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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended March 31, 2004.

Commission File Number: 333-74589

NATIONAL WINE & SPIRITS, INC.

(Exact name of registrant as specified in its charter)

(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 of 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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  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 10, 2004 was 5,330,521, of which 104,520 were voting stock.

Documents Incorporated by Reference: None

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Part I

Disclosure Regarding Forward-Looking Statements

This Form 10-K, including, but not limited to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section, 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. Such statements are necessarily estimates reflecting the Company’s best judgment and expectations based upon current information. Although the Company believes that the expectations will prove to have been correct, all forward-looking statements are expressly qualified by the cautionary statements set forth on Exhibit 99.1 to this Form 10-K, and the Company undertakes no obligation to update such forward-looking statements.

Item 1. Business

General

National Wine & Spirits, Inc. (NWS or the Company) is one of the largest distributors of wine and spirits in the United States. NWS’ markets include, among others, Chicago and Detroit, which are the fifth largest and the sixth largest metropolitan markets for spirits in the United States, respectively. NWS is the largest distributor of spirits in Indiana with 60% market share and Michigan with 52% market share. NWS market share in Illinois dropped from approximately 32% to approximately 10% due to the loss of distribution rights during 2003. NWS was incorporated in the state of Indiana in 1998 and conducts its operations through its wholly owned subsidiaries, National Wine & Spirits Corporation in Indiana (NWS-Indiana), NWS-Illinois, LLC (NWS-Illinois), NWS Michigan, Inc. (NWS-Michigan), and United States Beverage, L.L.C. (USB). USB distributes and markets malt based products along with import and craft beer products throughout the United States.

The wine and spirits wholesale industry has undergone significant changes in recent years. Rapid consolidation has occurred in the supplier sector, and distributors have expanded their operations to cover a larger number of states. In several states, only two major distributors continue to operate. The United States wholesale wine and spirits market was approximately $31 billion during 2003 and is projected to be approximately $32 billion for 2004 according to industry projections. The Company’s revenue, including the wholesale dollar sales for its fee operations, places NWS as the tenth largest wholesaler in the United States, according to industry surveys. The top twenty wholesalers in the United States accounted for approximately 68% of the market during 2003, compared to approximately 49% in 1995.

Substantially all of NWS’ revenue results from product sales of liquor, beer and wine, or from distribution and brokerage fees. During fiscal 2004, NWS’ total revenue was $540.7 million, which was a $172.2 million decrease from the prior fiscal year, primarily due to the

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Company’s reduced Illinois revenue. This drop in volume during fiscal 2004 reversed a continuous trend of increasing revenue and case growth during the previous 10 fiscal years. The Company’s revenue and case sales growth in all other states were 9.5% and 7.2%, respectively. The strong sales in the Company’s non-Illinois businesses were driven by the addition of the Schieffelin & Somerset brands coupled with organic growth during the fiscal year in both the product sales and fee operations segment. This growth was consistent with the beverage alcohol industry during 2003, when according to industry reports, consumers spent $8 billion more on spirits, wine, and beer products than the previous year and spirits consumption reached its highest point in more than a decade. The loss of business in the Company’s Illinois market, however, was not offset by the growth in other businesses and resulted in significantly lower net income in fiscal 2004 than the prior fiscal year.

Recent Developments

Diageo and Schieffelin & Somerset completed a process of state-by-state consolidation and realignment of their brands during 2003, including the brands which Diageo acquired from Seagram in 2001. As a result, several changes occurred in the Company’s distribution relationship with Diageo in the states of Indiana, Illinois and Michigan. The Company was selected as Diageo’s and Schieffelin & Somerset’s exclusive distributor in Indiana and the exclusive distributor and authorized distribution agent for Diageo and Schieffelin & Somerset in Michigan. The Company no longer acts as Diageo’s distributor in the state of Illinois.

The Company and Glazer’s Wholesale Distributors (“Glazer”) modified the strategic partnership that has existed in the Illinois market since February 2003. While Glazer and the Company formerly shared profits and losses of the Illinois wine & spirits distribution business equally, under the new terms of the alliance, Glazer has committed to fund eighty percent (80%) of operating losses and receive eighty percent (80%) of operating profits effective as of December 1, 2003. The Company will fund twenty percent (20%) of any such losses and receive twenty percent (20%) of any such profits. Day to day management of the Illinois business is now the responsibility of Glazer, subject to certain rights and protective provisions in favor of the Company. Under the terms of the alliance, ownership of the Illinois business or the Company’s Illinois operating assets has not changed and neither party has the present right to buy or cause the sale of the other party’s interest in the alliance or the Company’s Illinois operating assets. At any time after July 31, 2004, if certain conditions are met, Glazer may purchase the Illinois operating assets for a purchase price based upon 80% of the then current net assets of the Company’s Illinois operating company and a 20% equity interest in the successor Illinois organization.

Industry Overview

The United States alcohol-based beverage industry generated total retail sales of approximately $145.4 billion during calendar 2003 versus $137.1 billion in calendar 2002, an increase of 6.0%. Sales of wine and spirits, in which NWS primarily competes, accounted for approximately 15% and 31%, respectively, or $67.3 billion of total retail sales in 2003. In the United States wine and spirits markets, total consumption has increased for ten and six consecutive years, respectively. During 2003, wine consumption in the United States grew 4.9% and spirits consumption in the United States grew 3.8%, as compared to 2002. Spirits growth

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was primarily driven by strong demand for tequila, imported gin and vodka, Irish whiskey, and rum. The wine consumption increase was primarily attributable to the premium-priced products, however, the extreme value wines category showed gains and brought more consumers to the wine market. In both the wine and spirits industries, consumer preference during 2003 continued the trend towards higher quality products, evidenced by a five year annual compound growth rate for all beverage alcohol consumption of 1.3%, while retail dollar sales have experienced a 5.8% growth rate for the same time period. The Company believes this trend will continue.

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 two types: control and open. 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, Illinois, and Kentucky, 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.

