UNITEDTable STATES SECURITIESof AND EXCHANGE COMMISSION Washington, D.C. 20549Contents

GeneralTable of Contents

Under theTable three-tier regulatory framework established by federal and state law, suppliers of alcohol-based beverages are generally prohibited from selling their products directly to retail outlets or consumers, effectively requiring suppliers to use distributors such as NWS. This regulatory framework effectively insulates distributors from vertical competition from suppliers or retail customers. In some states, referred to as “control states,” state law has historically mandated the state to act as the exclusive wholesale distributor and/or retailer of alcohol-based beverages. In 1996, Michigan became the first control state to privatize aspects of the wholesale distribution of spirits, and NWS has become the leading administrative distribution agent of spirits in that state. Contents

The UnitedTable States alcohol-based beverage industry generated total retail sales of approximately $137.2 billion in calendar 2002. Sales of wine and spirits, in which NWS primarily competes, accounted for approximately 15% and 31%, respectively, or $62.8 billion of total retail sales in 2002. In the United States wine and spirits markets, total consumption has increased since 1994 and 1998, respectively. During 2002, wine and spirits consumption in the United States grew 3.3% and 1.8% respectively, as compared to 2001, with imported products showing stronger growth than domestics. In both the wine and spirits industries, consumer preference has been to purchase higher quality and more expensive products; management believes this trend will continue. Contents

InTable Michigan, spirits distributors have exclusive relationships with suppliers by law, and receive distribution fees from suppliers as set by the state, rather than purchasing from the suppliers for resale to customers. This arrangement has the effect of understating the importance of spirits in NWS’ overall product mix. For purposes of illustrating the scale of NWS’ operations in Michigan, the total wholesale prices of products delivered by NWS for Michigan in 2003, 2002 and 2001 was $334.0 million, $360.0 million and $355.0 million, respectively, based on the fixed wholesale prices of the spirits delivered by NWS. Contents

-Table 7of -Contents

On-PremiseTable of Contents

Sales,Table Marketing and Information Systems. Our investment in technology in the areas of sales and marketing is a critical factor in our success and customer satisfaction. NWS is generally recognized as an industry innovator and leader in MIS in the wine and spirits distribution tier. Our proprietary sales system manages sales data to the SKU level in all retail accounts we service (approximately 36,000) and is refreshed nightly based on deliveries. This system provides our brand teams the necessary information to develop targeted, effective brand plans. Moreover, our sales managers depend on the information to monitor and control retail execution within their sales teams. Most recently we have moved this information to the Internet to allow for greater speed and accessibility to management, retail, and supplier partners. We have also invested resources to significantly improve our category management expertise, and this has improved our service and effectiveness particularly in the off-premise national and regional chain accounts. Contents

There areTable significantof barriers to entry into the wholesale wine and spirits distribution business. These barriers include established supplier-distributor relationships, specialized distribution equipment such as material handling systems and delivery vehicles, important industry knowledge regarding pricing, inventory management, and distribution logistics. Historically, it is extremely rare for organizations not already engaged as wine and spirits distributors to enter the business. New distributors typically enter existing markets through acquisition. Contents

(2)Table Liquorof and Allied Workers Union Local 3, annual agreements expiring September 30, 2004 and October 31, 2004; andContents

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

The CompanyTable 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. Contents

Dividends. TheTable ability of the Company to pay dividends to its shareholders is restricted by certain covenants contained in the new credit facility as well as certain restrictions contained in the Company’s indentures relating to its senior notes. Subject to these limitations, the Company has historically paid dividends to its shareholders for tax liabilities and for limited other purposes.Contents

(1)Table The increase in Other income (expense) in 2003 and 2001 resulted from Vendor settlement income and Gain on sale of bottled water division, respectively.Contents

OverviewTable of Contents

EBITDA isTable a non-GAAP financial measure within the meaning of Regulation G. EBITDA is presented because it is a widely accepted financial indicator used by investors and analysts to analyze and compare companies on the basis of debt service capability. Management uses EBITDA to set targets and monitor and assess financial performance. EBITDA is not intended to represent cash flows for the periods presented, nor has it been presented as an alternative to net income as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance and cash flow prepared in accordance with generally accepted accounting principles. Contents

The CompanyTable also was notified by two other major suppliers, Future Brands and Canandaigua Wine Company, that brand distribution rights for the State of Illinois were being terminated. These decisions represented a continuation of a state-by-state consolidation and realignment of brands by suppliers following decisions by Diageo. The terminations by Future Brands and Canandaigua Wine Company were effective April 30, 2003 and March 31, 2003, respectively. Revenue for the affected brands in Illinois for the year ended March 31, 2003 was approximately $113 million, and total cases shipped were approximately 1.6 million. For the same annual period, these two suppliers contributed approximately $22 million to the gross profit of the Company. Contents

