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,
2000.
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
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NATIONAL WINE & SPIRITS, INC.
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(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
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(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 3, 2000.
Class Outstanding at November 3, 2000
----- -------------------------------
Common Stock,
$.01 par value 104,520 shares
voting
Common Stock,
$.01 par value 5,226,001 shares
non-voting
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NATIONAL WINE & SPIRITS, INC.
Quarterly Report
For the period ended September 30, 2000
INDEX
Page Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 2000 and March 31, 2000.............................3
Condensed Consolidated Statements of Operations
Three Months Ended September 30, 2000 and 1999;
Six Months ended September 30, 2000 and 1999......................4
Condensed Consolidated Statements of Cash Flows
Six Months Ended September 30, 2000 and 1999......................5
Notes to Condensed Consolidated Financial Statements..................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk..........................................................16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................17
Item 5. Other Events.........................................................17
Item 6. Exhibits and Reports on Form 8-K......................................17
Signature............................................................18
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<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
NATIONAL WINE & SPIRITS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
September 30, 2000 March 31, 2000
------------------ --------------
(unaudited) (Note 1)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,865 $ 3,559
Accounts receivable, less allowances
for doubtful accounts 47,641 44,952
Inventory 86,704 71,167
Prepaid expenses and other 3,182 3,571
-------------- -------------
Total current assets 139,392 123,249
-------------- -------------
Property and equipment, net 44,943 46,735
Other assets
Notes receivable 986 1,142
Cash surrender value of life insurance, net of loans 2,276 2,270
Investment in Kentucky distributor 6,868 7,072
Investment in eSkye.com, Inc. 2,513 500
Intangible assets, net 10,026 9,988
Deposits and other 145 184
-------------- -------------
Total other assets 22,814 21,156
-------------- -------------
TOTAL ASSETS $ 207,149 $ 191,140
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 38,477 $ 37,935
Accrued payroll and payroll taxes 5,432 6,757
Excise taxes payable 4,205 5,200
Other accrued expenses and taxes 8,646 7,651
Current maturities of long-term debt 600 900
-------------- -------------
Total current liabilities 57,360 58,443
Long-term debt 125,771 111,571
-------------- -------------
Total liabilities 183,131 170,014
-------------- -------------
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) 361 (825)
-------------- -------------
25,424 24,238
Notes receivable from stockholders (1,406) (3,112)
-------------- -------------
Total stockholders' equity 24,018 21,126
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 207,149 $ 191,140
============== =============
</TABLE>
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<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands)
(Unaudited)
Three Months Ended Six Months Ended
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
-------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C>
Net product sales $ 151,620 $ 125,187 $ 308,758 $ 290,277
Distribution fees 4,998 5,210 10,046 10,179
----------- ----------- ------------ -----------
Total revenue 156,618 130,397 318,804 300,456
Cost of products sold 122,150 98,914 247,278 232,656
----------- ----------- ------------ -----------
Gross profit 34,468 31,483 71,526 67,800
----------- ----------- ------------ -----------
Operating expenses:
Warehouse and delivery 9,709 9,387 19,646 18,977
Selling 12,311 10,223 24,126 20,767
Administrative 9,552 9,293 19,209 18,758
----------- ----------- ------------ -----------
Total operating expenses 31,572 28,903 62,981 58,502
----------- ----------- ------------ -----------
Income from operations 2,896 2,580 8,545 9,298
----------- ----------- ------------ -----------
Interest expense:
Related parties (128) (112) (242) (209)
Third parties (3,236) (3,214) (6,371) (6,419)
----------- ----------- ------------ ------------
(3,364) (3,326) (6,613) (6,628)
Other income:
Equity in income (loss) of
Kentucky distributor 5 (128) 84 (27)
Equity in loss of
eSkye.com, Inc. --- (67) --- (67)
Rental and other income
(expenses) (49) 98 (20) 100
Gain on sales of assets 77 23 7,596 68