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. Certain large chain retailers have challenged the three tier structure in particular states, in an attempt to gain favorable pricing directly from wineries. A successful challenge to the three tier system has not occurred, but is a potential long term threat to the current framework. 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 authorized distribution agent of spirits in that state.

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.

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 2004, 2003 and 2002 is as follows:

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In each of the last three fiscal years, sales of wine and spirits accounted for more than seventy five percent of consolidated revenue. The financial statements contained in Item 8 of this Form 10-K set forth the Company revenues from external customers, profit and total assets for each of the last three fiscal years.

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 2004, 2003 and 2002 was $389.0 million, $334.0 million and $360.0 million, respectively, based on the fixed wholesale prices of the spirits delivered by NWS.

NWS’ products include many of the leading brands of spirits and wine. The Company represents nine of the top ten brands and distributes products from eight of the top ten suppliers. The following table lists the top ten brands of spirits during 2003 and the NWS business that distributes or markets that particular brand.

NWS represents many of the leading domestic and imported wine brands including the following, among many others.

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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. NWS has entered into various long-term agreements with certain suppliers that are disclosed in the financial statements. 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 and Michigan, NWS is presently acting as the exclusive distributor with respect to virtually all of the products it distributes.

NWS has entered into distribution agreements with certain of its suppliers in Indiana and Michigan. The following figures represent approximate aggregate case sales and net sales for fiscal 2004 from suppliers with which the Company entered into such agreements, and brands for which the Company owns the distribution rights:

Related Operations

In December 1998, NWS-Indiana formed a 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, NWS-Indiana invested $7,500,000 in exchange for a 25% interest in the new company. Vertner and Kentucky W&S equally own the remaining 75%. A portion of NWS-Indiana’s initial investment related to a franchise fee paid by NWS-Indiana on behalf of the new distributorship. As part of the operating agreement, NWS-Indiana’s initial cash distributions from the new distributorship are treated as return of NWS-Indiana’s original investment. As a result, the amortization of this franchise fee is allocated 100% to NWS-Indiana for the fiscal years 1999 through 2004, and is reflected in the Company’s recorded equity in income of Commonwealth Wine & Spirits, LLC in the accompanying consolidated statement of 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’ USB operations. Cameron Springs, a bottled water supplier in Indiana, was sold to Perrier Group during June 2000 for approximately $10.4 million in cash, which was in excess of net book value. USB commenced operations as a division of NWS in March 1997 to market and sell malt based products, imported, specialty and microbrewed beers nationally. In select markets, NWS sells and distributes premium cigars primarily as a complement to NWS’ distribution of fine wines and spirits.

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

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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 5.0% of NWS’ 2004 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.

Industry-wide the percentage of case sales of wine and spirits for off-premise and on-premise in the United States for 2003 were approximately 77.7% and 22.3%, respectively. While the vast majority of case sales are from the off-premise outlets, approximately 53.2% of industry-wide retail dollar sales in the United States during 2003 were from on-premise outlets. The following table summarizes NWS’ customer base for NWS-Illinois, NWS-Indiana, and NWS-Michigan:

Management believes that the large number and diversity of NWS’ customers and the regulatory nature of NWS’ business strengthens NWS’ liquidity. 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.

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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 which has contributed to the Company’s success. Suppliers appreciate and depend upon the local expertise and understanding of the intricacies of the market. The Company’s brand managers, through interaction with NWS’ sales teams and analysis of the competitive landscape, adjust suppliers’ national brand strategies to plans that work in the Company’s respective states.

Multiple Sales Divisions. NWS has adapted to industry changes and product portfolio growth through the creation of multiple sales divisions. Under this structure, potentially competitive products are placed in separate sales divisions to gain focus and grow the business. Though NWS has utilized this structure for more than 15 years in Indiana, recent supplier consolidation has led to the creation of another sales division in Michigan, as well as an expanded organization in Indiana.

Sales Teams. NWS sales organizational design is predicated upon category knowledge and expertise, trade channel knowledge and effectiveness, and geographic coverage. Through its 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. NWS’ investment in technology in the areas of sales and marketing is a critical factor in its success and customer satisfaction. NWS is generally recognized as an industry innovator and leader in MIS in the wine and spirits distribution tier. NWS’ proprietary sales system manages sales data to the SKU level in all retail accounts that it services (approximately 36,000) and is refreshed nightly based on deliveries. This system provides brand teams the necessary information to develop targeted, effective brand plans. Moreover, the Company’s sales managers depend on the information to monitor and control retail execution within their sales teams. Most recently NWS has moved this information to the Internet to allow for greater speed and accessibility to management, retail, and supplier partners. NWS has also invested resources to significantly improve category management expertise, and this has improved service and effectiveness, particularly in the off-premise national and regional chain accounts.

NWS’ sales force and management 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.

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Warehousing and Distribution

NWS utilizes a series of three master warehouses, three hyper-terminals and six cross-docking facilities strategically located throughout Indiana, Illinois and Michigan to store and ship its products pending sale to customers. 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 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 320 delivery vehicles, consisting of 238 delivery trucks, 16 tractors, 25 trailers and 41 vans. As a result of a number of factors including state laws and regulations, NWS maintains independent distribution networks in Indiana, Illinois and Michigan.

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 the business. New distributors typically enter existing markets through acquisition.

The wine and spirits wholesale distribution business is highly competitive. NWS’ primary competition in Illinois includes Judge & Dolph and Southern Wine & Spirits. In Indiana, the only significant competitor is Olinger (a partnership of Glazer and Romano). 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.

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 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.

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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. Compliance with environmental laws has not had a material effect upon the Company’s capital expenditures, earnings or competitive position.

Employees

As of March 31, 2004, NWS had approximately 1,388 employees. Approximately 173 employees in Michigan and 282 employees in Illinois are represented by labor unions. In Illinois, NWS has relationships with three unions:

In Michigan, NWS has relationships with four unions:

Employees of NWS in Indiana are not represented by any labor unions.

NWS has not experienced any work stoppages in more than 21 years as a result of labor disputes and considers its employee relations to be good.

