESTATED
-----------------------------
ASSETS
Current assets:
Cash $ 4,094,000 $ 3,559,000
Accounts receivable, less allowance for doubtful accounts
of $1,737,000 ($1,412,000 in 2000) 39,001,000 42,264,000
Inventory 79,616,000 71,167,000
Prepaid expenses and other 4,231,000 3,571,000
-----------------------------
Total current assets 126,942,000 120,561,000
Property and equipment, net 43,734,000 46,735,000
Other assets:
Notes receivable 811,000 1,142,000
Cash surrender value of life insurance, net of loans 2,821,000 2,270,000
Investment in Kentucky distributor 6,609,000 7,072,000
Investment in eSkye Solutions, Inc. 2,513,000 500,000
Intangible assets, net of amortization 9,290,000 9,988,000
Deferred pension costs 487,000 ---
Deposits and other 125,000 184,000
-----------------------------
Total other assets 22,656,000 21,156,000
-----------------------------
Total assets $ 193,332,000 $ 188,452,000
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES:
Accounts payable $ 35,739,000 $ 37,935,000
Accrued payroll and payroll taxes 6,913,000 6,757,000
Excise taxes payable 5,401,000 5,200,000
Other accrued expenses and taxes 8,510,000 7,651,000
Current maturities of long-term debt 571,000 900,000
-----------------------------
Total current liabilities 57,134,000 58,443,000
Deferred pension liability 487,000 ---
Long-term debt, less current maturities 110,000,000 111,571,000
-----------------------------
Total liabilities 167,621,000 170,014,000
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
Retained earnings (deficit) 818,000 (3,513,000)
-----------------------------
25,881,000 21,550,000
Notes receivable from stockholders, net (170,000) (3,112,000)
-----------------------------
Total stockholders' equity 25,711,000 18,438,000
-----------------------------
Total liabilities and stockholders' equity $ 193,332,000 $ 188,452,000
=============================
See accompanying notes.
- 29 -
NATIONAL WINE & Spirits, Inc.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31
2000 1999
2001 RESTATED RESTATED
---------------------------------------------
Net product sales $ 639,240,000 $ 604,987,000 $ 535,521,000
Distribution fees 21,573,000 20,770,000 17,832,000
---------------------------------------------
Total revenue 660,813,000 625,757,000 553,353,000
Cost of products sold 513,928,000 488,444,000 436,734,000
---------------------------------------------
Gross profit 146,885,000 137,313,000 116,619,000
Selling, general and administrative
expenses:
Warehouse and delivery 39,657,000 38,401,000 35,655,000
Selling 48,052,000 42,434,000 37,872,000
Administrative 39,997,000 40,096,000 31,597,000
---------------------------------------------
127,706,000 120,931,000 105,124,000
- ---------------------------------------------
Income from operations 19,179,000 16,382,000 11,495,000
Interest expense:
Related parties (405,000) (425,000) (461,000)
Third parties (12,809,000) (12,849,000) (10,576,000)
---------------------------------------------
(13,214,000) (13,274,000) (11,037,000)
Other income (expense):
Gain on sales of assets 7,835,000 173,000 188,000
Interest income 738,000 892,000 977,000
Rental and other income (expense) 59,000 371,000 (756,000)
Equity in income of Kentucky
distributor 315,000 131,000 120,000
- ---------------------------------------------
Total other income 8,947,000 1,567,000 529,000
---------------------------------------------
Income before extraordinary item 14,912,000 4,675,000 987,000
Extraordinary item:
Loss on extinguishment of debt --- --- (318,000)
---------------------------------------------
Net income $ 14,912,000 $ 4,675,000 $ 669,000
=============================================
See accompanying notes.