Interest income 217 232 417 438
----------- ----------- ------------ -----------
Total other income 250 158 8,077 512
----------- ----------- ------------ -----------
Net income (loss) $ (218) $ (588) $ 10,009 $ 3,182
=========== =========== ============ ===========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Six Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
Operating activities:
Net income $ 10,009 $ 3,182
Adjustments to reconcile net income to net cash used
by operating activities:
Depreciation of property and equipment 3,715 3,644
Gain on sales of assets (7,596) (68)
Amortization of intangible assets 962 729
Equity in (income) loss of Kentucky distributor (84) 27
Equity in loss of eSkye.com, Inc. -- 67
Changes in operating assets and liabilities:
Accounts receivable (3,045) (4,692)
Inventory (16,398) (13,124)
Prepaid expenses and other 370 (581)
Accounts payable 542 8,235
Accrued expenses and taxes (1,063) 764
----------- --------
Net cash used by operating activities (12,588) (1,817)
Investing activities:
Purchases of property and equipment (3,935) (4,113)
Acquisition of R. M. Gilligan, Inc., net of cash received -- (1,630)
Investment in eSkye.com, Inc. (2,013) (500)
Proceeds from sale of property and equipment 138 80
Proceeds from sale of assets 10,444 --
Distributions from Kentucky distributor 288 120
Intangible assets (1,000) (1,858)
Deposits and other 39 --
(Increase) decrease in cash surrender value of insurance (6) 14
Decrease in notes receivable 156 148
---------- --------
Net cash provided (used) by investing activities 4,111 (7,739)
Financing activities:
Net proceeds of line of credit borrowings 14,750 12,600
Principal payments on long-term debt (850) (687)
Proceeds (payments) of borrowings from stockholder 242 (31)
Notes receivable from stockholders and others 1,463 (773)
Distributions to stockholders (8,822) (906)
---------- --------
Net cash provided by financing activities 6,783 10,203
---------- --------
Net increase (decrease) in cash (1,694) 647
Cash at beginning of year 3,559 1,908
---------- --------
Cash at end of period $ 1,865 $ 2,555
========== ========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
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National Wine & Spirits, Inc.
Notes To Condensed Consolidated Financial Statements
(Unaudited)
1. Nature of Business and Basis of Presentation
The unaudited condensed consolidated financial statements include the
accounts of National Wine & Spirits, Inc. (NWS), National Wine & Spirits
Corporation (NWSC), NWS, Inc. (NWSI), NWS-Illinois, LLC (NWS-LLC), and NWS
Michigan, Inc. (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. 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 six-month period ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
year ending March 31, 2001.
The balance sheet at March 31, 2000 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 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 Form 10-K dated June 28, 2000.
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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. Sale of Bottled Water Division
Effective June 5, 2000 NWSC sold certain of its licensed brands,
trademarks, and trade names of its bottled water division for approximately
$10,444,000. NWS received $9,964,000 for the sale of assets at the sale date,
and the balance of $480,000 received in September 2000. NWSC recognized a gain
of approximately $7,524,000 from the sale of the related assets and liabilities.
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4. Inventory
Inventory is comprised of the following:
September 30, 2000 March 31, 2000
------------------ --------------
Inventory at FIFO $ 95,979,000 $ 79,652,000
Less: LIFO reserve 9,275,000 8,485,000
------------------ --------------
$ 86,704,000 $ 71,167,000
================== ==============
5. Debt
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
September 30, 2000 March 31,2000
------------------ -------------
<S> <C> <C>
Senior notes payable (A) $ 110,000,000 $110,000,000
Bank revolving line of credit (B) 15,750,000 1,000,000
Term loan payable due in 2001, including interest 500,000 1,000,000
Non-competition agreement repaid April, 2000. -- 300,000
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. 121,000 171,000
------------------ ------------
126,371,000 112,471,000
Less: current maturities 600,000 900,000
------------
-----------------
$ 125,771,000 $111,571,000
================== ============
<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.
(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, 2000, $7,750,000 bears interest at 10% based on the prime rate
pricing, and $8,000,000 bears interest at 8.8% based on LIBOR based pricing. The Company also pays a commitment
fee ranging from .25% to 0.5% of its undrawn portion of its line of credit.
