UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended September 30,
1999.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from ________________
to ________________.
Commission File Number: 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)
P.O. Box 1602, 700 W. Morris Street,
Indianapolis, Indiana 46206
- ---------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
(317) 636-6092
- -------------------------------
(Registrant's telephone number,
including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of November 10, 1999.
Class Outstanding at November 10, 1999
- --------------- --------------------------------
Common Stock,
$.01 par value 104,520 shares
voting
Common Stock,
$.01 par value 5,226,001 shares
non-voting
<PAGE>
NATIONAL WINE & SPIRITS, INC.
Quarterly Report
For the period ended September 30, 1999
INDEX Page
Number
PART I.FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1999 and March 31, 1999 3
Condensed Consolidated Statements of Operations
Three Months Ended September 30, 1999 and 1998;
Six Months ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18
PART II. OTHER INFORMATION
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<S> <C> <C>
September 30, 1999 March 31, 1999
------------------ --------------
(unaudited) (Note 1)
ASSETS
Current assets:
Cash $ 2,555 $ 1,908
Accounts receivable, less allowances
for doubtful accounts 41,884 37,042
Inventory 81,085 67,961
Prepaid expenses and other 5,404 4,776
--------- ---------
Total current assets 130,928 111,687
--------- ---------
Property and equipment, net 49,858 49,307
Other assets
Notes receivable 1,338 1,486
Cash surrender value of life insurance, net of loans 1,843 1,849
Investment in Kentucky distributor 7,291 7,438
Investment in eSkye.com, Inc. 433 --
Intangible assets, net 10,756 8,080
Deposits and other 142 142
Deferred pension costs 387 387
--------- ---------
Total other assets 22,190 19,382
--------- ---------
TOTAL ASSETS $202,976 $180,376
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 35,841 $ 27,567
Accrued payroll and payroll taxes 5,040 5,912
Excise taxes payable 5,685 4,055
Other accrued expenses and taxes 7,614 7,459
Current maturities of long-term debt 1,250 1,050
--------- ---------
Total current liabilities 55,430 46,043
Deferred pension liability 387 387
Long-term debt 127,913 116,172
--------- ---------
Total liabilities 183,730 162,602
--------- ---------
Stockholders' equity:
Voting common stock, $.01 par value 1 1
Nonvoting common stock, $.01 par value 53 53
Additional paid-in capital 25,009 25,009
Retained earnings (deficit) 393 (1,883)
--------- ---------
25,456 23,180
Notes receivable from stockholders (6,210) (5,406)
--------- ---------
Total stockholders' equity 19,246 17,774
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $202,976 $180,376
========= =========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
September 30, 1999 September 30, 1998 September 30, 1999 September 30, 1998
-------------------------------------- ---------------------------------------
Net product sales $125,187 $119,485 $290,277 $250,876
Distribution fees 5,210 4,364 10,179 8,872
--------- --------- --------- ---------
Total revenue 130,397 123,849 300,456 259,748
Cost of products sold 98,914 97,673 232,656 204,031
--------- --------- --------- ---------
Gross profit 31,483 26,176 67,800 55,717
--------- --------- --------- ---------
Operating expenses:
Warehouse and delivery 9,387 8,707 18,977 17,533
Selling 10,223 9,333 20,767 18,438
Administrative 9,293 7,631 18,758 15,333
--------- --------- --------- ---------
Total operating expenses 28,903 25,671 58,502 51,304
--------- --------- --------- ---------
Income from operations 2,580 505 9,298 4,413
--------- --------- --------- ---------
Interest expense:
Related parties (112) (104) (209) (248)
Third parties (3,214) (2,648) (6,419) (5034)
--------- --------- --------- ---------
(3,326) (2,752) (6,628) (5,282)
Other income:
Equity in loss of
Kentucky distributor (128) -- (27) --
Equity in loss of
eSkye.com, Inc. (67) -- (67) --
Rental and other income 98 55 100 112
Gain on sales of assets 23 46 68 83
Interest income 232 250 438 519
--------- --------- --------- ---------
Total other income 158 351 512 714
--------- --------- --------- ---------
Net income $ (588) $ (1,896) $ 3,182 $ (155)
========= ========= ========= =========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<S> <C> <C>
