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 December 31, 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 February 4, 2000.
Class Outstanding at February 4, 2000
- ---------------- -------------------------------
Common Stock,
$.01 par value 104,520 shares
voting
Common Stock,
$.01 par value 5,226,001 shares
non-voting
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
Quarterly Report
For the period ended December 31, 1999
INDEX
<S> <C> <C>
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1999 and March 31, 1999......................................................3
Condensed Consolidated Statements of Income
Three Months Ended December 31, 1999 and 1998; Nine Months
ended December 31, 1999 and 1998..........................................................4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended December 31, 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..........................................................10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk..................................................................................17
PART II. OTHER INFORMATION
Item 5. Other Information............................................................................17
Item 6. Exhibits and Reports on Form 8-K.............................................................17
Signature....................................................................................18
</TABLE>
2
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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>
December 31, March 31,
1999 1999
----------- ---------
(unaudited) (Note 1)
ASSETS
Current assets:
Cash ............................................... $ 6,356 $ 1,908
Accounts receivable, less allowances
for doubtful accounts .......................... 64,238 37,042
Inventory .......................................... 75,614 67,961
Prepaid expenses and other ......................... 4,476 4,776
--------- ---------
Total current assets .................................... 150,684 111,687
--------- ---------
Property and equipment, net ............................. 46,814 49,307
Other assets
Notes receivable ................................... 1,262 1,486
Cash surrender value of life insurance, net of loans 2,039 1,849
Investment in Kentucky distributor ................. 7,471 7,438
Investment in eSkye.com, Inc. ...................... 500 --
Intangible assets, net ............................. 10,396 8,080
Deposits and other ................................. 184 142
Deferred pension costs ............................. 387 387
--------- ---------
Total other assets ...................................... 22,239 19,382
--------- ---------
TOTAL ASSETS ............................................ $ 219,737 $ 180,376
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................... $ 35,497 $ 27,567
Accrued payroll and payroll taxes .................. 6,918 5,912
Excise taxes payable ............................... 5,462 4,055
Other accrued expenses and taxes ................... 12,157 7,459
Current maturities of long-term debt ............... 900 1,050
--------- ---------
Total current liabilities ............................... 60,934 46,043
Deferred pension liability ......................... 387 387
Long-term debt ..................................... 133,646 116,172
--------- ---------
Total liabilities ....................................... 194,967 162,602
--------- ---------
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) ........................ 5,349 (1,883)
--------- ---------
30,412 23,180
Notes receivable from stockholders ................. (5,642) (5,406)
--------- ---------
Total stockholders' equity .............................. 24,770 17,774
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............. $ 219,737 $ 180,376
========= =========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
December 31, 1999 December 31, 1998 December 31, 1999 December 31, 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net product sales ...................................... $ 187,376 $ 172,491 $ 477,653 $ 423,367
Distribution fees ...................................... 6,133 5,138 16,312 14,010
--------- --------- --------- ---------
Total revenue .......................................... 193,509 177,629 493,965 437,377
Cost of products sold .................................. 153,429 142,545 386,085 346,576
--------- --------- --------- ---------
Gross profit ........................................... 40,080 35,084 107,880 90,801
--------- --------- --------- ---------
Operating expenses:
Warehouse and delivery ............................ 10,335 9,319 29,312 26,852
Selling ........................................... 11,499 10,176 32,266 28,614
Administrative .................................... 9,793 7,825 28,551 23,158
--------- --------- --------- ---------
Total operating expenses ............................... 31,627 27,320 90,129 78,624
--------- --------- --------- ---------
Income from operations ................................. 8,453 7,764 17,751 12,177
--------- --------- --------- ---------
Interest expense:
Related parties ................................... (106) (115) (315) (363)
Third parties ..................................... (3,131) (2,621) (9,550) (7,655)
--------- --------- --------- ---------
(3,237) (2,736) (9,865) (8,018)
Other income (loss):
Equity in income of
Kentucky distributor .......................... 192 400 165 400
Equity in
eSkye.com, Inc. ............................... 67 -- -- --
Rental and other income (expense) ................. (8) 67 92 179