- 30 -
NATIONAL WINE & SPIRITS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
$.01 PAR VALUE NOTES
COMMON STOCK ADDITIONAL RETAINED RECEIVABLE TOTAL
------------------ PAID-IN EARNINGS FROM STOCKHOLDERS
VOTING NONVOTING CAPITAL (DEFICIT) STOCKHOLDERS EQUITY
----------------------------------------------------------------------------------------
Balance at March 31,
1998 as previously
reported $ 1,000 $ 53,000 $ 23,202,000 $ 1,929,000 $ (10,603,000) $ 14,582,000
Prior period adjustment
(Note 2) --- --- --- (1,018,000) --- (1,018,000)
----------------------------------------------------------------------------------------
Balance at March 31,
1998 (Restated) 1,000 53,000 23,202,000 911,000 (10,603,000) 13,564,000
Net income --- --- --- 669,000 --- 669,000
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' equity --- --- 1,807,000 --- --- 1,807,000
----------------------------------------------------------------------------------------
Balance at March 31,
1999 (Restated) 1,000 53,000 25,009,000 (3,391,000) (5,406,000) 16,266,000
Net income --- --- --- 4,675,000 --- 4,675,000
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 (Restated) 1,000 53,000 25,009,000 (3,513,000) (3,112,000) 18,438,000
Net income --- --- --- 14,912,000 --- 14,912,000
Decrease in notes
receivable from --- --- --- --- 2,942,000 2,942,000
stockholders
Distributions to
stockholders --- --- --- (10,581,000) --- (10,581,000)
----------------------------------------------------------------------------------------
Balance at March 31,
2001 $ 1,000 $ 53,000 $ 25,009,000 $ 818,000 $ (170,000) $ 25,711,000
========================================================================================
See accompanying notes.
- 31 -
NATIONAL WINE & SPIRITS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31
2000 1999
2001 RESTATED RESTATED
------------------------------------------------
OPERATING ACTIVITIES
Net income $ 14,912,000 $ 4,675,000 $ 669,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property and equipment 7,046,000 7,270,000 6,967,000
Gain on sale of assets (7,835,000) (174,000) (188,000)
Amortization of intangible assets 1,844,000 1,635,000 1,407,000
Equity in income of Kentucky distributor (315,000) (131,000) (120,000)
Loss on extinguishment of debt --- --- 318,000
Changes in operating assets and liabilities:
Accounts receivable 2,907,000 (6,580,000) (5,239,000)
Inventories (9,310,000) (3,206,000) 8,773,000
Prepaid expenses and other receivables (678,000) 1,252,000 157,000
Accounts payable (2,196,000) 10,329,000 (6,154,000)
Accrued expenses and taxes 1,478,000 2,033,000 (577,000)
------------------------------------------------
Net cash provided by operating activities 7,853,000 17,103,000 6,013,000
INVESTING ACTIVITIES
Purchases of property and equipment (6,083,000) (6,672,000) (7,858,000)
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 171,000 2,242,000 338,000
Proceeds from sale of assets 10,689,000 --- ---
Intangible assets (1,156,000) (1,996,000) (5,869,000)
Deposits and other 56,000 (42,000) 28,000
Increase in cash surrender value of life insurance (552,000) (413,000) (453,000)
Investment in eSkye Solutions, Inc. (2,013,000) (500,000) ---
Distributions from Kentucky distributor 778,000 497,000 182,000
Collections on notes receivable 331,000 344,000 286,000
------------------------------------------------
Net cash provided (used) by investing activities 2,221,000 (8,170,000) (20,846,000)
FINANCING ACTIVITIES
Net repayments on lines of credit (1,000,000) (3,700,000) (62,010,000)
Proceeds from senior notes issuance --- --- 110,000,000
Proceeds from long-term debt --- --- 7,500,000
Principal payments on long-term debt (900,000) (1,079,000) (36,017,000)
Proceeds from borrowings from stockholder 284,000 97,000 241,000
Repayments on borrowings from stockholder (191,000) (205,000) ---
Notes receivable from stockholders and others 2,849,000 2,402,000 628,000
Distributions to stockholders (10,581,000) (4,797,000) (4,971,000)
------------------------------------------------
Net cash provided (used) by financing activities (9,539,000) (7,282,000) 15,371,000
------------------------------------------------
Net increase in cash 535,000 1,651,000 538,000
Cash, beginning of year 3,559,000 1,908,000 1,370,000
------------------------------------------------
Cash, end of year $ 4,094,000 $ 3,559,000 $ 1,908,000
================================================
See accompanying notes.