</FN>
</TABLE>
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6. Litigation
The Company is a party to various lawsuits and claims arising in the normal
course of business. While the ultimate resolution of lawsuits or claims against
the Company cannot be predicted with certainty, management is vigorously
defending all claims and does not expect that these matters will have a material
adverse effect on the financial position or results of operations of the
Company.
7. 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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
-------------- -------------- -------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues from external
customers
Product Sales $ 151,620,000 $ 125,187,000 $ 308,758,000 $ 290,277,000
All Other 4,998,000 5,210,000 10,046,000 10,179,000
Segment profit (loss)
Product Sales 713,000 (121,000) 11,493,000 3,670,000
All Other (931,000) (467,000) (1,484,000) (488,000)
Segment Assets
Product Sales 194,370,000 187,898,000 194,370,000 187,898,000
All Other 12,779,000 15,078,000 12,779,000 15,078,000
</TABLE>
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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.
Disclosure Regarding Forward-Looking Statements
This Form 10-Q, including, but not limited to the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business"
sections, contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, which can be identified by the
use of forward-looking terminology, such as "may," "intend," "will," "expect,"
"anticipate," "should," "plans to," "estimate" or "continue" or the negative
thereof or other variations thereon or comparable terminology. In particular,
any statement, express or implied, concerning future operating results or the
ability to generate revenues, income or cash flow to service the Notes are
forward-looking statements. A variety of factors could cause the Company's
actual results to differ from the reported results expressed in such
forward-looking statements. These factors are discussed in the cautionary
statements contained in Exhibit 99 to this filing. All forward-looking
statements are expressly qualified by such cautionary statements, and the
Company undertakes no obligation to update such forward-looking statements.
Overview
National Wine & Spirits, Inc. ("The Company") is one of the largest
distributors of wine and spirits in the United States. Substantially all of the
Company's current operations are in Illinois, Indiana, Michigan, and Kentucky.
The Company's reported revenues include net product sales in Indiana and
Illinois, and distribution fees in Michigan. References to U.S. Beverage relate
to the operations of the Company's national import, craft and specialty beer
marketing business performed by NWS-Illinois.
The Company had a 21.1% increase in product sales for the quarter over the
prior year quarter. All product sales categories experienced an increase in
revenue and case sales for the current quarter. Wine case sales increased 13.9%
from the prior years' quarter more than offsetting the shortfall that existed at
June 30, 2000 from the prior year. Spirits cases for the six months are still
below the prior years' period, which included unseasonable volume due to the
state tax increase that was effective July 1, 1999. This tax increase had the
effect of shifting volume into the first quarter in 1999. The increased spirits
and wine product sales for the current quarter offset the declines from the
prior year that existed at June 30, 2000 in both revenue and case sales.
Outlook
The Company expects that earnings for the third and fourth quarters of this
fiscal year will show some improvement over the same period in the prior year.
For the year ending March 31, 2001, adjusted EBITDA should show a small increase
over the prior year. Management expects that the gross margin percentage to be
slightly higher for the third quarter, which ends on December 31, 2000, than the
comparable prior year period. The Company expects that capital expenditures for
the year ended March 31, 2001, will be at or slightly above the prior year.
The Company continues to be concerned about the pending sale of the Seagram
wine & spirits brands. At this point, there has been no decision on which buyer
will prevail.
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<PAGE>
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, 2000
compared with the comparable periods ended September 30, 1999:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30
----------------------- -----------------------
2000 1999 Percent 2000 1999 Percent
---- ---- ------- ---- ---- -------
(Cases in thousands) (Cases in thousands)
<S> <C> <C> <C> <C> <C> <C>
Wine (product sales operations) 703 617 13.9% 1,465 1,431 2.4%
Spirits (product sales operations) 796 648 22.8% 1,604 1,639 -2.1%
Spirits (distribution fee operations) 709 723 -1.9% 1,406 1,432 -1.8%
--- --- ----- -----
Total wine and spirits 2,208 1,988 11.1% 4,475 4,502 -0.6%
Other Product Sales (includes USB) 1,428 1,275 12.0% 3,084 2,597 18.8%
----- ----- ----- -----
Total 3,636 3,263 11.4% 7,559 7,099 6.5%
===== ===== ===== =====
</TABLE>
Three Months Ended September 30, 2000, Compared with the Three Months Ended
September 30, 1999.