Regulatory Considerations

The manufacturing, importation, distribution and sale of alcohol-based beverages is subject to regulation by the federal government through the Department of the Treasury, Bureau of Alcohol, Tobacco and Firearms (BATF), as well as by state and local regulatory agencies. Suppliers, distributors and retailers must be properly licensed in order to sell alcohol-based beverages.

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In most states, the alcohol-based beverage industry operates within what is commonly referred to as a three-tier system of distribution. The three tiers are identified as follows:

Under this system, suppliers sell to distributors, distributors sell to retailers, and retailers sell to consumers. For the most part, suppliers may not sell to retailers or consumers and distributors may not sell directly to consumers. All 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 own 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 qualified by BATF and state regulatory agencies to hold licenses/permits as a wholesaler/importer.

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, which authorize various trade practice activities by statute, regulation or administrative bulletin. NWS relies on such enforcement guidance, which is subject to change at the discretion of the regulatory authorities, in determining the scope of its permitted sales and marketing activities.

As part of its regulatory compliance program, NWS is in frequent contact with regulatory agencies so that NWS can: (1) be kept current on regulatory developments affecting NWS; (2) obtain answers from the agencies to questions from company personnel regarding compliance issues; (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.

The Company files reports with the SEC and the public can read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW,

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Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains all of the Company’s reports at http://www.sec.gov.

Item 2. Properties

NWS’ distribution facilities consist of three warehouses, three hyper-terminals and six cross-docking facilities. NWS’ corporate headquarters are located in Indianapolis, Indiana.

The master warehouses, located in Indianapolis, Chicago, and Detroit, 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 following chart lists NWS’ warehouses and delivery, production and office facilities:

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NWS’ lease agreements for the Detroit master warehouse and the Grand Rapids hyper-terminal each have a ten-year term, expiring April 20, 2007 and January 31, 2007, respectively, and provide NWS with an option to purchase the properties. The facilities in Michigan are used to operate the Company’s distribution fee business.

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.

Item 4. Submission of Matters to a Vote of Security Holders

None.

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Part II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Market Information. There is no established trading market for the common stock of NWS.

Holders. As of June 10, 2004, the number of record holders of each of the classes of the Company’s common stock were as follows:

Dividends. The ability of the Company to pay dividends to its shareholders is restricted by certain covenants contained in its credit facility as well as certain restrictions contained in the Company’s indentures relating to its senior notes. Subject to these limitations, the Company has historically paid dividends to its shareholders for tax liabilities and for limited other purposes. In fiscal 2004 and 2003, the amounts of the dividends totaled $6.0 million and $9.4 million, respectively, in the aggregate.

Equity Compensation Plans. The Company does not have any equity compensation plans.

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”, the consolidated financial statements and notes thereto included in Item 8 and the schedules accompanying this report.

Distribution fees include the per case distribution and brokerage fees for cases of spirits delivered in and on behalf of the State of Michigan, and as such, NWS does not take title to or finance inventory as part of its distribution and brokerage fee business. Please also note that NWS has elected “S” corporation status under the Internal Revenue Code and consequently, it does not incur liability for federal and state income taxes.

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 (30%) of rental expense on operating leases which NWS estimates to be representative of the interest factor attributable to rental expense.

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NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA

The most comparable GAAP measure for EBITDA is net income or loss. Following is a reconciliation between net income or loss and EBITDA for the fiscal years 2000 through 2004:

The EBITDA information reflected herein may not be comparable to similarly titled measures used by other companies.

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Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

You should read the following discussion in conjunction with “Selected Consolidated Financial Data” and NWS’ historical consolidated financial statements and the accompanying notes included elsewhere in this Form 10-K. Unless otherwise indicated, all references to years are to NWS’ fiscal year ended March 31.

Disclosure Regarding Forward-Looking Statements

This Form 10-K, including, but not limited to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” sections, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the 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, Kentucky, and from United States Beverage, L.L.C. (USB), the Company’s national import, craft and specialty beer marketing and distribution business. The Company’s reported revenues include net product sales in Illinois, Indiana, Michigan, and from USB, with distribution fees from the Michigan distribution operation.

The Company evaluates its operations and liquidity upon two reportable segments, which are business units that engage in product sales and all other activities. Product sales operations are conducted in Indiana, Illinois, Michigan, and from the USB distribution business. The majority of other activities relate to distribution fee operations in Michigan.

EBITDA is used throughout this Item as a financial indicator. Each reference to EBITDA herein is qualified by reference to, and should be read in conjunction with this paragraph and the following two paragraphs and the reconciliation below. EBITDA, as used herein, is defined as net income or loss plus interest expense, depreciation and amortization. EBITDA should not be construed as an alternative to income or net cash flow from operating activities and should not be construed as an indication of operating performance or as a measure of liquidity.

EBITDA is a non-GAAP financial measure within the meaning of Regulation G. 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. Management uses EBITDA to set targets and monitor and assess financial performance. EBITDA is not

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

intended to represent cash flows for the periods presented, nor has it been presented as an alternative to net income or loss 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 most comparable GAAP measure for EBITDA is net income or loss. Following is a reconciliation between net income or loss and EBITDA for the fiscal years 2000 through 2004:

The EBITDA information reflected herein may not be comparable to similarly titled measures used by other companies.

Executive Summary

The Company experienced serious challenges during the latest fiscal year in its product sales segment primarily due to loss of distribution rights in its Illinois business and significant costs associated with a product introduction in its USB distribution business. The Company reacted to these events by reducing operating costs in Illinois, entering into a strategic alliance with a wholesaler in Illinois, refocusing marketing expenditures on core brands, and executing an amendment to the Company’s revolving credit facility.