- 32 -
NATIONAL WINE & SPIRITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
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 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. In November 2000, NWSM commenced doing
business through its subsidiary, National Wine & Spirits Michigan, LLC
(NWSM-LLC) to sell low proof alcohol and non-alcoholic products in the state of
Michigan.
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 division for the distribution of
cigars and accessories.
The consolidated financial statements include the accounts of NWS, NWSC,
NWS-LLC, NWSM and NWSM-LLC. 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. 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's cash, accounts 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.
- 33 -
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 $1,421,000 and $1,497,000 of the total inventory balance at March
31, 2001 and 2000, respectively.
ADVERTISING COSTS
Advertising costs are charged to operations when incurred. Advertising expense
was $7,128,000, $5,685,000 and $3,224,000 in 2001, 2000 and 1999, 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
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 $5,194,000 and $3,490,000
at March 31, 2001 and 2000, respectively.
- 34 -
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, NWS-LLC and NWSM-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.
Net sales and distribution fees are recognized at the time product is shipped.
2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
In connection with an internal review of Company accounts receivable and billing
information during fiscal 2001, the Company discovered that accounts receivable
had been overstated, records had been altered or destroyed, and that funds had
been misappropriated by two former employees at its Indiana location.
Independent accountants and investigators were immediately retained, the
responsible parties were identified and other corrective and preventive actions
were taken. This defalcation resulted in material errors that occurred in fiscal
2000, 1999 and 1998 primarily from an overstatement of accounts receivable
during these periods. Accordingly, the Company has restated its Consolidated
Financial Statements for the fiscal years 2000, 1999 and 1998. Of the total loss
of approximately $4.1 million, the Company has received, or has obtained
commitments for, total recoveries of $0.6 million, and it is possible that other
sources of recoveries will be identified. For the Company's 2001 fiscal year, a
total charge of $0.8 million was reflected in operating results. Amounts charged
to the 2000, 1999 and 1998 operating results were $1.2 million, $0.5 million and
$1.0 million, respectively.
- 35 -
The effect of the restatement on results of operations and balance sheets are as
follows (in thousands):
For the year ended: March 31, 2000 March 31, 1999 March 31, 1998
- ------------------- -------------- -------------- --------------
Previously Previously Previously
Reported Restated Reported Restated Reported Restated
------------------------- ----------------------- --------------------------
Total revenue.................... $ 625,757 $ 625,757 $ 553,353 $ 553,353 $ 521,411 $ 521,411
Gross profit..................... 137,313 137,313 116,619 116,619 109,677 109,677
Selling, general and
administrative expenses ....... 119,751 120,931 104,634 105,124 99,118 100,136
Income from operations........... 17,562 16,382 11,985 11,495 10,559 9,541
Net income....................... 5,855 4,675 1,159 669 7,111 6,093
As of:
Accounts receivable.............. $ 44,952 $ 42,264 $ 37,042 $ 35,534 $ 31,313 $ 30,295
Total assets..................... 191,140 188,452 180,376 178,868 169,102 168,084
Stockholders' equity............. 21,126 18,438 17,774 16,266 14,582 13,564
3. SALE OF BOTTLED WATER DIVISION
Effective June 5, 2000, NWSC sold certain of its licensed brands, trademarks and
trade names of its bottled water division for approximately $10,440,000. NWSC
received $9,960,000 for the sale of the assets at the sale date, and the balance
of $480,000 was received in September 2000. NWSC recognized a gain of
approximately $7,524,000 from the sales of the related assets and liabilities.
4. 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 of $253,000, and the remaining $1,547,000 was allocated
to goodwill and recorded in intangible assets, based upon the fair market value
at the date of acquisition.