Gain on sales of assets ........................... 55 14 123 97
Interest income ................................... 234 232 672 751
--------- --------- --------- ---------
Total other income ................................... 540 713 1,052 1,427
--------- --------- --------- ---------
Net income ............................................. $ 5,756 $ 5,741 $ 8,938 $ 5,586
========= ========= ========= =========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
4
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<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Nine Months Ended
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net income .............................................. $ 8,938 $ 5,586
Adjustments to reconcile net income to net cash used
by operating activities:
Depreciation of property and equipment .............. 5,426 5,116
Gain on sales of assets ............................. (123) (97)
Amortization of intangible assets ................... 1,171 958
Equity in income of Kentucky distributor ............ (165) (400)
Changes in operating assets and liabilities:
Accounts receivable ............................ (27,046) (25,048)
Inventory ...................................... (7,653) 2,171
Prepaid expenses and other ..................... 347 1,174
Accounts payable ............................... 7,891 5,822
Accrued expenses and taxes ..................... 6,962 (1,925)
-------- --------
Net cash used by operating activities ........................ (4,252) (6,643)
Investing activities:
Purchases of property and equipment ..................... (4,908) (6,518)
Investment in Kentucky Distributor ...................... -- (6,000)
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 ............ 2,192 116
Distributions from Kentucky distributor ................. 132 --
Intangible assets ....................................... (1,940) (2,231)
Deposits and other ...................................... (42) (223)
Decrease in cash surrender value of insurance ........... (182) (235)
Decrease in notes receivable ............................ 224 119
-------- --------
Net cash used by investing activities ........................ (6,654) (14,972)
Financing activities:
Net proceeds of line of credit borrowings ............... 18,350 20,680
Proceeds of Long-term Debt .............................. -- 8,800
Principal payments on long-term debt .................... (1,054) (4,834)
Payment on borrowings from stockholder .................. (176) --
Notes receivable from stockholders and others ........... (60) 623
Distributions to stockholders ........................... (1,706) (1,807)
-------- --------
Net cash provided by financing activities .................... 15,354 23,462
-------- --------
Net increase in cash ......................................... 4,448 1,847
Cash at beginning of year .................................... 1,908 1,370
-------- --------
Cash at end of period ........................................ $ 6,356 $ 3,217
======== ========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
National Wine & Spirits, Inc.
Notes To Condensed Consolidated Financial Statements
(Unaudited)
December 31, 1999
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 United States 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
nine month period ended December 31, 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 United States Generally Accepted Accounting Principles
for complete financial statements.
Certain amounts in the December 31, 1998 condensed consolidated
financial statements have been reclassified to conform to current year
presentation.
6
<PAGE>
National Wine & Spirits, Inc.
Notes To Condensed Consolidated Financial Statements (continued)
(Unaudited)
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.
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.
<TABLE>
<CAPTION>
<S> <C>
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
===========
</TABLE>
3. Inventory
<TABLE>
<CAPTION>
<S> <C> <C>
Inventory is comprised
of the following:
December 31, 1999 March 31, 1999
----------------- -----------------
Inventory at FIFO $ 84,084,000 $ 75,507,000
Less: LIFO reserve 8,470,000 7,546,000
----------------- -----------------
$ 75,614,000 $ 67,961,000
================= =================
</TABLE>
7
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National Wine & Spirits, Inc.
Notes To Condensed Consolidated Financial Statements (continued)
(Unaudited)
4. Debt
<TABLE>
<CAPTION>
Long-term debt is comprised of the following:
December 31, March 31,
1999 1999
------------ ------------
<S> <C> <C>
Senior notes payable (A) .......................................... $110,000,000 $110,000,000
Bank revolving line of credit (B) ................................. 23,050,000 4,700,000
Term loan payable in annual installments of $500,000 in 2001 and
Non-competition agreement payable to a former stockholder in annual
Subordinated promissory note payable to an employee repaid
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 ............ 196,000 272,000
------------ ------------
134,546,000 117,222,000
Less: current maturities ......................................... 900,000 1,050,000
------------ ------------
$133,646,000 $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, in January and July. 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
December 31, 1999, the $23,050,000 of outstanding borrowings bear interest at
9.00% and 8.73% split between $5,050,000 prime based pricing and $18,000,000
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>
8
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National Wine & Spirits, Inc.