Six Months Ended
September 30, 1999 September 30, 1998
-------------------------------------
Operating activities:
Net income (loss) $ 3,182 $ (155)
Adjustments to reconcile net income (loss) to net cash used
by operating activities:
Depreciation of property and equipment 3,644 3,393
Gain on sales of assets (68) (72)
Amortization of intangible assets 729 652
Equity in loss of Kentucky distributor 27 --
Equity in loss of eSkye.com, Inc. 67 --
Changes in operating assets and liabilities:
Accounts receivable (4,692) (455)
Inventory (13,124) (4,184)
Prepaid expenses and other (581) (255)
Accounts payable 8,235 474
Accrued expenses and taxes 764 (3,596)
--------- --------
Net cash used by operating activities (1,817) (4,198)
Investing activities:
Purchases of property and equipment (4,113) (4,992)
Acquisition of R. M. Gilligan, Inc., net of cash received (1,630) --
Investment in eSkye.com, Inc. (500) --
Proceeds from sale of property and equipment 80 90
Distributions from Kentucky distributor 120 --
Intangible assets (1,858) (627)
Deposits and other -- 32
Decrease in cash surrender value of insurance 14 44
(Increase) decrease in notes receivable 148 (226)
--------- --------
Net cash used by investing activities (7,739) (5,679)
Financing activities:
Net proceeds of line of credit borrowings 12,600 12,919
Principal payments on long-term debt (687) (2,791)
Proceeds of borrowings from stockholder (31) --
Notes receivable from stockholders and others (773) 1,155
Distributions to stockholders (906) (1,727)
--------- --------
Net cash provided by financing activities 10,203 9,556
--------- --------
Net increase (decrease) in cash 647 (321)
Cash at beginning of year 1,908 1,370
--------- --------
Cash at end of period $ 2,555 $ 1,049
========= ========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
National Wine & Spirits, Inc.
Notes To Condensed Consolidated Financial Statements
(Unaudited)
1. Nature of Business and Basis of Presentation
In December 1998, a reorganization took place which created a new holding
company, National Wine & Spirits, Inc. (NWS). All of the shares of capital stock
in National Wine & Spirits Corporation (NWSC) and NWS, Inc. (NWSI) were
contributed in exchange for shares of NWS. In addition, NWSC subsequently
distributed all of its shares in NWS Michigan, Inc. (NWSM) to NWS. Finally, a
new limited liability company subsidiary of NWSI was created into which
substantially all of the Illinois operations were transferred (NWS-LLC). The
reorganization was accounted for as a combination of entities under common
control, similar to a pooling-of-interests. As such, the financial statements
have been presented to reflect this accounting treatment. The unaudited
condensed consolidated financial statements include the accounts of NWS, NWSC,
NWSI, NWS-LLC and NWSM. All significant intercompany accounts and transactions
have been eliminated from the consolidated financial statements. Substantially
all revenues result from the sale of liquor, beer and wine.
Based in Indianapolis, NWSC is a wholesale distributor of liquor and wines
throughout Indiana. Based in Chicago, NWSI is a wholesale distributor of liquor
and wines throughout Illinois. NWSM is a wholesale distributor of liquor
throughout Michigan. NWSC also operates a bottled water division and a division
for distribution of cigars and accessories. NWS performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Credit losses have been within management's expectations.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended September 30,
1999 are not necessarily indicative of the results that may be expected for the
year ending March 31, 2000.
The balance sheet at March 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
Certain amounts in the September 30, 1999 condensed consolidated financial
statements of operations have been reclassified to conform to current year
presentation.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's registration statement on Form S-4
dated June 18, 1999.
<PAGE>
National Wine & Spirits, Inc.
Notes To Condensed Consolidated Financial Statements (continued)
(Unaudited)
2. Purchase of R. M. Gilligan, Inc.
On April 30, 1999, NWSM purchased all of the stock of R. M. Gilligan, Inc.
for $1,800,000. R. M. Gilligan, Inc. is a Michigan corporation that conducts
liquor brokerage activities and receives revenue on a per case basis from NWSM's
suppliers.