Revenue
Product sales were up 21.1% over the prior years' quarter. Wine sales were
strong, with the addition of Kendall-Jackson more than offsetting the decrease
from the loss of the Robert Mondavi line. Customer purchases in advance of a
July 1999 state tax increase caused unusually high product sales during the
first quarter of 1999. Distribution fees for the quarter decreased 4.1% to $5.0
million from the prior years' quarter. This decrease resulted from the loss of
the Arrow Cordials line in March 2000, after the sale of the product line by
UDV.
Gross Profit
Gross profit dollars on product sales increased $3.2 million, an increase
of 12.2% from the prior years' quarter. Gross profit percentage on product sales
was 19.4% for the quarter ended September 30, 2000, versus 21.0% for the prior
year's quarter. The higher gross profit percentage revenue during the quarter
ended September 30, 1999 resulted from customers purchasing a lower volume of
product at a substantially higher price. The build up of inventory by our
customers prior to July 1, 1999 actually allowed some customers to defer large
purchases for two to three months. The 19.4% for the current quarter is above
the September 1998 quarter, which had a gross profit percentage of 18.3%.
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Operating Expenses
Operating expenses for the quarter ended September 30, 2000 increased $2.7
million, or 9.2% from the comparable period. The increase was primarily the
result of increased brand support and personnel at U.S. Beverage related to the
Goose Island brand along with continued Hooper's Hooch support. Product market
selling expenses increased $2.1 million, which included the additional costs of
U.S. Beverage and other volume related increases.
Selling expenses for the fee markets were even with the prior years'
quarter. The company is continuing to invest in the expansion of the sales force
in Michigan, as product sales of low proof alcoholic products will commence in
November 2000. These investments in Michigan will primarily consist of sales
personnel with increased product promotional costs.
Warehouse and delivery expenses increased $0.3 million over the prior
years' quarter which was primarily from the product markets. These increased
costs were volume related, with total warehouse and delivery costs decreasing to
6.2% of total net sales for the current years' quarter, as compared to 7.2% the
prior years' quarter.
Administrative expenses for the quarter ended September 30, 2000, increased
$0.3 million, or 2.8% from the prior year period. Increased costs due to the
expansion of the U.S. Beverage operation and the Michigan product sales area
were primarily responsible for the increase.
Income from Operations
Total operating income increased $0.3 million, or 12.2% for the three
months ended September 30, 2000, over the comparable prior year period.
Operating income from product sales increased $0.7 million, or 26.4% over the
comparable prior year period.
Interest Expense
Interest expense remained stable, increasing 1.1% over the prior year's
quarter. Lower debt levels have offset revolver rate increases, which were tied
to the prime rate, and the cash benefit provided by the gain on the sale of the
Cameron Springs bottled water division.
Other Income
The Company's share of income from Commonwealth Wine and Spirits, LLC
increased by $0.1 million for the current quarter from the prior years' quarter.
Net Loss
Total net loss decreased $0.4 million for the current year quarter over the
prior year quarter. Product sales net income increased $0.8 million from the
prior quarterly reporting period.
For financial analysis purposes only, the Company's earning before
interest, taxes, depreciation, and amortization (EBITDA) for the three months
ended September 30, 2000 increased $0.2 million to $5.0 million as compared to
$4.8 million for the prior year reporting 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.
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<PAGE>
Six Months Ended September 30, 2000, Compared with the Six Months Ended
September 30, 1999.
Revenue
The Company's total revenue for the six months ended September 30, 2000 was
$318.8 million, an increase of 6.1% over the comparable prior year period.