The followingTable tableof includes information regarding total cases shipped by NWS in 2003, 2002 and 2001: Contents

Total operatingTable expenses increased 10.3% to $144.6 million for the year ended March 31, 2003 from $131.0 million for the prior year period. Increased selling expenses and administrative support of the USB division were primarily responsible for the total operating expense increase from the prior year period. Contents

OtherTable income increased $9.9 million, primarily from a vendor settlement payment of $9.2 million. The Company received $6.0 million of the vendor settlement payment as of March 31, 2003, and received $3.2 million on April 15, 2003. The Company’s share of losses from eSkye Solutions, Inc. was $1.2 million less during the year ended March 31, 2003 than the prior year period. Contents

WarehouseTable and delivery expenses were essentially even with the prior year’s amounts, decreasing 0.1% or $0.1 million for the year ended March 31, 2002. Total warehouse and delivery expenses, as a percentage of total revenue, declined slightly to 5.8% during the current year period as compared to 6.0% for the prior annual period. The decrease was primarily due to the savings experienced in the Indiana market from lower case sales of water and non-alcoholic products, along with construction of more efficient warehousing facilities. Contents

The CompanyTable generated $14.7 million in net cash from operating activities for the year ended March 31, 2003 as compared to proceeds of $22.0 million for the prior year period. This $7.4 million variance was primarily due to the Illinois business’ payment of current obligations that were not offset by reductions in inventories or receivables. The Company expects net proceeds from the reduction of these Illinois receivables and inventories of approximately $20 to $25 million during fiscal 2004, which will offset the temporary increase in working capital needs that Illinois required during fiscal 2003. Cash provided by net income and adjustments for depreciation and amortization were $22.9 million for the year ended March 31, 2003, as compared to $16.6 million for the prior year period. Contents

EnvironmentalTable Mattersof Contents

DefinedTable Benefit Pension Plan. The most significant element in determining the Company’s pension income (cost) in accordance with SFAS No. 87 is the expected return on plan assets. In 2003, the Company assumed that the expected long-term rate of return on plan assets would be 8.5%. The assumed long-term rate of return on assets is applied to a calculated value of plan assets, which recognizes changes in the fair value of plan assets in a systematic manner over five years. This produces the expected return on plan assets that is included in pension income (cost). The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset gains (losses) affects the calculated value of plan assets and, ultimately, future pension income (cost). Over the long term, the Company’s pension plan assets have earned in excess of 9.5%. However, the plan assets have lost an average of 14.9% per year during the last two years. Should this trend continue, the Company would be required to reconsider its assumed expected rate of return on plan assets. If the Company were to lower this rate, future pension cost would increase. Contents

InTable April 2002 the Financial Accounting Standards Board issued Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions as well as addresses the classifications of gains and losses on debt extinguishment. Accordingly, the Company classified its gains from repurchases of its long-term debt in interest expense on the Consolidated Statement of Income.Contents

InTable our opinion, the 2003 consolidated financial statements present fairly, in all material respects, the financial position of National Wine & Spirits, Inc. and subsidiaries as of March 31, 2003, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the 2003 financial statement schedule, when considered in relation to the 2003 basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.Contents

TheTable Board of Directors and Stockholders National Wine & Spirits, Inc.Contents

-Table 29of -Contents

NationalTable Wine & Spirits, Inc. Consolidated Statements of Cash FlowsContents

TheTable consolidated financial statements include the accounts of NWS, NWSC, NWS-LLC, NWSM, NWSM-LLC, and USB, all of which NWS wholly owns or owns 100% of the voting stock. 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 or distribution fees therefrom. NWS performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral.Contents

TheTable Company’s cash, accounts receivable, accounts payable and certain other accrued liabilities are all short-term in nature and the carrying amounts approximate fair value. Long-term notes receivable and payable, except for the Company’s senior notes payable, have primarily variable interest rates, thus their carrying amounts approximate fair value. The fair value of the Company’s senior notes payable has been determined on the basis of the specific securities issued and outstanding and is estimated at $80,978,000 at March 31, 2003.Contents

1. NatureTable of Business and Summary of Significant Accounting Policies(continued)Contents

GoodwillTable of Contents

TheTable carrying value of long-lived assets is reviewed by management when indicators of impairment are present. If this review indicates that the carrying value may be impaired then the impaired amount will be written off. Impairment is determined by comparison of the carrying amount of the asset to the net undiscounted cash flows expected to be generated by the related asset group. An impairment loss is measured by the amount which the carrying amount of the asset group exceeds its fair value.Contents

PaymentsTable toof Customers Contents

1. NatureTable of Business and Summary of Significant Accounting Policies(continued)Contents

NationalTable Wineof & Spirits, Inc. Notes to Consolidated Financial Statements (continued)Contents