The acquisition was accounted for using the purchase method of accounting
and the results of operations have been included in the condensed consolidated
financial statements since the date of acquisition. The purchase price was
allocated to the net assets acquired, including $1,547,000 to goodwill, based
upon the fair market value at the date of acquisition.
Assets acquired:
Cash $ 170,000
Other current assets 187,000
Property and equipment 94,000
Goodwill 1,547,000
Other assets 18,000
-----------
2,016,000
Liabilities assumed:
Current liabilities (188,000)
Debt and other long term liabilities (28,000)
-----------
Purchase Price $1,800,000
===========
3. Inventory
Inventory is comprised of the following:
September 30, 1999 March 31, 1999
------------------ --------------
Inventory at FIFO $89,161,000 $75,507,000
Less: LIFO reserve 8,076,000 7,546,000
------------------ --------------
$81,085,000 $67,961,000
================== ==============
<PAGE>
National Wine & Spirits, Inc.
Notes To Condensed Consolidated Financial Statements (continued)
(Unaudited)
4. Debt
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, 1999 March 31, 1999
------------------ --------------
Senior notes payable (A) $110,000,000 $110,000,000
Bank revolving line of credit (B) 17,300,000 4,700,000
Term loan payable in annual installments of $500,000 in
2001 and 2002, including interest 1,000,000 1,300,000
Non-competition agreement payable to a former
stockholder in annual installments of $300,000, from
April 1 1995 through April 1, 2000. The obligation is
secured by proceeds of life insurance from NWSC's
majority stockholder. 300,000 600,000
Subordinated promissory note payable to an employee on
December 31, 1999. Interest only is payable quarterly at
the prime rate plus 1/2%. The note is subordinate to
senior bank debt. 350,000 350,000
City of Indianapolis-First Mortgage Note, Series 1983--
payable monthly, with interest computed at 80% of the
prime lending rate of NBD Bank, N.A., through April
2003. Secured by certain property in Indianapolis. 213,000 272,000
------------ ------------
129,163,000 117,222,000
Less: current maturities 1,250,000 1,050,000
------------ ------------
$127,913,000 $116,172,000
============ ============
<FN>
(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. 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 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.
<PAGE>
National Wine & Spirits, Inc.
Notes To Condensed Consolidated Financial Statements (continued)
(Unaudited)
(B) On January 25, 1999, the Company entered into a credit agreement that
provides a revolving line of credit for borrowings of up to $60 million through
January 25, 2004. Line of credit borrowings are limited to eligible accounts
receivable plus eligible inventories. The credit agreement permits the Company
to elect an interest rate based upon the Eurodollar rate or the higher of the
prime lending rate or the federal funds effective rate plus 0.5%. At September
30, 1999, the $17,300,000 of outstanding borrowings bear interest at 8.75% and
7.65% split between $5,300,000 prime based pricing and $12,000,000 LIBOR based
pricing, respectively. The Company also pays a commitment fee ranging from .25%
to 0.5% of its undrawn portion of its line of credit.
</FN>
</TABLE>
5. Segment Reporting
The Company's reportable segments are business units that engage in
products 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.
Three Months Ended
September 30, 1999 September 30, 1998
------------------------------------------
Revenues from external customers
Product sales $125,187,000 $119,485,000
All other 5,210,000 4,364,000
Segment profit (loss)
Product sales (121,000) (2,040,000)
All other (467,000) 144,000
Segment assets
Product sales 187,898,000 162,523,000
All other 15,078,000 12,947,000
<PAGE>
National Wine & Spirits, Inc.
Notes To Condensed Consolidated Financial Statements (continued)
(Unaudited)
Six Months Ended
September 30, 1999 September 30, 1998
----------------------------------------
Revenues from external customers
Product sales 290,277,000 250,876,000
All other 10,179,000 8,872,000
Segment profit (loss)
Product sales 3,670,000 (679,000)
All other (488,000) 524,000
Segment assets
Product sales 187,898,000 162,523,000
All other 15,078,000 12,947,000
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
historical condensed consolidated financial statements and the accompanying
notes included elsewhere in this Quarterly Report.