- 36 -
5. 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.
The Company received distributions of $778,000, $497,000 and $182,000 from
Commonwealth Wine & Spirits, LLC in 2001, 2000 and 1999 respectively.
6. INVENTORY
Inventory at March 31 is comprised of the following:
2000 2000
------------------------------
Inventory at FIFO $ 89,377,000 $ 79,652,000
Less: LIFO reserve 9,761,000 8,485,000
------------------------------
$ 79,616,000 $ 71,167,000
==============================
If the Company had used the first-in, first-out (FIFO) inventory method, net
income would have been $1,276,000, $939,000 and $546,000 greater in 2001, 2000
and 1999, respectively.
7. PROPERTY AND EQUIPMENT
Property and equipment at March 31 is comprised of the following:
2001 2000
-------------------- --------------------
Land and improvements $ 1,473,000 $ 1,532,000
Buildings and improvements 30,298,000 26,505,000
Furniture and equipment 15,070,000 16,313,000
Warehouse equipment 27,650,000 29,250,000
Automobiles and trucks 5,850,000 7,401,000
Construction in progress 427,000 891,000
------------------------------
80,768,000 81,892,000
Less: Accumulated depreciation 37,034,000 35,157,000
------------------------------
$ 43,734,000 $ 46,735,000
==============================
- 37 -
8. DEBT
Long-term debt at March 31 is comprised of the following:
2001 2000
------------------------------
Senior notes payable (A) $ 110,000,000 $ 110,000,000
Bank revolving line of credit (B) --- 1,000,000
Term loan payable of $500,000
due 2002, including interest 500,000 1,000,000
Other 71,000 471,000
------------------------------
110,571,000 112,471,000
Less: current maturities 571,000 900,000
------------------------------
$ 110,000,000 $ 111,571,000
==============================
(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.
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 $60,000,000 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 LIBOR rate or the higher of the prime
lending rate or the federal funds effective rate plus 0.5%. At March 31, 2000,
all borrowings were being charged the prime lending rate plus 0.5%.
- 38 -
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. 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, 2001 are as follows:
2002 $ 571,000
2003 ---
2004 ---
2005 ---
2006 ---
Thereafter 110,000,000
-------------
$ 110,571,000
=============
The Company guarantees an obligation of a related entity, which has an
outstanding balance of $500,000 at March 31, 2001.
Cash paid for interest was $13,212,000, $13,116,000 and $9,780,000 in 2001, 2000
and 1999, respectively.
9. 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, 2001 and 2000 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
- 39 -
10. 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 2011. 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, 2001 are as follows:
2002 $ 4,257,000
2003 3,904,000
2004 3,195,000
2005 2,735,000
2006 2,411,000
Thereafter 3,218,000
-------------
$ 19,720,000
=============
Rent expense was $4,738,000, $4,171,000 and $3,738,000 in 2001, 2000 and 1999,
respectively.
11. 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.