CommonwealthTable Wineof & Spirits, LLC Contents

PropertyTable and equipment at March 31 is comprised of the following:Contents

8. GoodwillTable of Contents

Long-termTable debt at March 31 is comprised of the following:Contents

TheTable Company purchased $9,646,000 of its senior notes on the open market during the quarter ended June 30, 2003. The notes were purchased for $8,681,000 plus accrued interest of $305,000.Contents

TheTable Company leases office and warehouse space under noncancellable operating leases ranging from two to ten years, some of which include renewal and purchase options and escalation clauses, expiring on various dates through 2011. The Company also leases certain trucks and equipment pursuant to noncancellable operating leases with terms ranging from three to seven years. Future minimum rent payments as of March 31, 2003 are as follows:Contents

AsTable of March 31, 2003 and 2002, the Company has reflected in their financial statements an additional minimum pension liability of $3,005,000 and $1,873,000, respectively. This minimum liability represents the excess of the unfunded accumulated benefit obligation over the fair market value of plan assets as of the measurement date. As the additional liability exceeded the intangible asset, the excess is held in the financial statements in Accumulated Other Comprehensive Income at $2,290,000 and $675,000 as of March 31, 2003 and 2002, respectively. An intangible asset of $715,000 and $1,198,000 was reflected in the Company’s consolidated balance sheet at March 31, 2003 and 2002, respectively. The change in the pension liability at March 31, 2003 as compared to the liability at March 31, 2002 was primarily caused by the difference in the actual return on assets compared to the expected return on assets and the 0.50% decrease in the discount rate assumption.Contents

14. SegmentTable Reportingof Contents

17. VendorTable Distributionof Agreements Contents

NationalTable Wineof & Spirits, Inc. Notes to Consolidated Financial Statements (continued)Contents

-Table 49of -Contents

-Table 50of -Contents

OnlyTable outside directors of NWS receive compensation per year for serving as directors. Each outside director received $60,000 for the fiscal year ended March 31, 2003 for serving on the board. Contents

TheTable following table sets forth the compensation paid by NWS to James E. LaCrosse, Chief Executive Officer, and to each of the four most highly compensated executive officers of NWS for fiscal 2003, 2002 and 2001:Contents

(3)Table Represents personal use of a company supplied automobile.Contents

ExceptTable for Mr. LaCrosse and Mrs. Johnston, who have sole voting and investment power with respect to their voting common stock, no other executive officer or director owns any shares of NWS’ voting common stock. Contents

TheTable stockholders have also agreed not to take any action or effect any transfer that would cause NWS or any of its subsidiaries to fail to qualify as an S corporation or other pass-through entity for federal income tax purposes. In addition, the stockholders have entered into a tax indemnification agreement whereby they have agreed to indemnify NWS and its subsidiaries for any loss that may arise in the event NWS or any of its subsidiaries should fail to maintain its pass-through status. Contents

~~FORM~~UNITED ~~10-K~~STATES

~~(Mark~~SECURITIES ~~One)~~AND EXCHANGE COMMISSION

~~[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended March 31~~Washington, ~~2003~~D.C. 20549

[FORM ]10-K ~~Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~

~~Commission~~(Mark ~~File~~One) ~~Number: 333-74589~~

~~NATIONAL~~x ~~WINE~~Annual &Report ~~SPIRITS,~~Pursuant ~~INC.~~ to Section 13 or 15(~~Exact~~d) ~~name~~of the Securities Exchange Act of ~~registrant~~1934 asfor ~~specified~~the infiscal ~~its~~year ~~charter)~~ended March 31, 2005.

~~Indiana~~¨ ~~(State~~Transition orReport ~~other~~Pursuant ~~jurisdiction~~to ofSection ~~incorporation~~13 or ~~organization~~15(d) ~~35-2064429~~of ~~(I.R.S.~~the ~~Employer~~Securities ~~Identification~~Exchange ~~No.)~~Act of 1934

~~700~~Commission ~~West~~File ~~Morris~~Number: ~~Street,~~333-74589 ~~P.O. Box 1602 Indianapolis, Indiana (Address of principal executive offices) 46206 (Zip Code)~~

~~(317)~~NATIONAL ~~636-6092 (Registrant's~~WINE ~~telephone~~& ~~number~~SPIRITS, ~~including~~INC. ~~area code)~~

~~Securities~~(Exact ~~registered~~name ~~pursuant~~of toregistrant ~~Section~~as ~~12(b)~~specified ~~of the~~in ~~Act: None~~ its charter)

Securities registered pursuant to Section 12(g) of the Act: None

Indiana

35-2064429

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

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 [ ]