Notes To Condensed Consolidated Financial Statements (continued)
(Unaudited)
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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenues from external customers
Product Sales ................ $187,376,000 $172,491,000 $ 477,653,000 $423,367,000
All Other .................... 6,133,000 5,138,000 16,312,000 14,010,000
Segment profit (loss)
Product Sales ................ 5,548,000 5,062,000 9,218,000 4,383,000
All Other .................... 208,000 679,000 (280,000) 1,203,000
Segment Assets
Product Sales ................ 204,993,000 189,183,000 204,993,000 189,183,000
All Other .................... 14,744,000 12,953,000 14,744,000 12,953,000
</TABLE>
9
<PAGE>
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. References to U.S. Beverage (USB) relate to the operations of the
Company's national import, craft and specialty beer marketing business performed
by NWS-Illinois.
The Company experienced increases in both product and distribution fee
revenue for the quarter ended December 31, 1999 over the comparable period last
year. Correspondingly, gross profit dollars and gross profit percentage
increased over the prior year quarterly and nine month periods. This percentage
increase, along with the revenue growth in the product sales segment is a result
of the price increases enacted in calendar 1999. The distribution fee increase
is attributable to product lines acquired in 1999. The product mix for the fee
markets has shifted to a higher percentage of bottle business i.e. less than a
full case sale, thus increasing labor and operational costs. Total wine and
spirit product case sales for the quarter ended December 31, 1999, were even
with the prior year quarter, but have increased 1.1% over the comparable nine
month period. This increase is favorable considering the Indiana market is no
longer representing the Robert Mondavi wine line, and the Bacardi Martini liquor
products.
Results of Operations
The following table includes information regarding total cases shipped by
the Company during the three months and nine months ended December 31, 1999
compared with the comparable periods ended December 31, 1998:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31 December 31
----------- -----------
1999 1998 Percent 1999 1998 Percent
----- ----- ------- ------ ----- -------
(Cases in thousands) (Cases in thousands)
<S> <C> <C> <C> <C> <C> <C>
Wine (product sales operations) ...... 987 936 5.4% 2,418 2,419 0.0%
Spirits (product sales operations) 1030 1085 (5.1%) 2,669 2,615 2.1%
Spirits (distribution fee operations) 864 792 9.1% 2,296 2,124 8.1%
----- ----- ------ -----
Total wine and spirits ........ 2,881 2,813 2.4% 7,383 7,158 3.1%
Other (includes USB) ................. 865 640 35.2% 3,462 2,026 70.9%
----- ----- ------ -----
Total .............................. 3,746 3,453 8.5% 10,845 9,184 18.1%
===== ===== ====== =====
</TABLE>
10
<PAGE>
Revenue
The Company reported product sales in the three months ended December 31,
1999, of $187.4 million, an increase of $14.9 million, or 8.6%, over the
comparable prior year period. This increase resulted primarily from the price
increases in the Illinois and Indiana markets. U.S. Beverage had product sales
of $4.9 million as compared to $2.1 million over the comparable prior period.
U.S. Beverage commenced sales of the Hooper's Hooch brand in the quarter ended
December 31, 1998. Distribution fees for the quarter ended December 31, 1999
increased to $6.1 million from $5.1 million, or a 19.4% increase over the
comparable prior year period. This increase was a result of the addition of new
suppliers and increased volume from existing suppliers.
Gross Profit
Gross profit on total revenue increased 14.2% to $40.1 million in the three
months ended December 31, 1999, from $35.1 million in the comparable prior year
period. Gross profit on product sales during the quarter ended December 31,
1999, increased to $33.9 million, a 13.4% increase over the quarter ended
December 31, 1998, primarily from price increases during 1999. Gross profit
percentage on product sales for the three months ended December 31, 1999
increased to 18.1%, compared to 17.4% for the comparable prior period. Gross
profit percentage has been historically lower in the December quarter than the
other fiscal quarters due to the increased sales volume and discounts.