The components of net periodic pension cost of the defined benefit plan are as
follows for the years ended March 31:
2001 2000 1999
--------------------------------------------
Service cost-benefits earned during the year $ 231,000 $ 270,000 $ 262,000
Interest on projected benefit obligation 255,000 248,000 224,000
Actual return on plan assets 600,000 (417,000) (464,000)
Amortization of unrecognized net transition asset 20,000 20,000 20,000
Amortization of loss (40,000) --- ---
Amortization of prior service cost 35,000 35,000 35,000
Difference between expected and actual return on plan
assets (937,000) 150,000 247,000
--------------------------------------------
Net periodic pension cost $ 164,000 $ 306,000 $ 324,000
============================================
- 40 -
The change in the projected benefit obligation, plan assets, funded status and
amounts recognized in the accompanying consolidated balance sheets at March 31,
2001 and 2000 for the defined benefit pension plan are as follows:
2001 2000
-------------------------------------
Change in projected benefit obligation:
Benefit obligation at beginning of year $ 3,483,000 $ 3,751,000
Service cost 231,000 270,000
Interest cost 255,000 248,000
Actuarial changes 44,000 (662,000)
Benefits paid (211,000) (124,000)
------------------------------------
Benefit obligation at end of year $ 3,802,000 $ 3,483,000
====================================
2001 2000
------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year $ 3,953,000 $ 3,179,000
Actual return on plan assets (600,000) 417,000
Company contributions 410,000 481,000
Benefits paid (211,000) (124,000)
------------------------------------
Fair value of plan assets at end of year $ 3,552,000 $ 3,953,000
====================================
Funded status of the plan (underfunded) $ (250,000) $ 470,000
Unrecognized net actuarial gain (372,000) (1,092,000)
Unrecognized prior service cost 752,000 496,000
Unrecognized transition obligation 107,000 126,000
------------------------------------
Prepaid benefit cost $ 237,000 $ ---
====================================
Weighted-average assumptions:
Discount rate 7.75% 6.75%
Expected return on plan assets 8.50% 8.00%
Balance Sheet Classification:
Prepaid benefit cost $ (237,000) $ ---
Noncurrent deferred additional liability 487,000 ---
------------------------------------
Minimum liability $ 250,000 $ ---
====================================
Deferred pension costs (intangible asset) $ 487,000 $ ---
====================================
- 41 -
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 $1,215,000, $1,293,000 and $1,044,000 in 2001, 2000 and
1999, respectively.
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 61% of NWS-LLC's workforce (all of which are
covered under agreements that expire in fiscal 2002) and 55% of NWSM's workforce
(19% of which are covered under union agreements that expire in fiscal 2002).
Contributions charged to expense were $588,000, $668,000 and $602,000 in 2001,
2000 and 1999, 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.
12. RELATED PARTY TRANSACTIONS
NWSC had notes receivable from its two stockholders totaling $4,723,000 and
$7,571,000 at March 31, 2001 and 2000, respectively. The notes earn interest at
the prime lending rate. Interest income earned was $635,000, $809,000 and
$880,000 in 2001, 2000, and 1999, 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, 2001 and 2000, 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 $4,553,000 and $4,459,000 at March 31, 2001 and 2000,
respectively. These notes bear interest at the prime lending rate. Interest
expense on these notes was $405,000, $425,000, and $461,000 in 2001, 2000, and
1999, respectively.
The Company paid $170,000 in 2001, 2000, and 1999 for consulting fees to a
minority stockholder of NWS-LLC.
- 42 -
A Director of the Company is the Chairman and Chief Executive Officer of eSkye
Solutions, Inc. (eSkye). The Company received 6,000,000 shares of common stock
in eSkye upon inception, representing founders stock. The Company accounts for
its investment in eSkye using the equity method. In October 1999 and May 2000,
the Company invested $500,000 and $2,013,000 in convertible preferred stock of
eSkye, respectively.
NWS leases facilities and certain office equipment to eSkye under the terms of a
three-year operating lease. NWS received rent from eSkye of $262,000 and
$151,000 during the years ended March 31, 2001 and 2000, respectively. eSkye
reimbursed the Company for the $384,000 of expenses paid on its behalf during
the year ended March 31, 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.
- 43 -
13. 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.
2001 2000 1999
-----------------------------------------------------
Revenues from external customers
Product sales $ 639,240,000 $ 604,987,000 $ 535,521,000
All other 21,573,000 20,770,000 17,832,000
Interest expense
Product sales 11,599,000 11,698,000 9,778,000
All other 1,615,000 1,576,000 1,259,000
Depreciation expense
Product sales 4,941,000 5,205,000 5,020,000
All other 2,105,000 2,065,000 1,947,000
Amortization expense
Product sales 1,300,000 1,243,000 1,320,000
All other 544,000 392,000 87,000
Equity in earnings of Kentucky distributor
Product sales 315,000 131,000 120,000
Loss on extinguishment of debt
Product sales --- --- 172,000
All other --- --- 146,000
Segment profit (loss)
Product sales (Restated) 16,898,000 5,779,000 448,000
All other (1,986,000) (1,104,000) 221,000
Segment assets
Product sales (Restated) 181,425,000 174,666,000 167,073,000
All other 11,907,000 13,786,000 11,795,000
Expenditures on long-lived assets
Product sales 5,961,000 5,869,000 7,798,000
All other 122,000 803,000 60,000
- 44 -
14. CONCENTRATION OF RISK
Products purchased from four suppliers amounted to approximately 66%, 70% and
65% of all purchases in 2001, 2000 and 1999, respectively.