700 West Morris Street,

P.O. Box 1602

Indianapolis, Indiana

46206

(Address of principal executive offices)

(Zip Code)

~~Indicate by check mark whether the registrant is an accelerated filer~~ (~~as defined~~317) ~~in Rule 12b~~636-~~2 of the Act). Yes~~ 6092 ~~[ ] No [X]~~

~~Indicate~~(Registrant’s bytelephone ~~check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein~~number, ~~and~~including ~~will~~area ~~not~~code) be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any Amendment to this Form 10-K. [X]

~~The~~Securities ~~registrant~~registered ispursuant ~~a privately held corporation. As such, there is no practicable method~~ to ~~determine~~Section ~~the~~12(b) ~~aggregate market value~~ of the ~~voting~~Act: ~~stock held~~None ~~by non-affiliates of the registrant.~~

~~The~~Securities ~~number~~registered ofpursuant ~~shares~~to ofSection ~~Common~~12(g) ~~Stock, $.01 par value,~~ of ~~National~~the ~~Wine & Spirits, Inc. outstanding as of June 20, 2003 was 5,330,521, of which 104,520 were voting stock. Documents Incorporated by Reference~~Act: None

Indicate by check mark whether the registrant (1) has filed all reports ~~TABLE~~required OFto ~~CONTENTS~~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 ¨

		Page
Part I
Item 1.	Business	3
Item 2.	Properties	12
Item 3.	Legal Proceedings	12
Item 4.	Submission of Matters to a Vote of Security Holders	12
Part II
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters	13
Item 6.	Selected Consolidated Financial Data	13
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7a.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 8.	Financial Statements and Supplementary Data	26
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	49
Part III
Item 10.	Directors and Executive Officers of the Registrant	49
Item 11.	Executive Compensation	51
Item 12.	Security Ownership of Certain Beneficial Owners and Management	53
Item 13.	Certain Relationships and Related Transactions	53
Item 14.	Controls and Procedures	55
Item 15.	Principal Accountant Fees and Services	55
Part IV
Item 16.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	56

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any Amendment to this Form 10-K. x

~~PART~~Indicate Iby check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨ No x

~~Disclosure~~The ~~Regarding~~registrant ~~Forward~~is a privately held corporation. As such, there is no practicable method to determine the aggregate market value of the voting stock held by non-~~Looking~~affiliates ~~Statements~~of the registrant.

~~This~~The ~~Form~~number ~~10-K, including, but not limited to the “Management’s Discussion and Analysis~~ of ~~Financial~~shares ~~Condition and Results~~ of Common ~~Operations” section~~Stock, ~~contains~~ ~~“forward-looking~~$.01 ~~statements”~~par ~~within~~value, ~~the meaning~~ of ~~the Private~~National ~~Securities~~Wine ~~Litigation~~& ~~Reform Act of 1995~~Spirits, ~~which~~Inc. ~~can~~outstanding beas ~~identified by the use~~ of ~~forward-looking~~June ~~terminology~~8, ~~such~~2005 aswas ~~“may~~5,~~” “intend~~330,~~” “will~~521,” ~~“expect,”~~of ~~“anticipate,” “should,”~~which ~~“plans to~~104,”520 ~~“estimate”~~were ~~or “continue”~~voting ~~or the negative thereof or other variations thereon or comparable terminology~~stock. In particular, any statement, express or implied, concerning future operating results or the ability to generate revenues, income or cash flow to service the Company’s debt are forward-looking statements. Such statements are necessarily estimates reflecting the Company’s best judgment and expectations based upon current information. Although the Company believes that the expectations will prove to have been correct, all forward-looking statements are expressly qualified by the cautionary statements set forth on Exhibit 99.1 to this Form 10-K, and the Company undertakes no obligation to update such forward-looking statements.

~~Item~~Documents ~~1. Business~~Incorporated by Reference: None

~~National~~TABLE ~~Wine~~OF &CONTENTS Spirits, Inc. (NWS) is one of the largest distributors of wine and spirits in the United States. NWS’ markets include, among others, Chicago and Detroit, which are the second largest and the sixth largest metropolitan markets for spirits in the United States, respectively. NWS is the largest distributor of spirits in Indiana with 47% market share and Michigan with 48% market share. In Illinois, NWS was one of the largest distributors in fiscal 2003 with approximately 32% market share. NWS currently expects market share in Illinois for fiscal 2004 to be approximately 20% due to changes in its Illinois operations described under “Business — Recent Developments” and other circumstances. NWS was incorporated in the state of Indiana in 1998. NWS conducts its operations through its wholly owned subsidiaries, National Wine & Spirits Corporation in Indiana (NWS-Indiana), NWS-Illinois, LLC (NWS-Illinois), NWS Michigan, Inc. (NWS-Michigan), and United States Beverage, L.L.C. (USB). USB distributes and markets import and craft beer along with malt based products throughout the United States.