Overview
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 and Illinois, and distribution fees in
Michigan.
The Company announced an across the board price increase in Illinois in
conjunction with a state tax increase on beer, spirits, and wine and supplier
price increases effective July 1, 1999. The total price increase was significant
enough to convince retail customers to increase their purchases in June. This
increase had the effect of shifting volume into the first quarter from the
second quarter, which resulted in a decrease in case sales in the second quarter
as compared to the previous year. Total case sales for the six months ended
September 30, 1999, however, were up from the previous year. Total product
dollar sales and gross margin were up over the previous year for both the second
quarter and for the six month period ended September 30, 1999, including an
increase in gross margin percentage. All the major distributors in Illinois
announced similar price increases effective July 1, 1999.
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.
Results of Operations
The following table includes information regarding total cases shipped by
the Company during the three months and six months ended September 30, 1999
compared with the comparable periods ended September 30, 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Six Months Ended
September 30 September 30
----------------------- -------------------------
1999 1998 Percent 1999 1998 Percent
---- ---- ------- ---- ---- -------
(Cases in thousands) (Cases in thousands)
Wine (product sales operations) 617 673 -8.3% 1,431 1,483 3.5%
Spirits (product sales operations) 648 729 -11.1% 1,639 1,530 7.1%
Spirits (distribution fee operations) 723 698 3.6% 1,432 1,332 7.5%
----- ----- ----- -----
Total wine and spirits 1,988 2,100 -5.3% 4,502 4,345 3.6%
Other 562 611 -8.0% 1,240 1,155 7.4%
----- ----- ----- -----
Total 2,550 2,711 -5.9% 5,742 5,500 4.4%
===== ===== ===== =====
</TABLE>
<PAGE>
Three Months Ended September 30, 1999, Compared with the Three Months Ended
September 30, 1998.
Revenue
The Company reported product sales in the three months ended September 30,
1999 of $125.2 million, an increase of $5.7 million, or 4.8%, over the
comparable prior year period. This increase resulted primarily from the U.S.
Beverage product sales of the Hooper's Hooch brand. U.S. Beverage had product
sales of $9.4 million as compared to $1.7 million over the comparable prior year
period. The decrease in other product sales resulted from the Illinois retail
customer buy-in in advance of the state tax increase combined with supplier and
distributor price increases that were effective July 1, 1999. This buy-in
increased revenue in the first fiscal quarter ended June 30, 1999, and decreased
revenues in the second fiscal quarter ended September 30, 1999. Distribution
fees for the quarter ended September 30, 1999 increased to $5.2 million, a 19.4%
increase over the comparable prior year period, as a result of increased sales
of existing brands and the addition of new suppliers.
Gross Profit
Gross profit on total revenue increased 20.3% to $31.5 million in the three
months ended September 30, 1999, from $26.2 million in the comparable prior year
period. Gross profit on product sales during the quarter ended September 30,
1999 increased to $26.3 million, a 20.5% increase over the quarter ended
September 30, 1998. Gross profit percentage on product sales for the three
months ended September 30, 1999 increased to 21.0% compared to 18.3% for the
comparable prior year period primarily as a result of the price increases that
were effective in Illinois on July 1, 1999.
Operating Expenses
Operating expenses for the quarter ended September 30, 1999 increased to
$28.9 million from $25.7 million for the quarter ended September 30, 1998. As a
percentage of total revenue, operating expenses for the quarter ended September
30, 1999 increased to 22.2% from 20.7% for the comparable prior year period.
Selling expenses for product markets increased $0.5 million for the three
month period ended September 30, 1999, primarily due to increased support of
U.S. Beverage's Hooper's Hooch brand. U.S. Beverage's sales expenses increased
$0.7 million for the three month period ended September 30, 1999, from the
comparable prior period. Michigan's sales expenses increased $0.4 million from
the comparable prior period as the Company continues to increase its sales staff
in Michigan.