During 2001, one supplier which accounted for 33% of 2001 total revenues was
acquired by an unrelated third party. While it is possible that certain brands
owned by this supplier may not be represented in the market by NWS
prospectively, management does not believe this situation will have a material
adverse affect on its total revenues.
15. LITIGATION
The Company is a party to various 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.
- 45 -
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
(Remainder of page intentionally left blank.)
- 46 -
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 68 Chairman, President, Chief Executive Officer,
Chief Financial Officer and Director
Martin H. Bart 68 Vice Chairman, Senior Vice President and
Director
David Wilson 43 Corporate Executive Vice President,
Sales & Marketing
Catherine LaCrosse 34 Corporate Vice President of Sales & Marketing
and Director
J. Smoke Wallin 34 Executive Vice President, Secretary
and Director
James Beck 57 President, NWS-Indiana and Director
David Bart 36 President, NWS-Illinois
Joseph J. Fisch 52 President, U.S. Beverage
Mitchell Stoltz 47 Director
Norma M. Johnston 72 Director
Percy N. Stone 70 Director
William M. Cockrum 63 Director
Vaughn D. Bryson 62 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.
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.
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.
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.
- 47 -
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.
David Bart became President of NWS-Illinois in April 2001. Mr. Bart joined
the company in 1993 and most recently served as Executive Vice President of
Spirits in Illinois. He has also held positions of Executive Vice President of
Wines, district manager of Hamburg Distributing and the On-Premise Division as
well as area manager in the Chain Wine Division and General Market. Mr. Bart
received a JD from Emory University School of Law in 1990 and a BS in managerial
economics from Carnegie-Mellon University in 1987. He is Martin Bart's son.
Joseph J. Fisch has served as President/CEO of U.S. Beverage, a premium
import/craft and specialty beer marketer and sales company, based in Stamford,
Connecticut, since its inception in 1997. His previous experience with Joseph E.
Seagram Corporation from 1971 through 1996 includes market research analyst;
vice president and division manager, General Wine & Spirits Company; vice
president/general manager, eastern region, House of Seagram; vice
president/general manager, House of Seagram; president, Seagram Beverage Company
He received a BS in business administration and marketing from Bowling Green
University, Ohio, in 1971.
Mitchell Stoltz has served as Director of NWS since December 1998. Mr.
Stoltz served as President of NWS-Illinois from 1995 to April 2001, at which
time he resigned from that position but continues as a Director of NWS. 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. 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 M. 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.
- 48 -
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 ended
March 31, 2001 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 fiscal 2001 and 2000:
Summary Compensation Table
Annual Compensation
---------------------------------------------------------------
Name and Principal Position Year Salary Bonus Compensation Compensation(1)
- --------------------------- ---- ------ ----- ------------ ------------
James E. LaCrosse 2001 $ 407,000 $ 249,000 $ 2,168 (3) $ 233,114 (2)
Chairman, President, Chief Financial 2000 438,711 249,000 2,210 (3) 220,585 (2)
Officer, and CEO
Mitchell Stoltz (4) 2001 221,404 400,000 3,600 (5) 8,769
President, NWS-Illinois 2000 202,884 60,000 6,993 (5) 8,596
James Beck 2001 157,627 200,000 1,114 (3) 6,940
President, NWS-Indiana 2000 159,035 255,000 1,017 (3) 7,788
David Wilson 2001 250,000 50,000 -0- 8,920
Corporate Executive Vice President, Sales
& Marketing 2000 219,923 50,000 -0- 4,305
Joseph Fisch 2001 250,000 35,000 -0- 5,000
President/CEO, U.S. Beverage
(1) Includes 2001 employer 401(k) Plan contributions in the following amounts: Mr. LaCrosse, $8,000; Mr. Stoltz,
$8,769; Mr. Beck, $6,940; Mr. Wilson, $8,920; and Mr. Fisch, $5,000. Includes 2000 employer 401(k) Plan
contributions in the following amounts: Mr. LaCrosse, $9,585; Mr. Stoltz, $8,596; Mr. Beck, $7,788; and Mr.