From 1999 to 2003, NWS’ total revenue increased steadily from $553.2 million to $712.9 million, representing a compound annual growth rate of 6.5%. NWS achieved this performance by successfully integrating several strategic acquisitions, actively developing new geographic market areas, pursuing new supplier and brand relationships, implementing advanced product handling technology and proprietary information systems, and providing high levels of supplier and customer service.


		Page
Part I		3
Item 1.	Business	3
Item 2.	Properties	12
Item 3.	Legal Proceedings	13
Item 4.	Submission of Matters to a Vote of Security Holders	14

Part II		15
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	15
Item 6.	Selected Consolidated Financial Data	15
Item 7.	Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 8.	Financial Statements and Supplementary Data	34
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	59
Item 9A.	Controls and Procedures	59
Item 9B.	Other Information	59

Part III		60
Item 10.	Directors & Executive Officers of the Registrant	60
Item 11.	Executive Compensation	64
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	65
Item 13.	Certain Relationships and Related Transactions	66
Item 14.	Principal Accountant Fees and Services	68

PART IV		69
Item 15.	Exhibits and Financial Statement Schedules	69

~~Recent~~Part ~~Developments~~I

~~The wine~~Disclosure ~~and spirits industry has undergone significant changes in recent months. Rapid~~Regarding ~~consolidation~~Forward-Looking ~~has~~Statements ~~occurred in the supplier sector, and distributors have expanded their operations to cover a larger number of states. In several states, only two major distributors continue to operate.~~

~~Diageo and~~This ~~Schieffelin~~Form &10-K, ~~Somerset~~including, ~~have~~but ~~undertaken~~not alimited ~~process~~to the “Management’s Discussion and Analysis of ~~state-by-state~~Financial ~~consolidation~~ Condition and ~~realignment~~Results of ~~their~~Operations” ~~brands~~section, ~~including~~contains “forward-looking statements” within the meaning ~~brands~~of the Private Securities Litigation Reform Act of 1995, which ~~Diageo~~can ~~acquired~~be ~~from~~identified ~~Seagram in~~by ~~2001.~~the Asuse aof ~~result~~forward-looking terminology, ~~several~~such ~~changes~~as ~~have~~“may,” ~~occurred~~“ inintend,” ~~the~~“ ~~Company’s~~will,” ~~distribution~~“ expect,” “ anticipate,” “ ~~relationship~~should,” ~~with~~“plans ~~Diageo~~to,” in“ estimate” or “continue” or the ~~states~~negative ofthereof ~~Indiana,~~or ~~Illinois~~other ~~and~~variations ~~Michigan~~thereon or comparable terminology. ~~The~~In ~~Company~~particular, ~~has~~any statement, express or implied, concerning future operating results or ~~been~~the ~~selected~~ability asto ~~Diageo~~generate revenues, income or cash flow to service the Company’s ~~exclusive~~debt ~~distributor~~are inforward-looking ~~Indiana~~statements. ~~and~~Such ~~the~~statements ~~exclusive distributor~~are ~~and~~necessarily ~~authorized~~estimates ~~distribution~~reflecting ~~agent~~the ~~for~~Company’s ~~Diageo~~best judgment and ~~Schieffelin~~expectations &based ~~Somerset~~upon incurrent ~~Michigan~~information. ~~The~~Although the Company believes that the expectations will noprove ~~longer~~to ~~act~~have asbeen ~~Diageo’s~~correct, ~~distributor~~all inforward-looking statements are expressly qualified by the ~~state~~cautionary ofstatements set forth on Exhibit 99.1 to this Form 10-K, and the Company ~~Illinois~~undertakes no obligation to update such forward-looking statements.

-Item 31. -Business

~~Many~~General other suppliers have undertaken a process of reviewing state distribution rights in light of determinations made by Diageo. As a result, the Company will no longer have distribution rights in Illinois for Future Brands and Canandaigua Wine Company. The Company anticipates that suppliers and distributors will continue to consolidate and realign their brands in the foreseeable future and expects to have the opportunity of acquiring the representation of competing brands as a result of those consolidations and realignments. There can be no assurance, however, that the Company will acquire such representation or that any failure to acquire such representation would not have a material adverse effect on the Company or its operations.