Overall, warehouse and delivery expenses in the three month period ended
September 30, 1999 increased $0.7 million from the comparable prior period,
primarily from the increased volume in our distribution fee markets. Warehouse
and delivery expense as a percent of total revenues increased slightly to 7.2%
for the current period from 7.0% for the comparable prior year period.
<PAGE>
Management's Discussion and Analysis (continued)
Total administrative expenses for the quarter ended September 30, 1999
increased $1.7 million from the comparable prior year period. This increase is
due to the expansion of our workforce and related employee benefits, increased
legal and accounting costs, fees paid to outside directors, and increases in our
casualty and health insurance programs.
Income from Operations
Operating income increased 410.9%, or $2.1 million, for the three months
ended September 30, 1999, from the comparable prior year period. The increased
revenues for the quarter ended September 30, 1999 and the increased gross profit
percent more than offset the dollar increase in operating expenses.
Interest Expense
Interest expense increased from $2.8 million to $3.3 million for the three
months ended September 30, 1999, primarily due to payments for fixed assets and
intangibles during the quarter ended September 30, 1999, as compared to the
comparable prior year period. The Company's marginal rate for the quarter ended
September 30, 1999 was 10.125%, as compared to 8.75% for the period ended
September 30, 1998. This rate increase was due to the sale of the senior notes
on January 25, 1999.
Other Income
Other income decreased to $0.2 million for the three months ended September
30, 1999, as compared to $0.4 million for the three months ended September 30,
1998. The Company's share of loss from each of Commonwealth Wine & Spirits, LLC
and eSkye.com, Inc. was $0.1 million for the three month period ended September
30, 1999.
Net Income
Net loss decreased to $0.6 million for the quarter ended September 30,
1999, a $1.3 million or 69.0% decrease compared to the quarter ended September
30, 1998.
Six Months Ended September 30, 1999, Compared with the Six Months Ended
September 30, 1998.
Revenue
The Company reported total revenue for the six months ended September 30,
1999, of $300.5 million, an increase of 15.7% over the comparable prior year
period. This increase included the U.S. Beverage product sales of $17.8 million
for the six months ended September 30, 1999, as compared to $3.5 million for the
comparable prior year period. Illinois product sales increased during the six
months ended September 30, 1999, over the comparable prior year period as a
result of the buy-in resulting from the Illinois tax increase that was effective
July 1, 1999. Distribution fees increased $1.3 million for the six months ended
September 30, 1999, or 14.7% over the comparable prior year period from
increased volume of existing brands and addition of new suppliers.
<PAGE>
Gross Profit
Gross profit on product sales increased $10.8 million, or 23.0% for the
six months ended September 30, 1999, over the comparable prior year period.
Gross profit percentage on product sales for the six months ended September 30,
1999, was 19.9% as compared to 18.7% for the comparable prior year period. Price
increases in the Illinois market that were effective July 1, 1999, and the
increased U.S. Beverage product sales were primarily responsible for the
percentage and volume increases in gross profit from the comparable prior year
period.
Operating Expenses
Operating expenses for the six months ended September 30, 1999, increased
to $58.5 million from $51.3 million for the comparable prior year period. As a
percentage of total revenue operating expenses for the six months ended
September 30, 1999, decreased to 19.5% as compared to 19.8% for the comparable
prior year period.
Selling expenses increased $2.3 million for the six months ended September
30, 1999, to $20.8 million. The U.S. Beverage product selling expenses increased
$1.2 million for the six months ended September 30, 1999, from the comparable
prior year period due to increased promotional support for the Hooper's Hooch
brand. Michigan's selling expenses increased $.7 million for the six months
ended September 30, 1999, as compared to the prior year reporting period
resulting from creating and increasing the staff of the brokerage activities.
Selling expenses as a percentage total revenue decreased to 6.9% for the six
months ended September 30, 1999, from 7.1% for the comparable prior year period.
Warehouse and delivery expenses increased $1.4 million or 8.2% for the six
months ended September 30, 1999, from the comparable prior year period. The
increase in volume in our Illinois market during the first fiscal quarter, and
increased expenses attributable to the distribution fee market volume increase
were primarily responsible for the higher warehouse and delivery expenses.