Operating Expenses
Operating expenses for the quarter ended December 31, 1999, increased to
$31.6 million from $27.3 million for the quarter ended December 31, 1998, an
increase of 15.8%. As a percentage of total revenue, operating expenses for the
quarter ended December 31, 1999, increased to 16.3% from 15.4% for the
comparable prior year period. This increase is due to the expansion of our sales
areas in our fee markets and U.S. Beverage, along with increasing administration
costs associated with expanded corporate services and employee benefits. These
investments should position us with the necessary corporate infrastructure for
expansion and increased efficiencies across markets.
Selling expenses for product markets increased $0.9 million, or 8.7% for the
three month period ended December 31, 1999, from the comparable prior period.
This increase was due to the increased support of U.S. Beverage's Hooper's Hooch
brand and increased brand support through promotional and co-op advertising in
the product markets. Michigan's sales expenses increased $0.4 million from the
comparable prior period as the Company has increased its sales staff in
Michigan.
Warehouse and delivery expenses in the three month period ended December 31,
1999, increased $1.0 million from the comparable prior period, primarily from
the increased volume in our distribution fee markets. Warehouse and delivery
expense for the product markets, as a percent of product revenues increased
slightly to 3.8% for the three months ended December 31, 1999 from 3.7% for the
comparable reporting period.
11
<PAGE>
Management's Discussion and Analysis (continued)
Total administrative expenses for the quarter ended December 31, 1999
increase $2.0 million from the comparable 1998 period. The Company has expanded
its corporate services area which has increased corporate salaries, payroll
taxes, and travel expenses. The Company is also partially self funding health
benefits, and the claims experience for the quarter ended December 31, 1999, has
been greater than the comparable prior period. The Company has also incurred
increased directors' fees with the addition of non-employee directors and
greater professional fees associated with increased financial reporting when
compared to the prior year reporting period.
Income from Operations
Operating income increased $0.7 million or 8.9% for the three months ended
December 31, 1999 from the comparable prior year period. The increased revenues
for the quarter ended December 31, 1999, and the increased gross profit
percentage more than offset the dollar increase in operating expenses.
Interest Expense
Interest expense increased from $2.7 million to $3.2 million for the three
months ended December 31, 1999. The Company's marginal rate for the quarter
ended December 31, 1999 was 10.125% as compared to 8.75% for the period ended
December 31, 1998. This rate increase was due to the sale of the senior notes on
January 25, 1999. Historically, the Company's revolving credit facility balance
increases during the quarter ending December 31, as working capital increases
from the previous fiscal quarter.
Other Income
Other income decreased to $0.5 million for the three months ended December
31, 1999 as compared to $0.7 million for the three months ended December 31,
1998. The Company's share of the income of Commonwealth Wine & Spirits and
eSkye.com, Inc. was $0.3 million for the three months ended December 31, 1999,
as compared to $0.4 million for the comparable prior period.
Net Income
Net income was $5.8 million for the quarter ended December 31, 1999, which
was comparable to the net income of $5.7 million for the comparable prior year
period.
For financial analysis purposes only, the Company's earning before interest,
taxes, depreciation, and amortization (EBITDA) for the three months ended
December 31, 1999 increased 9.0% to $10.7 million as compared to $9.8 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.
12
<PAGE>
Nine Months Ended December 31, 1999, Compared with the Nine Months Ended
December 31, 1998.
Revenue
The Company reported total revenue for the nine months ended December 31,
1999, of $494.0 million, an increase of 12.9% over the comparable prior year
period. Product sales increased $54.3 million or 12.8% from the comparable prior
period primarily from price increases put into effect during the fiscal year and
the increase in U.S. Beverage's sales due to the Hooper's Hooch brand.
Distribution fees increased $2.3 million for the nine months ended December 31,
1999, or 16.4% over the comparable prior year period from the addition of new
suppliers and increased volume of existing brands.
Gross Profit
Gross profit on product sales increased $14.8 million, or 19.2% for the nine
months ended December 31, 1999, over the comparable prior year period. Gross
profit percentage on product sales for the nine months ended December 31, 1999,
was 19.2% as compared to 18.1% for the comparable prior year period. Price
increases and the increased margin of 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 nine months ended December 31, 1999, increased to
$90.1 million, or 14.6% for the nine months ended December 31, 1999, over the
comparable prior year period. As a percentage of total revenue, operating
expense for the nine months ended December 31, 1999, increased slightly to 18.2%
as compared to 18.0% for the comparable prior year period.