Wilson, $4,305. Also includes company paid portion of medical premiums in the following amounts for 2000: Mr.
Wallin, $2,618.
(2) Includes $225,114, and $211,000 for fiscal 2001 and 2000, respectively, 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) Mr. Stoltz resigned as President of NWS-Illinois on April 30, 2001.
(5) Represents payments of $3,600 by NWS of country club dues for fiscal years 2001 and 2000, and an additional
$3,093 representing personal use of a company-supplied automobile for fiscal year 2000.
(Remainder of page intentionally left blank.)
- 49 -
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.
(Remainder of page intentionally left blank.)
- 50 -
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
J. Smoke Wallin, a Director of the Company, is the Chairman and Chief
Executive Officer of eSkye Solutions, Inc. The Company received 1,500,000 shares
of common stock in eSkye Solutions Inc. upon inception, representing founders
stock. eSkye Solutions, Inc. subsequently issued a 4 to 1 split, thus 6,000,000
shares are currently held by NWS. The Company accounts for its investment in
eSkye Solutions, Inc. using the equity method. In October, 1999, the Company
invested $500,000 in convertible preferred stock of eSkye Solutions, 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 Solutions, Inc.
under the terms of a three-year operating lease. NWS received rent from eSkye
Solutions, Inc. of $262,000 and $151,000 during the year ended March 31, 2001
and 2000, respectively. eSkye Solutions, Inc. reimbursed the Company for
$384,000 of expenses paid on its behalf during 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, 2001, total indebtedness of Mr. LaCrosse and Mrs. Johnston to NWS-Indiana
was $4.7 million. The indebtedness, which is presently due upon demand, bears
interest at the prime lending rate of the Company's principal lending
institution (8.5% at March 31, 2001). 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 of $4.5 million, which matures in 2009, is subordinated to the senior
notes and the credit facility, and bears interest at 8.0% (prime rate at March
31, 2001). 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 part of this
transfer and in addition to normal distributions for tax purposes, NWS
distributed $3.6 million to Mr. LaCrosse, the family trust, and Mrs. Johnston in
the annual period ended March 31, 2001. These distributions were made within the
terms and conditions contained in the Company's indenture governing its 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 $3.6 million to NWS-Indiana to reduce
their indebtedness described above.
- 51 -
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 1999, 2000, and
2001 were $5.0 million, $4.8 million and $10.6 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 1999, 2000
and 2001.
NWS-Illinois also paid a company owned by Mr. Bart $0.2 million during each
of fiscal years 2001, 2000 and 1999 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 paid $1,000,000 in April 2000 on behalf of United States
Beverage, L.L.C. to Goose Island, a distiller of specialty beer for the national
distribution rights on all Goose Island malt-based products. Joseph Fisch,
President and CEO of U. S. Beverage, beneficially owns in excess of 10% equity
interest in U.S. Beverage.
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.
See Item 11-Executive Compensation. 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 2001, $328,000
in 2000, and $320,000 in 1999. The LaCrosse Family Trust is the beneficiary of
those policies.
(Remainder of page intentionally left blank.)
- 52 -
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report.