Warehouse and delivery expenses, as a percent of total revenue declined to 6.3%
for the six months ended September 30, 1999, as compared to 6.8% for the
comparable prior year period.
Total administrative expenses increased $3.4 million for the six months
ended September 30, 1999, from the comparable prior year period. The increase
was due to increased corporate services and related benefits, increased
professional expenses and increased costs associated with the casualty and
health insurance programs. Administrative expense, as a percentage of total
revenue was 6.2% for the six months ended September 30, 1999, as compared to
5.9% for the comparable prior year period.
Income from Operations
Operating income increased 110.7% or $4.9 million for the six months ended
September 30, 1999, from the comparable prior year period. The increased revenue
and increased gross profit percentage for the six months ended September 30,
1999, over the comparable prior year period more than offset the dollar increase
in operating expenses.
<PAGE>
Interest Expense
Interest expense increased $1.3 million to $6.6 million for the six months
ended September 30, 1999, from $5.3 million for the comparable prior year
period. The increased marginal rate to 10.125% on September 30, 1999, from 8.75%
on September 30, 1998, was due to the sale of senior notes on January 25, 1999.
Other Income
Other income decreased to $0.5 million for the six months ended September
30, 1999, from $.7 million from the comparable prior year period. The Company's
share of loss from eSkye.com, Inc. was $0.1 million for the six months ended
September 30, 1999.
Net Income
Net income increased $3.3 million to $3.2 million for the six months ended
September 30, 1999, as compared to the comparable prior year period.
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, and its
U. S. Beverage operations. The Company has historically satisfied its cash
requirements principally through cash flow from operations, trade terms and bank
borrowings.
On January 25, 1999, the Company completed an offering of $110.0 million of
senior notes due 2009. Concurrently with the offering of the senior notes, the
Company entered into a new $60.0 million credit facility secured by the accounts
receivable and inventory of the Companies.
With the proceeds from the senior notes offering and borrowings under the new
credit facility, the Company retired substantially all of its bank revolving and
term indebtedness.
At September 30, 1999, the Company had $17.3 million outstanding on its $60.0
million revolving credit facility, with $42.4 million available.
The Company used $1.8 million in net cash from operating activities for the six
months ended September 30, 1999, a $2.4 million decrease from the comparable
prior year period. The $2.4 million decrease was primarily due to increased cash
provided by accounts payable of $7.8 million, accrued expenses of $4.4 million
and increased profitability of $3.3 million, with increases in cash used from
operations from accounts receivable of $4.2 million and inventories of $8.9
million.
Net cash used for investing activities for the six months ended September 30,
1999 was $7.7 million, an increase of $2.1 million from the comparable prior
year period. The Company had $0.9 million less in purchases of property and
equipment but had $1.2 million more for intangible assets from the comparable
prior year period. The Company also acquired R.M. Gilligan, Inc. for $1.6
million, net of cash received, during the six months ended September 30, 1999,
and made a $500,000 investment in eSkye.com, Inc.
<PAGE>
Net cash provided by financing activities was $10.2 million, for the six months
ended September 30, 1999, including $12.6 million net proceeds from the
revolving line of credit.
Total assets increased to $203.0 million at September 30, 1999, a $22.6 million
increase from March 31, 1999 primarily due to increased inventories and accounts
receivable as a result of the sales volume increase in the Illinois and U. S.
Beverage markets. Total debt also increased to $129.2 million at September 30,
1999, as compared to $117.2 million at March 31, 1999 primarily due to the
increase in the revolving line of credit to fund the increased working capital
needs from March 31, 1999, to September 30, 1999.
The Company believes that the net proceeds received from the offering of the
senior notes, together with 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.
Inflation
Inflation has not had a significant impact on the Company's operations but there
can be no assurance that inflation will not have a negative effect on the
Company's financial condition, results of operations or debt service
capabilities in the future.
Year 2000
The Company believes that its most significant worst case Year 2000
scenarios are the possible interference with the Company's ability to obtain
alcohol based beverage products from suppliers, to maintain continuous operation
of its computer systems, to deliver product to customers, and to invoice and
receive payments. The Company believes that it has taken the steps necessary to
address these worst case scenarios.