Selling expenses increased $3.7 million for the nine months ended December
31, 1999, to $32.3 million, and the increase in the product markets was
primarily the result of U.S. Beverage's support of the Hooper's Hooch brand,
which accounted for $1.5 million of the increase in selling expenses as compared
to the prior year period. Michigan's selling expenses increased $1.2 million for
the nine months ending December 31, 1999, over the comparable reporting period
as a result of acquiring the R.M. Gilligan brokerage operation in April, 1999,
which has resulted in increased salaries and brand promotion costs. Selling
expenses as a percentage of total revenue remained even at 6.5% for the nine
months ended December 31, 1999 as compared to the prior reporting period
Warehouse and delivery expenses increased $2.5 million or 9.2% for the nine
months ended December 31, 1999, from the comparable prior year period. The
increase in volume in our Illinois product 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 5.9% for the nine months ended December 31, 1999, as
compared to 6.1% for the comparable prior year period.
Total administrative expenses increased $5.4 million for the nine months
ended December 31, 1999, from the comparable reporting period. The increase was
due to the development and expansion of the corporate services area, increased
employee benefit costs, and increased professional fees which included for the
first time costs associated with non-employee directors. The increase in
administrative expense in the product markets increased $4.1 million for the
nine months ended December 31, 1999, as compared to the prior year reporting
period. Administrative expense, as a percentage of total revenue was 5.8% for
the nine months ended December 31, 1999, as compared to 5.3% for the comparable
prior year period.
13
<PAGE>
Income from Operations
Operating income increased $5.6 million, or 45.8% for the nine months ended
December 31, 1999, from the comparable prior year period. The increased revenue
and increased gross profit percentage for the nine months ended December 31,
1999, over the comparable prior year period more than offset the dollar increase
in operating expenses. The Company's increase in operating income was 45.8% for
the nine months ended December 31, 1999, when total revenue increased 12.9% over
the same comparable prior year reporting period.
Interest Expense
Interest expense increased $1.9 million to $9.9 million for the nine months
ended December 31, 1999, from $8.0 million for the prior year period. The
increased marginal rate of 10.125% on December 31, 1999, from 8.75% on December
31, 1998, was due to the sale of senior notes on January 25, 1999.
Other Income
Other income decreased to $1.1 million for the nine months ended December
31, 1999, from $1.4 million from the comparable prior year period. The Company's
share of income from Commonwealth Wine and Spirits, L.L.C. decreased by $0.2
million for the nine months ended December 31, 1999, as compared to the
comparable prior period.
Net Income
Net income increased $3.4 million to $8.9 million for the nine months ended
December 31, 1999, a 60.0% increase as compared to the comparable prior year
period.
For financial analysis purposes only, the Company's earning before interest,
taxes, depreciation, and amortization (EBITDA) for the nine months ended
December 31, 1999 increased 33.4% to $24.3 million as compared to $18.3 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.
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 December 31, 1999, the Company had $23.1 million outstanding on its $60.0
million revolving credit facility, with $36.6 million available.
14
<PAGE>
The Company used $4.3 million in net cash from operating activities for the
nine months ended December 31, 1999, a $2.4 million decrease from the comparable
prior year period. The $2.4 million decrease was primarily due to increases in
cash used from inventories of $9.8 million and accounts receivable of $2.0
million, partially offset by the cash provided by accrued expenses of $8.9
million, increased profitability of $3.2 million, and accounts payable of $2.1
million.
Net cash used for investing activities for the nine months ended December
31, 1999, was $6.7 million, a decrease of $8.3 million from the comparable prior
period. The Company had increased proceeds from the sale of property of $2.1
million and the investment in Commonwealth Wine and Spirits of $6.0 million was
in the comparable prior period. The increase in cash from sales of property was
primarily the result of selling a building in our Illinois market.