Product sales were responsible for the increase, as distribution fee revenue for
the current six month period was $0.1 million lower than the comparable prior
year period. Spirits cases for the six months are still below the prior years'
period, which included unseasonable volume due to the state tax increase that
was effective July 1, 1999. The product sales increase has been driven primarily
by wine sales. The Company acquired the Kendall Jackson line in Indiana and
Illinois during the first quarter of 2000, which is more than offsetting the
decline in sales from the loss of the Robert Mondavi line in Indiana. U.S.
Beverage product sales for the six months increased 36.6% over the prior year
reporting period, due to the continued growth in Hoopers Hooch brand and the
acquisition of the Goose Island brand.
Gross Profit
Gross profit on product sales increased $3.9 million, or 6.7% for the six
months ended September 30, 2000, over the comparable prior year period. Gross
profit percentage on product sales has remained even with last year at 19.9%,
but is higher than the six month period ended September 1998, which was 18.7%.
The current year's revenue flow has been consistent, where the prior year
revenue experienced volume and pricing fluctuations from the tax increase that
affected the Illinois market. The gross margin outlook for the twelve months
ending March 31, 2001, as compared to twelve months ended March 31, 2000, is
positive considering the current year will have twelve months of increased
margin from the tax increase, and any Year 2000 volume swings will be included.
Operating Expenses
Total operating expenses for the six months ended September 30, 2000
increased $4.5 million, or 7.7% from the comparable prior year period. U.S.
Beverage's operating expenses were primarily responsible for this increase with
increased brand support for Hooper's Hooch and the addition of the Goose Island
brand. Operating expenses increased 2.8% from the prior year period when the U.
S. Beverage operations are excluded.
Selling expenses increased $3.4 million, or 16.2% for the six months ended
September 30, 2000 over the comparable prior year period. Expenses for the
expansion of the U.S. Beverage and Michigan sales departments were responsible
for $2.5 million of the $3.4 million increase. The increases are primarily wages
for sales personnel, and greater brand promotion and advertising.
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<PAGE>
Warehouse and delivery expenses increased $0.7 million or 3.5% for the six
months ended September 30, 2000 from the comparable prior year period. Warehouse
and delivery expense, as a percentage of total revenue declined to 6.2% in the
current year from 6.3% in the prior year. Continued capital investments in the
facilities and material handling areas have benefited the Company by controlling
head counts and reducing overtime.
Total administrative expenses increased $0.5 million, or 2.4% for the six
months ended September 30, 2000 from the comparable prior year period.
Administrative expense, as a percentage of total revenue was 6.0% for the six
months ended September 30, 2000 as compared to 6.2% for the comparable prior
year period. The increase was primarily from the expansion of the U.S. Beverage
operation, which increased $0.6 million from the prior year period.
Income from Operations
Operating income decreased $0.8 million, or 8.1%, to $8.5 million for the
six months ended September 30, 2000 as compared to the prior year period.
Management feels that slightly increased gross margins as compared to the prior
year for the next six months will offset increases in operating expenses.
Interest Expense
Interest expense remained stable at $6.6 million for the six months ended
September 30, 2000 from the prior year periods. Increases in the Company's
revolving credit facility rate, which is tied to the prime rate, have been
offset by the cash benefit provided by the gain on the sale of the Cameron
Springs bottled water division.
Other Income
The gain from the sale of the Cameron Spring bottled water division's net
assets was $7.5 million. The Company's share of income from Commonwealth Wine
and Spirits, LLC., increased by $0.1 million from the prior year period.
Net Income
Net income was $10.0 million for the six months ended September 30, 2000,
as compared to $3.2 million for the prior year period. Net income from product
sales, excluding the $7.5 million gain from the Cameron Springs sale, was $4.0
million for the current year, as compared to $3.7 million during the comparable
prior year period.
For financial analysis purposes only, the Company's earning before
interest, taxes, depreciation, and amortization (EBITDA) for the six months
ending September 30, 2000 decreased $0.5 million to $13.2 million as compared to
$13.7 million for the prior year reporting 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.