~~On February~~National 27Wine & Spirits, ~~2003~~Inc. ~~and~~(NWS ~~March~~or the ~~25,~~Company) ~~2003,~~is ~~NWS~~one ~~entered~~of ~~into~~the ~~two~~largest ~~agreements~~distributors ~~with~~of ~~Glazer’s Wholesale~~wine ~~Drug~~and ~~Company~~spirits ~~(“Glazer”)~~in ~~under~~the ~~which~~United States. NWS’ markets include, among others, Illinois and ~~Glazer~~Michigan, ~~will~~which ~~form~~are ~~a strategic~~the ~~alliance~~fifth ~~for~~largest and the ~~purpose~~sixth oflargest ~~distributing~~markets ~~alcohol-based~~for ~~beverages~~spirits in the ~~state~~United ofStates, ~~Illinois~~respectively. ~~Under~~NWS is the ~~management~~largest ~~services~~distributor ~~agreement,~~of ~~Glazer~~spirits ~~will~~in ~~provide~~Indiana ~~management~~with ~~and consulting~~59% ~~services~~market share and ~~assistance~~Michigan with 51% market share. NWS market share in Illinois. Ais ~~separate~~estimated ~~contribution~~at ~~agreement~~approximately ~~sets forth~~10% before the ~~terms~~additional ~~upon~~representation ~~which~~of the ~~parties~~Brown ~~may~~Forman brands ~~agree~~that commenced during March 2005. NWS was incorporated in the ~~future~~state toof ~~conduct~~Indiana in 1998 and conducts its operations through its wholly owned subsidiaries, National Wine & Spirits Corporation in Indiana (NWS-Indiana), NWS-Illinois, LLC (NWS-Illinois), ~~through~~NWS aMichigan, ~~new~~Inc. ~~entity~~(NWS-Michigan), toNational beWine ~~equally~~& ~~owned~~Spirits, byLLC ~~NWS~~(NWSM-~~Illinois~~LLC) and ~~Glazer~~United States Beverage, L.L.C. (USB). USB distributes and markets malt based products along with import and craft beer products throughout the United States.

~~As consolidations~~The wine and ~~realignment~~spirits ~~continue~~wholesale industry ~~within~~has ~~the~~undergone ~~Illinois~~significant ~~market,~~changes ~~NWS~~in ~~continues~~recent ~~to analyze~~years. ~~its~~Rapid ~~operations~~consolidation inhas ~~Illinois~~occurred ~~and~~in ~~has~~the ~~taken~~supplier ~~steps~~sector, toand ~~appropriately~~distributors ~~size~~have ~~its~~expanded ~~workforce in~~their ~~relation~~operations to ~~its~~cover ~~customer~~a ~~needs.~~larger ~~Approximately~~number ~~300~~of ~~employees~~states, resulting in ~~the~~consolidation ~~Illinois~~among ~~operations~~distributors. ~~are~~In noseveral ~~longer~~states, ~~actively~~only ~~employed~~two bymajor ~~NWS.~~distributors Ascontinue itto ~~adjusts~~operate. ~~the~~The ~~size~~United ~~and~~States ~~scope~~wholesale ofwine ~~its~~and ~~Illinois operations,~~spirits ~~NWS~~market ~~will~~was ~~continue~~approximately to$33 ~~concentrate~~billion onduring ~~maintaining~~2004 ~~customer~~ and ~~supplier relationships~~is ~~and~~projected ~~infrastructure~~to ~~necessary~~be toapproximately ~~operate~~$34 ~~its~~billion ~~Illinois~~for ~~business~~2005 ~~with~~according ~~lower~~to industry ~~costs~~projections. ~~and~~The ~~increased~~Company’s ~~efficiencies~~revenue, ~~until~~including ~~such~~the ~~time~~wholesale asdollar ~~new~~sales ~~business~~for ~~supports~~its ~~expanded~~ fee operations., places NWS ~~has~~as ~~discontinued~~the ~~warehousing~~tenth ~~operations~~largest wholesaler in ~~its~~the ~~Champaign~~United ~~and Peoria facilities~~States, ~~but~~according itto ~~continues~~industry tosurveys. ~~use~~The ~~those~~top ~~locations~~twenty aswholesalers ~~cross-docking~~in ~~facilities~~the ~~and~~United ~~office~~States ~~space.~~accounted ~~Continuing~~for ~~efforts~~approximately 68% of the market during 2004 and are ~~also~~estimated ~~being~~to ~~made~~account for 72% of the market during 2005 according to ~~replace~~industry ~~lost~~surveys, ~~revenue~~as compared to approximately 49% in ~~Illinois~~1995.