Achievements during fiscal 2004 included the acquiring of long term distribution rights for Diageo (“Diageo”) and Schieffelin and Somerset (“S&S”) for both the product sales segment in Indiana and the fee segment in Michigan. The fee segment also received a boost from the addition of a brokerage contract with Future Brands that was effective January 1, 2004. The Company was also able reduce debt and related interest expense from the cash proceeds of the working capital reduction in Illinois. The strategic alliance with Glazer’s Wholesale Distributors (“Glazer”) was modified December 1, 2003 whereby Glazer committed to fund or receive 80% of all operating losses or profits, respectively. Glazer provided $12.6 million to the Company during fiscal 2004 as part of the alliance.

Total fiscal 2004 revenue declined by $172.2 million primarily due to the loss of Illinois distribution rights. Excluding Illinois, the product sales segment experienced an 8.9% increase in revenue for the year ended March 31, 2004 as compared to the prior annual period. Approximately 50% of this growth in product sales revenue was organic as opposed to the new

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

products being represented or launched. The revenue growth from non-Illinois product sales was driven by 10.4% increase in spirits revenue, 8.8% increase in wine revenue and a 6.0% increase in other product sales for the year ended March 31, 2004 as compared to the prior annual period.

Net income and EBITDA declined $24.9 million and $22.9 million, respectively, for the year ended March 31, 2004 as compared to the prior annual period. The drop in net income and EBITDA was primarily due to the reduction in product sales revenue of $176.2 million and increased brand spending of $5.1 million, as compared to the prior annual period in the product sales segment. In addition, one time payments of $9.2 million occurred during the year ended March 31, 2003.

Cash flow from operations for the year ended March 31, 2004 increased by $0.8 million from the prior annual period, primarily due to the reduction in product sales working capital. Cash provided by the changes in working capital was $14.8 million for the year ended March 31, 2004, an improvement of $22.5 million from the prior annual period. The cash proceeds were primarily used to repay long term debt of $11.9 million, fund shareholder distributions of $6.0 million, and to pay distribution rights of $3.5 million.

Outlook

The Company will continue to explore the options available for the Illinois business. However, the Company and Glazer are both committed to the profitability of the Illinois operation given Glazer’s agreement to fund 80% of operating losses. While Glazer and the Company formerly shared profits and losses of the Illinois wine & spirits distribution business equally, under the new terms of the alliance, Glazer committed to fund eighty percent (80%) of operating losses and receive eighty percent (80%) of operating profits effective December 1, 2003. The Company will fund twenty percent (20%) of any such losses and receive twenty percent (20%) of any such profits. Day to day management of the Illinois business is now the responsibility of Glazer, subject to certain rights and protective provisions in favor of the Company. Under the terms of the alliance, ownership of the Illinois business or the Company’s Illinois operating assets has not changed and neither party has the present right to buy or cause the sale of the other party’s interest in the alliance or the Company’s Illinois operating assets. At any time after July 31, 2004, if certain conditions are met, Glazer may purchase the Illinois operating assets for a purchase price based upon 80% of the then current net assets of the Company’s Illinois operating company and a 20% equity interest in the successor Illinois organization.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Results of Operations

The following table includes information regarding total cases shipped by NWS in 2004, 2003 and 2002:

USB’s results are included in the other category for the current and prior years.

Fiscal 2004 Compared with Fiscal 2003

Revenue

Total revenue decreased $172.2 million to $540.7 million as a result of decreased product sales revenue, partially offset by an increase in fee revenue. Total product sales revenue decreased $176.2 million to $513.6 million for the year ended March 31, 2004. The decrease in product sales segment revenue for the year ended March 31, 2004 as compared to the prior year’s annual period was primarily due to the reduced sales volume in the Company’s Illinois market. Spirits, wine, and other product sales in all of the Company’s other operations were up due to growth of existing brands and the addition of the Diageo and S&S brands. Product sales revenue in the other operations increased approximately $30 million from the prior annual period due to acquisition or expansion of the Diageo and S&S brands, as well as increased sales of existing brands. Product sales revenue decreased approximately $206 million from the prior annual period due to the termination of certain brand distribution rights in the product sales segment. The addition of the S&S, Fortune, and expansion of the Diageo brands in the fee operations segment were primarily responsible for the 4.0 million, or 17.6%, increase from the prior year’s annual period.

Gross Profit

Gross profit decreased $40.8 million to $119.2 million as a result of decreased product sales, partially offset by an increase in distribution fees. Gross margin on product sales decreased $44.9 million for the year ended March 31, 2004 as compared to the prior annual

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

period. The sales volume decline in the Company’s Illinois business was primarily responsible for the drop in gross margin dollars during the year ended March 31, 2004, as compared to the prior year’s annual period. Gross profit percentage on product sales of 17.9% was below the prior year’s comparable period of 19.9% primarily due to increased brand support by USB of approximately $5.1 million, amortization of distribution rights of approximately $3.6 million, and competitive pricing in the Company’s Illinois operations due to the reduced brand representation. Incremental gross margin from the fee operations segment of $4.0 million was primarily due to the addition of the S&S, Fortune and increased volume of the Diageo and Allied Domecq brands.

Operating Expenses

Operating expenses for the product sales segment decreased $26.8 million to $95.1 million, or 22.0% for the year ended March 31, 2004 as compared to the prior year’s annual period. Management fees received from Glazer in the Company’s Illinois business, staffing adjustments, and cost reduction initiatives were primarily responsible for the reduction in product sales operating expenses during the year ended March 31, 2004 as compared to the prior year’s annual period. Operating expenses in the Company’s fee operations increased by approximately $2.5 million due to the increased case volume over the year ended March 31, 2004 as compared to the prior year’s annual period.

Warehouse and delivery expenses in the product sales segment were reduced by $3.6 million during the year ended March 31, 2004 as compared to the prior annual period, due to reductions in personnel and case volume in the Company’s Illinois business. Warehouse and delivery expenses for the Company’s fee operations increased by approximately $1.0 million, primarily from increased labor expense, equipment repair and supplies that resulted from the increased case volume.

Selling expenses for the product sales segment decreased $9.2 million from the prior year’s annual period, primarily as a result of significant cost reductions in the Company’s Illinois operation. The Company’s Illinois expense reduction for sales salaries, commissions, travel, entertainment, and promotion costs of approximately $9.7 million was the result of the reduced sales volume. Sales salaries and associated travel expenses for the fee operations increased by approximately $1.4 million due to the addition of the S&S brands and expansion of the Fortune and Diageo brokerage operations.