--------------------------------------
1. Financial Statement
Page(s) in
this Report
-----------
Report of Independent Auditors 28
Consolidated balance sheets - March 31, 2001 & 2000 29
Consolidated statements of income - Years ended
March 31, 2001, 2000 & 1999 30
Consolidated statements of stockholders' equity -
Years ended March 31, 2001, 2000 & 1999 31
Consolidated statements of cash flows - Years
ended March 31, 2001, 2000 & 1999 32
Notes to consolidated financial statements 33 to 45
2. Financial Statement Schedule:
Included as outlined in Item 8 of Part II of this
Report.
Schedule II - Valuation & Qualifying Accounts & Reserves 54
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 56 & 57 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 56 & 57 of this Form 10-K, which is
incorporated by reference herein.
- 53 -
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, 2001
Deducted from asset account:
Allowance for doubtful accounts $ 1,412,000 $ 599,000 $ --- $ 274,000 (1) $ 1,737,000
LIFO reserve 8,485,000 1,276,000 --- --- 9,761,000
---------------------------------------------------------------------------
Total $ 9,897,000 $ 1,875,000 $ --- $ 274,000 $ 11,498,000
===========================================================================
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
===========================================================================
(1) Uncollectible accounts written off, net of recoveries.
(Remainder of page intentionally left blank.)
- 54 -
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 29, 2001.
NATIONAL WINE & SPIRITS, INC.
By: /s/ James E. LaCrosse
-----------------------------------------
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 29th day of June, 2001 by the following persons
in the capacities indicated:
SIGNATURE TITLE
/s/ James E.LaCrosse Chairman, President, Chief Executive Officer
- -------------------------- (Principal Executive Officer), and Chief Financial
James E. LaCrosse Officer
- -------------------------- Director, Executive Vice President, and Secretary
J. Smoke Wallin
/s/ Martin H. Bart Director
- --------------------------
Martin H. Bart
s/ James Beck Director
- --------------------------
James Beck
- -------------------------- Director
Mitchell Stoltz
- -------------------------- Director
William Cockrum
- -------------------------- Director
Percy N. Stone
/s/ Norma M. Johnston Director
- --------------------------
Norma M. Johnston
/s/ Vaughn D. Bryson Director
- --------------------------
Vaughn D. Bryson
/s/ Catherine M. LaCrosse Director
- --------------------------
Catherine LaCrosse
- 55 -
INDEX TO EXHIBITS
Exhibit
No. Description
------- -----------
3.1 Amended and Restated Articles of Incorporation of National Wine &
Spirits, Inc. (Incorporated by reference to Exhibit 3.1 to the
Company's annual report on Form 10K for the year ended March 31,
2000.)
3.2 Amended and Restated Bylaws of National Wine & Spirits, Inc.
(Incorporated by reference to Exhibit 3.2 to the Company's annual
report on Form 10K for the year ended March 31, 2000.)
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).
- 56 -
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).
- 57 -
STATEMENT REGARDING COMPUTATION OF RATIOS
EXHIBIT (12)
Years Ended March 31,
(in thousands)
-------------------------------------------------------------------
1998 1999 2000
1997 Restated Restated Restated 2001
Consolidated pretax income
from continuing
operations...........................$ 1,603 $ 6,093 $ 987 $ 4,675 $ 14,912
Interest..............................
8,486 9,672 11,037 13,274 13,214
Net amortization of debt discount
and premium and issuance expense.... 261 325 385 628 629
Interest portion of rental
expense.............................. 634 1,120 1,122 1,251 1,422
-----------------------------------------------------------------
Earnings..............................$ 10,984 $ 17,210 $ 13,531 $ 19,828 $ 30,177
=================================================================
Interest..............................$ 8,486 $ 9,672 $ 11,037 $ 13,274 $ 13,214
Net amortization of debt discount
and premium and issuance expense.... 261 325 385 628 629
Interest portion of rental
expense............................. 634 1,120 1,122 1,251 1,422
-----------------------------------------------------------------
Fixed Charges.........................$ 9,381 $ 11,117 $ 12,544 $ 15,153 $ 15,265
=================================================================
Ratio of earnings to fixed
charges............................ 1.2 1.5 1.1 1.3 2.0
- 58 -