~~Industry~~- ~~Overview~~3 -

~~Since the~~Substantially ~~repeal~~all of ~~Prohibition~~NWS’ inrevenue ~~1933,~~results ~~the~~from ~~federal~~product sales of liquor, beer and wine, ~~state~~or ~~governments~~from ~~have~~distribution ~~regulated~~and ~~the sale~~brokerage offees. ~~spirits~~During fiscal 2005, ~~wine~~NWS’ total revenue was $553.7 million, ~~and~~which ~~beer~~was a $13.0 ~~State~~million ~~regulatory~~increase ~~frameworks~~from ~~fall~~the ~~into~~prior ~~two~~fiscal ~~types:~~year, ~~control~~primarily due to the growth in the Company’s product sales segment. Spirits and ~~open.~~wine Incase ~~nearly~~volume ~~all~~for ~~circumstances,~~the ~~suppliers~~Company’s ~~may~~products ~~not~~sales ~~legally~~segment ~~sell~~and ~~directly~~product ~~to retailers.~~sales Inrevenue during the 18most ~~control~~recent ~~states~~fiscal year grew by 3.0% and 2.1%, ~~the~~respectively. ~~state~~The ~~controls~~Company’s ~~either~~growth ~~the~~was ~~distribution~~consistent orwith the beverage alcohol industry ~~retail~~during ~~sale~~calendar 2004, orwhen ~~both.~~according Into ~~open~~industry ~~states~~reports, ~~including~~consumption ~~Indiana,~~for ~~Illinois,~~distilled ~~and~~spirits ~~Kentucky,~~increased ~~the distributors~~4.1% and ~~retailers~~wine ~~are~~consumption ~~privately~~increased ~~owned businesses~~3.4% Inin the ~~open-franchise~~United ~~states~~States. Consumers spent $9.2 billion more on spirits, ~~there~~ ~~are~~wine, ~~laws~~and beer products than the previous year and ~~regulations~~the ~~that~~growth ~~restrict~~in spirits consumption was the ~~suppliers’~~largest ~~ability~~annual increase in more than twenty years according to ~~change distributors~~industry reports.

~~Given the~~Recent ~~three~~Developments tier regulatory structure, the wine and spirits distribution industry varies greatly from other industries such as food, drugs, non-alcohol-based beverages and paper products. As suppliers can compete directly with the distributors in these other industries by shipping directly to retailers, distributor margins can be much lower than those in the wine and spirits industry. In addition, the liquor industry as a whole has shown a remarkable resilience to economic downturns relative to other industries.

In On June ~~of 2000~~1, ~~Seagram announced its intention to merge with Vivendi and divest of their wine and spirits business. Subsequently~~2005, ~~Diageo~~it ~~and~~was ~~Pernod~~announced ~~Ricard~~that ~~jointly bid and agreed to purchase~~ the ~~brands~~Company ~~with~~had ~~the~~reached ~~intention~~an ofagreement ~~assigning~~in ~~them~~principle to ~~their~~acquire ~~respective~~certain ~~companies. The~~assets ~~most~~of ~~notable Seagram brands that Diageo purchased were Crown Royal, Seagrams V.O., 7~~Johnson ~~Crown,~~Brothers’ ~~Captain~~wine ~~Morgan~~wholesaler ~~and~~business ~~Myers’s~~in ~~Rum~~Illinois. The ~~notable~~final ~~brands~~terms ~~Pernod purchased include Chivas Regal, The Glenlivet, Martell Cognacs~~ and ~~Seagrams~~conditions ~~Gin.~~are ~~The~~being ~~purchase~~finalized ~~agreement was approved~~ by the ~~Federal Trade Commission in December, 2001~~parties. ~~Absolut~~As ~~Vodka, which had~~ a ~~marketing~~ ~~arrangement~~result ~~with~~of ~~Seagram, has assigned~~ the ~~U.S.~~proposed ~~marketing rights to Future Brands L.L.C.~~acquisition, awhich ~~joint~~is ~~venture~~anticipated ~~with~~to Vclose &by SAugust ~~(parent~~1, of2005, ~~Absolut) and Jim Beam Brands. Diageo is in~~ the ~~process~~Company ofexpects ~~completing its nationwide efforts~~ to ~~consolidate~~add the ~~rights to~~E&J ~~distribute~~Gallo ~~the~~Winery brands ~~it purchased from Seagram. Pernod has consolidated the Seagram brands it purchased into its existing distribution network. Other suppliers are developing strategies~~ to ~~deal with~~ the ~~brand~~Company’s ~~sales~~operations toin ~~Diageo~~Illinois ~~and~~under ~~Pernod Ricard. See “Business – Recent Developments” for a description of some of~~ the ~~consequences~~Union ofBeverage ~~these events~~company ~~for NWS~~name.

The Supreme Court of the United States, in an opinion dated May 16, 2005, invalidated decisions in Michigan and New York which had the -effect 4of discriminating between in and out of state wineries and limiting interstate commerce. The majority opinion affirmed the broad power of the states to regulate beverage alcohol trade consistent with the Twenty First Amendment including the legitimacy of the three-tier system.