Net cash provided by financing activities was $15.4 million, an $8.1 million
decrease from the comparable reporting period. The Company had received proceeds
of $8.8 million of term debt in the quarter ended December 31, 1998, for
investments in Commonwealth Wine and Spirits and distributor rights. Proceeds
from the revolving line of credit was $2.3 million less in the nine months ended
December 31, 1999, than the comparable reporting period. Repayments of long term
debt were $3.8 million less for the nine months ended December 31, 1999 than the
prior reporting period because of the issuance of the senior debt in January,
1999, the proceeds from which retired most of the term debt.
Total assets increased to $219.7 million at December 31, 1999, a $39.4
million increase from March 31, 1999. This increase was due to increased
accounts receivable from the December 1999 sales volume and increased
inventories over the March 31, 1999 levels. Current liabilities increased by
$14.9 million on December 31, 1999 from March 31, 1999 due to increased accounts
payable to suppliers and accrued expenses, primarily accrued note interest.
Total debt increased to $134.5 million, as compared to $117.2 million at March
31, 1999, primarily due to the increase in the revolving line of credit to fund
the working capital needs from March 31, 1999 to December 31, 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.
15
<PAGE>
Inflation
Inflation has not had a significant impact on the Company's operations but
there can be no assurance that inflation will not have a negative effect on the
Company's financial condition, results of operations or debt service
capabilities in the future.
Year 2000
The Company did not experience any significant disruptions at December 31,
1999 and is not aware of any material Year 2000 issues from our customers or
suppliers that would impact the Company's financial condition, results of
operations, or debt service capabilities.
At December 31, 1999, the Company had incurred less than $75,000 in costs
directly associated with the remediation of its systems, and an additional
$25,000 remains in the fiscal 2000 budget for Year 2000 issues. Management does
not believe that future Year 2000 assessment and remediation costs will be
material, and intends to fund any such costs from its existing resources as
budgeted. These costs do not include the cost of upgrading or replacing systems
for other business reasons.
Environmental Matters
The Company currently owns and leases a number of properties, and
historically it has owned and/or leased others. Under applicable environmental
laws, the Company may be responsible for remediation of environmental conditions
relating to the presence of certain hazardous substances on such properties. The
liability imposed by such laws is often joint and several without regard for
whether the property owner or operator knew of, or was responsible for, the
presence of such hazardous substances. In addition, the presence of such
hazardous substances, or the failure to properly remediate such substances, may
adversely affect the property owner's ability to borrow using the real estate as
collateral and to transfer its interest in the real estate. Although the Company
is not aware of the presence of hazardous substances requiring remediation,
there can be no assurance that releases unknown to the Company have not
occurred. Except for blending and bottling of a few of the Company's private
label brands, the Company does not manufacture any of the wine or spirit
products it sells and believes that it has conducted its business in substantial
compliance with applicable environmental laws and regulations.
Other
As a matter of policy, the Company plans to review and evaluate all
professional services firms every three years. This review will include but is
not limited to legal, audit and information systems services. The next scheduled
review will occur after Fiscal 2000 books are closed at March 31, 2000.
16
<PAGE>
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 December 31, 1999.
17
<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.
February 11, 2000 /s/ J. Smoke Wallin
----------------- -------------------
Date J. Smoke Wallin,
Executive Vice President &
Chief Financial Officer
18
<PAGE>
NATIONAL WINE & SPIRITS, INC.
FORM 10-Q
EXHIBIT INDEX
Exhibit Description
- ------- -----------
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001081971
<NAME> NATIONAL WINE & SPIRITS INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> Dec-31-1999
<CASH> 6,356
<SECURITIES> 0
<RECEIVABLES> 65,396
<ALLOWANCES> 1,158
<INVENTORY> 75,614
<CURRENT-ASSETS> 150,684
<PP&E> 80,449
<DEPRECIATION> 33,635
<TOTAL-ASSETS> 219,737
<CURRENT-LIABILITIES> 60,934
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 24,716
<TOTAL-LIABILITY-AND-EQUITY> 219,737
<SALES> 477,653
<TOTAL-REVENUES> 493,965
<CGS> 386,085
<TOTAL-COSTS> 476,214
<OTHER-EXPENSES> (1,052)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,865
<INCOME-PRETAX> 8,938
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,938
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