Administrative expenses for the product sales segment decreased by $2.2 million for the year ended March 31, 2004 as compared to the prior year’s annual period. The decrease was primarily the result of expense reductions in the MIS area of $0.7 million, office wages and taxes of $0.8 million, property taxes of $0.6 million, and reduced depreciation expense of $0.3 million.

Management fees from Glazer as part of the management services agreement were $12.6 million for the year ended March 31, 2004. These payments were $11.7 million greater than the fees during the prior fiscal year because the agreement was put in place near the end of 2003.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Loss From Operations

Operating income for the product sales segment declined $18.1 million for the year ended March 31, 2004, to an operating loss of $3.0 million, versus $15.1 million of operating income for the prior annual period. The decline in revenue and gross profit from the Company’s Illinois division, and the increased brand promotion costs in the Company’s USB division, were primarily responsible for the decrease in operating income. Fee operations experienced an increase of $1.5 million in operating income during the year ended March 31, 2004 as compared to the prior annual period, primarily due to the increased fee revenue of $4.0 million with an operating expense increase of $2.5 million. The Company was able to achieve fee revenue increases prior to the addition of the incremental sales staffing and brand promotion costs associated with the newly acquired brands.

Interest Expense

Interest expense declined $0.5 million to $8.8 million for the year ended March 31, 2004 as compared to the prior annual period. Reduced debt levels due to the repurchase of $28.8 million of the Company’s senior notes during fiscal years 2003 and 2004 reduced interest expense by approximately $1.7 million. Gains from the discounted repurchases of the Company’s senior notes during the year ended March 31, 2004 were $0.7 million versus $2.0 million during fiscal 2003. The Company expects the fiscal 2005 interest expense to be approximately $10.0 million for all long term obligations, including the senior notes, revolving credit facility, and imputed interest on the distribution rights obligations.

Other Income

The reduction in other income for the year ended March 31, 2004 was primarily due to the one time payments of $9.2 million received during fiscal 2003. Equity in income from Commonwealth Wine & Spirits, LLC increased $0.4 million during the year ended March 31, 2004 as compared to the prior annual period.

Net Loss

Net income declined from $15.8 million during the prior year’s annual period to a net loss of $9.1 million for the year ended March 31, 2004. Net losses in the product sales segment from the Company’s Illinois and USB operations as compared to the prior annual period, and the one time payments of $9.2 million during fiscal 2003 were the primary reasons for the decrease in income during the current fiscal year.

EBITDA

For financial analysis purposes only, the Company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for the year ended March 31, 2004 was $11.8 million as compared to $34.7 million for the prior year’s annual reporting period. Please see the discussion and reconciliation regarding EBITDA as a non-GAAP financial measure set forth in

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview”. EBITDA should not be construed as an alternative to operating income or loss, or net cash flow from operating activities and should not be construed as an indication of operating performance or as a measure of liquidity.

Fiscal 2003 Compared with Fiscal 2002

Revenue

Total revenue increased $31.3 million, or 4.6%, to $712.9 million primarily a result of increased product sales revenue of $30.3 million. The increase in the product sales segment revenue for the year ended March 31, 2003 as compared to the prior year’s annual period was primarily due to increased sales by the Company’s USB division, who commenced nationwide distribution of Grolsch beers and Seagram Coolers in January 2002 and April 2002, respectively. Case and dollar volume of wine in the product sales segment remained stable; increasing 5.6% and 2.4%, respectively, during the year ended March 31, 2003 over the prior annual period. Spirits case and dollar volume in the product sales segment declined 1.1% and 3.8%, respectively, during the current annual period primarily due to the loss of certain distribution rights in the Illinois market. Fee revenue for the year ended March 31, 2003 increased 4.7% on lower case sales from the comparable prior annual period. The Company was able to increase fee revenue due to a $0.12 per case fee increase approved by the State of Michigan for 2002 and greater brokerage fee revenue for the year ended March 31, 2003 as compared to the prior annual period.

Gross Profit

Total gross profit increased $9.4 million to $160.0 million as a result of increased product sales, and a modest increase in distribution fees. Gross margin on product sales increased $8.3 million, or 6.5% for the year ended March 31, 2003 as compared to the prior annual period. Gross profit percentage on product sales increased to 19.9% for the year ended March 31, 2003 versus 19.5% for the comparable prior annual period. Both the increase in gross margin dollars and percentage were primarily the result of the Company’s USB operations during the year ended March 31, 2003, which was offset somewhat by declines in the gross margin dollars and percentage in other product sales operations. The gross profit margins in the Company’s product sales operations in Illinois and Indiana were under pressure during fiscal 2003 due to intensified marketing efforts from competing distributors during the period of uncertainty concerning product line representation.

Operating Expenses

Total operating expenses increased $13.5 million, or 10.3% for the year ended March 31, 2003 versus the prior annual period. Operating expenses for the product sales segment increased $13.0 million, primarily from increased selling expenses and administrative support of the Company’s USB division versus the prior annual period.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Warehouse and delivery expenses in the product sales segment remained very stable, increasing by only $0.1 million during the year ended March 31, 2003 as compared to the prior annual period, due to reduced case volume in the Company’s Illinois operation. Warehouse and delivery expenses for the Company’s fee operations increased by only $0.1 million for the year ended March 31, 2003 as compared to the prior annual period, primarily due to increased wage rates which were offset by savings that resulted from the slightly reduced case volume.

Selling expenses for the product sales segment increased $10.2 million from the prior year’s annual period, primarily due to additional advertising, wages, and related travel expenses totaling $7.5 million that were incurred by the Company’s USB division. These additional expenditures were directly related to the additional volume created by the nationwide sales and marketing of Grolsch, Seagram Coolers, and a product launch in the spring of 2003. Sales wage increases and additional promotional costs in the Company’s other operations within the product sales segment of $2.7 million contributed to the increased sales expenses.