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<PAGE>
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 Company.
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, 2000, the Company had $15.8 million outstanding on its
$60.0 million revolving credit facility, with $44.2 million available.
The Company used $12.6 million in net cash from operating activities for
the six months ended September 30, 2000, an increase of $10.8 million from the
prior year. Increased cash provided from operations as compared to the prior
year, was from increased profitability of $6.8 million. Items that resulted in
increased uses of cash from operations, as compared to the prior year, were
increased inventories of $3.3 million, decreased accounts payable of $7.7
million, and increased gains from asset sales of $7.5 million.
Net cash provided by investing activities during the six months ended
September 30, 2000, was $4.1 million, an increase of $11.9 million from the
prior reporting period. The proceeds from the sale of the Cameron Springs
bottled water division of $10.4 million, the acquisition of R.M. Gilligan, Inc.
in the prior period of $1.6 million, and a decrease in purchases of intangible
assets of $0.9 million were primarily responsible for increases in net cash
provided by investing activities from the prior year. The Company invested $2.0
million in eSkye.com, Inc. during the six months ended September 30, 2000, which
increased the amount of cash used by investing activities.
Net cash provided by financing activities was $6.8 million, for the six
months ended September 30, 2000, including $14.8 million net proceeds from the
revolving line of credit and an increase in stockholder distributions of $7.9
million. The increases in stockholder distributions were to fund tax liabilities
for the shareholders and to provide funds to shareholders to repay the Company
on amounts due on notes receivable. Dispositions of the $8.8 million were as
follows; $6.4 million to satisfy tax obligations, $2.0 million paid to
shareholders and returned to the Company as payment on notes receivable, and
$0.4 million as final payment to former stockholder under a stock purchase
agreement.
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<PAGE>
Total assets increased to $207.1 million at September 30, 2000, a $16.0
million increase from March 31, 2000 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 $126.4 million at September
30, 2000, as compared to $112.5 million at March 31, 2000 primarily due to the
increase in the revolving line of credit to fund the increased working capital
needs from March 31, 2000, to September 30, 2000.
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.
Environmental Matters
The Company currently owns and leases a number of properties, and
historically it has owned and/or leased others. Under applicable environmental
laws, the Company may be responsible for remediation of environmental conditions
relating to the presence of certain hazardous substances on such properties. The
liability imposed by such laws is often joint and several without regard for
whether the property owner or operator knew of, or was responsible for, the
presence of such hazardous substances. In addition, the presence of such
hazardous substances, or the failure to properly remediate such substances, may
adversely affect the property owner's ability to borrow using the real estate as
collateral and to transfer its interest in the real estate. Although the Company
is not aware of the presence of hazardous substances requiring remediation,
there can be no assurance that releases unknown to the Company have not
occurred. Except for blending and bottling of a few of the Company's private
label brands, the Company does not manufacture any of the wine or spirit
products it sells and believes that it has conducted its business in substantial
compliance with applicable environmental laws and regulations.
Other
As a matter of policy, the Company plans to review and evaluate all
professional services firms every three years. This review will include but is
not limited to legal, audit and information systems services. The next scheduled
review will occur during fiscal 2001.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
None
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<PAGE>
PART II. OTHER INFORMATION
Item 1. 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 5. Other Events
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, National Wine & Spirits, Inc. identifies in
Exhibit 99 to this filing important factors that could cause the Company's
actual results to differ materially from those projected in forward-looking
statements of the Company made by, or on behalf of the Company.
Item 6. Exhibits
(a) Exhibits
(27) Financial Data Schedule
(99) Exhibit 99 - Forward-Looking Statements
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended September 30, 2000.
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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 9, 2000 /s/ James E. LaCrosse
---------------- ---------------------------------------
Date James E. LaCrosse,
Chief Financial Officer
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NATIONAL WINE & SPIRITS, INC.
FORM 10-Q
EXHIBIT INDEX
Exhibit Description
------- -----------
Exhibit 27 Financial Data Schedule
Exhibit 99 Forward-Looking Statement
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