The Company has assessed its exposure to potential Year 2000 issues within
its businesses and believes it is Year 2000 ready. Phases within the process
included assessment, remediation and contingency planning. The assessment
included information technology (IT), non-information technology (non-IT), and
to the extent reasonably practicable, customer and supplier readiness. Through
the assessment process, the Company identified specific inventory management
systems that were not Year 2000 ready. The Company has upgraded these systems
and has tested the upgrades to ensure Year 2000 compliance. Although the Company
has completed its internal assessment and remediation process and believes it is
Year 2000 ready, there can be no assurance that unforseen events will not occur
in connection with the Year 2000 transition. The failure of the Company to
properly assess and remediate potential Year 2000 problems and properly test or
implement solutions could result in disruptions of normal business operations.
Such failures could have negative effect on the financial condition, results of
operations or debt service capabilities of the Company.
<PAGE>
The Company has completed its Year 2000 assessment of its primary
customers and suppliers, including the Company's electronic data interchange
(EDI) and electronic funds transfer (EFT) providers. The Company is not aware of
any significant customer or supplier with a Year 2000 issue that would
materially impact the Company's financial condition, results of operations or
debt service capabilities. However, the Company did not receive responses from
many of its suppliers and customers, and has no means of ensuring that its
customers or suppliers will be Year 2000 ready. The inability of one or more of
these entities to be prepared could have a negative effect on the Company.
The Company has incurred less than $50,000 in costs directly associated
with the remediation of its systems, and an additional $50,000 remains in the
fiscal 2000 budget for Year 2000 issues. The Company does not track internal
costs incurred by its IT group in connection with the Year 2000 project because
they are primarily payroll costs that are not allocated among Year 2000 and
other projects. These costs do not include the cost of upgrading or replacing
systems for other business reasons. Such actions usually provide the additional
benefit of making the system Year 2000 compliant.
While the Company has taken significant measures to minimize any internal
risks surrounding Year 2000 issues, the most likely worst case scenarios may
involve the failure of third parties with whom the Company does business to
address Year 2000 issues. The Company's primary contingency plans involve
accumulating additional inventory at company warehouses prior to December 31,
1999, and having key information systems personnel on site during the Year 2000
transition.
Management does not expect that the direct impact of Year 2000 issues will
have a material adverse effect on the Company. However, it is possible that, for
example, disruptions in the economy in general or in the U.S. banking system
because of Year 2000 problems could adversely affect the Company's financial
condition, results of operations or debt service capabilities.
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.
<PAGE>
Other
As a matter of policy, the Company plans to review and evaluate all
professional services firms every three years. This review will include but is
not limited to legal, audit and information systems services. The next scheduled
review will occur after Fiscal 2000 books are closed at March 31, 2000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
None
PART II. OTHER INFORMATION
Item 5. Other Events
None
Item 6. Exhibits
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
three months ended September 30, 1999.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL WINE & SPIRITS, INC.
November 12, 1999 /s/ J. Smoke Wallin
- ------------------ ------------------------------------------
Date J. Smoke Wallin,
Executive Vice President & Chief Financial
Officer
<PAGE>
NATIONAL WINE & SPIRITS, INC.
FORM 10-Q
EXHIBIT INDEX
Exhibit Description
- ------- -----------
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 2,555
<SECURITIES> 0
<RECEIVABLES> 43,022
<ALLOWANCES> 1,138
<INVENTORY> 81,085
<CURRENT-ASSETS> 130,928
<PP&E> 83,747
<DEPRECIATION> 33,889
<TOTAL-ASSETS> 202,976
<CURRENT-LIABILITIES> 55,430
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 19,192
<TOTAL-LIABILITY-AND-EQUITY> 202,976
<SALES> 290,277
<TOTAL-REVENUES> 300,456
<CGS> 232,656
<TOTAL-COSTS> 291,158
<OTHER-EXPENSES> (512)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,628
<INCOME-PRETAX> 3,182
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,182
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