Administrative expenses for the product sales segment increased by $3.6 million for the year ended March 31, 2003 as compared to the prior year’s annual period. The increase was primarily due to increased administrative costs of $2.0 million related to the Company’s USB division for wages, benefits, and amortization of distribution rights as compared to the prior year’s annual period. Increased costs for casualty insurance of $0.8 million, professional fees of $0.3 million, and health care of $0.2 million across all segments were primarily responsible for the remaining administrative expense increase.

Management fees from Glazer as part of a management services agreement executed during February 2003 were $0.9 million for the year ended March 31, 2003. Management fees are recorded as a reduction of operating expenses and are attributable to the operating loss of the Company’s Illinois operation.

Income From Operations

Operating income for the product sales segment declined $4.6 million for the year ended March 31, 2003 as compared to the prior annual period, and was primarily due to the Company’s decline in revenue from its Illinois operation, which more than offset increased operating income from the USB operations. Fee operations experienced an increase of $0.5 million in operating income during the year ended March 31, 2003 as compared to the prior annual period, primarily due to the increased fee revenue of $1.0 million.

Interest Expense

Interest expense declined $2.6 million, or 22.0% to $9.3 million for the year ended March 31, 2003 from the prior year period. Reduced revolving credit balances during the year ended March, 31, 2003, the decline in the prime rate upon which the Company’s revolving line of credit is based, and gains from the discounted repurchases of the Company’s senior notes were primarily responsible for the decreased expense. As of March 31, 2003, the applicable interest rate on the revolving line of credit was 4.5%. The Company repurchased $17.9 million of its

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

senior notes on the open market during the quarter ended March 31, 2003 at 86% of face value and expensed associated unamortized debt issuance costs resulting in the $2.0 million gain. The open market repurchases of $17.9 million of senior notes had a minimal effect on cash interest expense for the year ended March 31, 2003, as the purchases were completed during March, 2003.

Other Income

Other income increased $9.9 million, primarily from one time payments of $9.2 million. The Company received $6.0 million of the one time payments as of March 31, 2003, and received $3.2 million on April 15, 2003. The Company’s share of losses from eSkye Solutions, Inc. was $1.2 million less during the year ended March 31, 2003 than the prior annual period.

Net Income

Net income of $15.8 million for the year ended March 31, 2003 was $8.3 million greater than the prior annual period. The increase in income from the Company’s one time payments, gain from repurchasing its senior notes, and increased USB profitability, was partially offset by the decline in income from the Illinois business.

EBITDA

For financial analysis purposes only, the Company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for the year ended March 31, 2003 was $34.7 million as compared to $27.7 million for the prior year’s annual period. EBITDA should not be construed as an alternative to operating income or net cash flow from operating activities and should not be construed as an indication of operating performance or as a measure of liquidity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview.”

Liquidity and Capital Resources

The Company’s primary cash requirements have been to fund accounts receivable and inventories for the product markets in Illinois, Indiana, Michigan, and it’s U.S. Beverage operation. The Company has historically satisfied its cash requirements principally through cash flow from operations, trade terms, bank borrowings and existing cash balances.

The Company amended its $40 million revolving credit facility as of March 31, 2004. The amendment consisted of (i) reduced the minimum interest coverage ratio (ii) increased the maximum funded debt ratio (iii) reduced the permitted annual capital expenditures (iv) restricted the repurchases of the Company’s senior notes and (v) added a tier to the pricing grid for interest coverage of less than 1.50x. The tier for interest coverage below 1.5x would result in prime based advances being charged an interest rate of prime plus 75 bps and LIBOR advances being charged an interest rate of LIBOR plus 250 bps.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

At March 31, 2004, the Company had $3.0 million of outstanding advances on its $40.0 million revolving line of credit facility and also had $3.7 million in letters of credit outstanding, resulting in availability of $33.3 million. The line of credit borrowings are collateralized by and based upon eligible accounts receivable and inventories, as defined, and are guaranteed by the Company’s subsidiaries. Interest is payable monthly at the LIBOR rate or the higher of the prime lending rate or the federal funds rate, plus a margin percentage. The Company’s prime based revolver rate of interest was 4.25% at March 31, 2004. The Company did not have any advances priced at a LIBOR based rate at March 31, 2004. The Company must maintain certain interest coverage and funded debt coverage ratios, as amended, with which the Company was in compliance at March 31, 2004. The Company anticipates that the collateral base for the revolving credit facility will provide adequate availability to fund operations and working capital needs during fiscal 2005.

The Company generated $16.0 million in net cash from operating activities for the year ended March 31, 2004, as compared to cash provided of $15.2 million for the prior year’s annual period. This increase in cash flow was primarily the result of a reduction in working capital from the Company’s Illinois business. Cash provided by working capital for the year ended March 31, 2004 was $14.8 million versus cash used of $7.7 million for the prior year’s annual period. This $22.5 million improvement was primarily due to the Illinois business’ net reductions in inventories, receivables, and payment of current liabilities. The Company’s net proceeds from the reduction of Illinois working capital was approximately $29.3 million for the year ended March 31, 2004. Inventory purchases and other working capital cash needs in the other product sales operations, due to the addition of the S&S brands, were the primary reason for cash used by working capital during the year ended March 31, 2004. Cash provided by net income (loss) and adjustments for depreciation and amortization were $3.0 million for the year ended March 31, 2004, as compared to $25.4 million for the prior year’s comparable period. The $24.9 million drop in net income was the largest factor in cash flow from operations, which was offset by the cash provided by the reduction of working capital in Illinois.

Net cash used by investing activities was $0.06 million for the year ended March 31, 2004, a decrease of $2.4 million from the prior year’s annual period. The decreased use of cash, as compared to the prior year’s annual period, was primarily due to reduced capital expenditures and intangible purchases of $3.3 million. The Company reduced its capital expenditures during fiscal 2004 due to the reduction in the Illinois revenue and income. The Company intends to continue the reduced level of capital expenditures during fiscal 2005 at maintenance levels between $2.0 million and $2.5 million.

Net cash used by financing activities increased by $1.8 million for the year ended March 31, 2004 as compared to the prior year’s annual period. Payments of $3.5 million for distribution rights obligations was the primary reason increased cash was used by financing

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

activities for the year ended March 31, 2004 as compared to the prior year’s annual period. The distribution rights payments are related to the $23.2 million of distribution obligations and are scheduled to be paid on a quarterly basis through June 2010. The Company purchased $10.9 million of its senior notes at approximately 91% of face, plus accrued interest, during the year ended March 31, 2004. Mr. LaCrosse individually purchased $1.7 million of the Company’s senior notes from the open market during the fourth quarter of fiscal 2004. There were $3.0 million of outstanding advances on the revolving credit facility at March 31, 2004. Stockholder distributions during the year ended March 31, 2004 provided funds to stockholders for estimated income tax payments of $2.6 million and $3.4 million related to certain stockholder obligations described below. The Company’s stockholder distributions were reduced during fiscal 2004 due to reduced income tax estimates paid by the stockholders. Stockholder distributions other than for tax liabilities are limited by the revolving credit facility and indenture. The Company anticipates that fiscal 2005 stockholder distributions will be for income tax estimates of the shareholders and distributions for other purposes will be limited by the credit facility and indenture.

During 1998 Mr. LaCrosse transferred substantially all of his non-voting stock to a family trust for estate-planning purposes. As part of that transfer the Company distributed $3.4 million to Mr. LaCrosse, the family trust, and Mrs. Johnston during the year ended March 31, 2004. 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 revolving credit facility. The family trust remitted $2.8 million of these funds to Mr. LaCrosse in repayment of indebtedness for the non-voting stock that was purchased during 1998 and Mrs. Johnston retained $0.6 million. As of March 31, 2004 there was approximately $2.5 million owed to Mr. LaCrosse by the family trust related to the 1998 transfer of non-voting stock.

Total assets of $187.1 million at March 31, 2004 decreased by $16.7 million from March 31, 2003. The decrease in assets was primarily due to the product sales segment including collection of $7.8 million of vendor receivables, reduced trade accounts receivable of $7.0 million, and lowered cash balances of $4.1 million that were used to fund debt reduction and interest payments. The increase in intangible assets of $9.3 million was offset by a corresponding increase in distribution rights obligations of $12.1 million, representing the present value of amounts expected to be paid over the respective contract lives. Total debt of $86.4 million at March 31, 2004 as compared to March 31, 2003 decreased by $12.0 million due to the Company’s repurchase of $10.9 million of its senior notes on the open market and a $1.0 million reduction of the revolving credit facility. Equity decreased to $12.6 million at March 31, 2004 as compared to March 31, 2003 and primarily due to the net loss of $9.1 million and stockholder distributions of $6.0 million.

The Company expects to maintain adequate cash balances, collateral, and revolving credit facility availability to satisfy the Company’s anticipated working capital and debt service requirements during fiscal 2005.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Aggregate Contractual Commitments

The following table sets forth NWS’ contractual obligations for the periods set forth as of March 31, 2004:

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.

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

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

regulations. Compliance with environmental laws has not had a material effect upon NWS’ capital expenditures, earnings or competitive position.

Critical Accounting Policies

The Company’s consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses during the reporting periods.

The Company continually evaluates its accounting policies and estimates it uses to prepare the consolidated financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

The Company believes its critical accounting policies and estimates, as reviewed and discussed with the audit committee of the Board of Directors, include accounting for impairment of long-lived assets, accounts receivable valuation, inventory valuation, vendor allowances, and pensions.

Impairment of Long-lived Assets. The Company evaluates long-lived assets and intangibles subject to amortization whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review of recoverability, the Company estimates future cash flows expected to result from the use of the asset and its eventual disposition. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgments. The time periods for estimating future cash flows is often lengthy, which increases the sensitivity to assumptions made. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of long-lived assets can vary within a wide range of outcomes. The Company considers the probability of possible outcomes in determining the best estimate of future cash flows.

Receivables and Credit Policies. The carrying amount of accounts receivable is reduced by an allowance that reflects management’s best estimate of the amounts that will not be collected. Management individually reviews all accounts receivable balances and creates an allowance for doubtful accounts based on the credit worthiness of specific accounts and an estimate of other uncollectible accounts based on historical performance.

Inventory Valuation. The carrying amount of inventories is reduced by an allowance that reflects management’s best estimate of inventory at net realizable value. Management reviews inventory turnover, sales activity, individual product spoilage, and historical destruction data to calculate an allowance for obsolescence.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Vendor Allowances Received. The Company records vendor allowances and discounts in accordance with EITF 02-16: Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor. The Company receives allowances from vendors as a result of purchasing and promoting their products. Vendor allowances provided as a reimbursement of specific, incremental, and identifiable costs incurred to promote a vendor’s products are recorded as an expense reduction when the cost is incurred. All other vendor allowances, including vendor allowances received in excess of the Company’s cost to promote a vendor’s product, or vendor allowances directly related to purchase of a vendor’s product are initially deferred. The deferred amounts are then recorded as a reduction of cost of good sold when the related product is sold.

Many of the vendor allowance programs are not part of written contracts and collectibility of amounts owed to NWS under such agreements cannot be assured. Management reviews vendor accounts receivable balances for collectibility and records an allowance for management’s best estimate of uncollectible accounts.

Defined Benefit Pension Plan. The most significant element in determining the Company’s pension income (cost) in accordance with SFAS No. 87 is the expected return on plan assets. In 2004, the Company reduced its expected long-term rate of return on plan assets to 7.5% from 8.5% during the prior fiscal year. The assumed long-term rate of return on assets reflects the weighted average rate of earnings expected on the classes of funds invested, or to be invested to provide for the plan benefits. An analysis of the composition of the plan’s investments and investment policy compared against the investment’s expected returns results in the expected return on plan assets that is included in pension income (cost). The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset gains (losses) can affect future pension income (cost). Over the long term, the Company’s pension plan assets have earned in excess of 9.3%. However, the plan assets have lost an average of 2.0% per year during the last two years. Should this trend continue, the Company will again be required to reconsider its assumed expected rate of return on plan assets. If the Company were to lower this rate, future pension cost would increase.

At the end of each year, the Company determines the discount rate to be used to calculate the present value of plan liabilities. The discount rate is an estimate of the current interest rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the Company uses the preceding November’s Moody’s AA Corporate Bond Index rounded down to the nearest  ¹/4 of a percentage point. At March 31, 2004, the Company determined this rate to be 6.0%, a decrease of 50 basis points from the rate used at March 31, 2003. Changes in discount rates over the past three years have not materially affected pension income (cost), and the net effect of changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, have been deferred, in accordance with SFAS No. 87.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

The Company’s accumulated pension obligation exceeded the fair value of the related plan assets primarily due to the difference in the actual return on assets compared to the expected return on assets and the reduction in the discount rate assumption. As a result, in 2004 the Company recorded an increase to accrued pension liability and a non-cash charge to equity of approximately $0.1 million. This charge may be reversed in future periods if asset returns improve or interest rates rise. For the year ended March 31, 2004, the Company recognized consolidated pretax pension cost of $0.6 million, up from $0.5 million in 2003. The Company currently expects that the consolidated pension cost for 2005 will not be materially different from 2004. The Company’s required minimum amount of 2005 contributions are approximately $0.9 million. However, the Company may elect to increase the minimum level of contributions in 2005 based on a number of factors, including performance of pension investments, changes in interest rates, and the funded percentage of the plan.

Recently Issued Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46): Consolidation of Variable Interest Entities and during December 2003 issued Interpretation 46 (FIN 46R), Consolidation of Variable Interest Entities, and Interpretation of ARB 51. The term “variable interest” is defined in FIN 46 as “contractual, ownership or other pecuniary interest in an entity that change with changes in the entity’s net asset value.” Variable interests are investments or other interest that will absorb a portion of an entity’s expected losses if they occur or receive portions of the entity’s expected residual returns if they occur. FIN 46R defers the effective date of FIN 46 for certain entities and makes several other changes to FIN 46. The adoption of FIN 46R did not have a material impact on the Company’s financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150 (SFAS 150): Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS 150 establishes standards on the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The provisions of SFAS 150 are effective for financial instruments entered into or modified after May 31, 2003 and to all instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of SFAS 150 did not have a material impact on the Company’s results of operations or financial position.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The Company uses long-term debt as a primary source of capital in its business. The following table presents the principal cash repayments and related weighted average interest rates by maturity date for the Company’s long-term fixed-rate debt and other types of long-term debt at March 31, 2004:

The Company is exposed to fluctuations in interest rate risk as a result of its variable rate debt. The Company’s objectives in managing its exposure to changes in interest rates are to limit the effect of interest rate changes on earnings and cash flows and to minimize the amount of borrowings under the Company’s revolving line of credit. This approach to managing interest rate risk does not consider the changes in the Company’s competitive environment indirectly related to changes in interest rates and management’s responses to these changes.

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Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

National Wine & Spirits, Inc.

We have audited the accompanying consolidated balance sheets of National Wine & Spirits, Inc. and subsidiaries as of March 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. Our audits also included the financial statement schedules for the years ended March 31, 2004 and 2003, listed in the Index at Item 15. These 2004 and 2003 financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the 2004 and 2003 consolidated financial statements and financial statement schedules based on our audits. The consolidated financial statements and financial statement schedule for the year ended March 31, 2002, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements and stated that such 2002 financial statement schedule, when considered in relation to the 2002 basic financial statements taken as a whole, presented fairly, in all material respects, the information set forth therein, in their report dated May 21, 2002.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (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 2004 and 2003 consolidated financial statements present fairly, in all material respects, the financial position of National Wine & Spirits, Inc. and subsidiaries as of March 31, 2004 and 2003, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the 2004 and 2003 financial statement schedules, when considered in relation to the 2004 and 2003 basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, in 2003 the Company changed its method of accounting for goodwill and other intangible assets.

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As discussed above, the financial statements of National Wine & Spirits, Inc. and subsidiaries for the year ended March 31, 2002, and for the year then ended, were audited by other auditors who have ceased operations. As described in Note 7, these financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), which was adopted by the Company as of April 1, 2002. Our audit procedures with respect to the disclosures in Note 7 with respect to the year ended March 31, 2002 included (1) comparing the previously reported net income to the previously issued financial statements and the adjustments to reported net income representing amortization expense recognized in those periods related to goodwill and intangible assets that are no longer being amortized as a result of initially applying SFAS 142 to the Company’s underlying analysis obtained from management, and (2) testing the mathematical accuracy of the reconciliation of adjusted net income to reported net income. In our opinion, the disclosures for the year ended March 31, 2002 in Note 7 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2002 financial statements for the year ended March 31, 2002 of the Company other than with respect to such reclassifications and accordingly, we do not express an opinion or any form of assurance on the 2002 financial statements for the year ended March 31, 2002 taken as a whole.

DELOITTE & TOUCHE LLP

Indianapolis, Indiana

June 18, 2004

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THE FOLLOWING IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of

National Wine & Spirits, Inc.

We have audited the accompanying consolidated balance sheet of National Wine & Spirits, Inc. (an Indiana Corporation) and subsidiaries as of March 31, 2002 and the related consolidated statement of income, stockholders’ equity and cash flows for the year then ended. These consolidated financial statements and schedule referred to below are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of National Wine & Spirits, Inc., as of March 31, 2002 and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in Item 14(a) is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not a required part of the basic consolidated financial statements. The information as of and for the year ended March 31, 2002 contained in this schedule has been subjected to the auditing procedures applied in our audit of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Indianapolis, Indiana,

May 21, 2002.

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National Wine & Spirits, Inc.

Consolidated Balance Sheets