~~Suppliers~~Industry ~~and Products~~ Overview

The United States alcohol-based beverage ~~NWS~~industry ~~represents~~generated ~~many~~total retail sales of ~~the~~ ~~largest~~approximately ~~suppliers~~$154.6 billion during calendar 2004 versus $145.4 billion in calendar 2003, an increase of 6.3%. Sales of wine and spirits, in ~~the~~which ~~United~~NWS ~~States~~primarily competes, ~~and~~accounted ~~offers~~for approximately 15% and ~~hundreds~~32%, respectively, or $72.4 billion of total retail beverage alcohol sales in 2004. The growth in the retail sales were primarily attributable to the premium and high end brands which included Canadian whisky, flavored and ~~more~~imported ~~than~~vodkas, 12rums,~~000~~ ~~individual~~and tequilas ~~products~~which rebounded after a decline during 2001 due to product shortages. The ~~breakdown~~wine ~~of sales~~consumption ~~among~~increase was primarily attributable to imported wine, ~~spirits~~including ~~and~~the ~~other~~Australian ~~products~~Yellow ~~distributed~~Tail brand which is represented by ~~NWS~~the Company in ~~2003~~its Illinois business. The increase in the import category during 2004 was responsible for approximately half the increase in wine consumption while accounting for one quarter of the wine case sales in the United States, ~~2002~~according to industry surveys. The ~~and~~Company ~~2001~~believes isthe ascurrent ~~follows:~~trend of consumer preference for premium brands will continue.

	Wine (in thousands)									Spirits (in thousands)									Other (in thousands)
	2003				2002			2001		2003				2002			2001		2003				2002			2001
Product sales	$	165,388		$	161,445		$	160,840		$	392,580		$	408,199		$	397,754		$	131,891		$	89,950		$	78,285
Distribution fees		---			---			---			22,999			21,963			21,573			---			---			---
Percentage of total Company revenue		23.2	%		23.7	%		24.4	%		58.3	%		63.1	%		63.7	%		18.5	%		13.2	%		11.9	%

Since the repeal of Prohibition in 1933, the federal and state governments have regulated the sale of spirits, wine, and beer. State regulatory frameworks fall into two types: control and

In each of the last three fiscal years, sales of wine and spirits accounted for more than eighty percent of consolidated revenue. USB was primarily the reason for the growth in the other category, which includes revenues derived from beer, non-~~alcoholic~~ ~~and tobacco~~4 ~~products. The financial statements contained in Item 8 of this Form 10~~-~~K set~~ ~~forth the Company revenues from external customers, profit and total assets for each of the last three fiscal years.~~

~~NWS’~~open. ~~products~~In ~~include~~nearly all circumstances, suppliers may not legally sell directly to retailers. In the 18 control states, the ~~following~~state ~~brands~~controls either the distribution or the retail sale, ~~among~~or ~~many~~both. ~~others:~~In open states, including Indiana, Illinois, and Kentucky, the distributors and retailers are privately owned businesses. In the open-franchise states, there are laws and regulations that restrict the suppliers’ ability to change distributors.

Under the three-tier 5regulatory framework established by federal and state law, suppliers of alcohol-based beverages are generally prohibited from selling their products directly to retail outlets or consumers, effectively requiring suppliers to use distributors such as NWS. This regulatory framework effectively insulates distributors from vertical competition from suppliers or retail customers. Certain large chain retailers have challenged the three tier structure in particular states, in an attempt to gain favorable pricing directly from wineries and breweries. A successful challenge to the three tier system has not occurred, but is a potential long term threat to the current framework. In some states, referred to as “control states,” state law has historically mandated the state to act as the exclusive wholesale distributor and/or retailer of alcohol-based beverages. In 1996, Michigan became the first control state to privatize aspects of the wholesale distribution of spirits, and NWS has become the leading Authorized Distribution Agent (ADA) of spirits in that state.

Product Type	Brand Names
Vodka:	Absolut	Popov
	VOX	Smirnoff
	Grey Goose	Stolichnaya
	Gordons	Belvedere
Bourbon and Blended Whiskey:	Crown Royal	Seven Crown
	Jim Beam	Wild Turkey
	Seagram's V.O.	Windsor Canadian
	Old Grand Dad	Knob Creek
Scotch and Single Malt Whiskey:	Chivas Regal	Glenlivet
	Grant's	Isle of Jura
	Balvenie	J&B Rare
	Bowmore	Dalmore
	Glenfiddich	Macallan
		Johnny Walker
Gin:	Boodles	Gilbey's
	Seagram's	Gordons
	Tanqueray
Rum:	Captain Morgan	Myers
	Malibu	Ronrico
Tequila:	Herradura	Patron
	Jose Cuervo
Cognacs/Brandy:	Courvoisier	Martell
	Hine	Paul Masson
	Remy Martin
	Hennessey
Specialty Spirits:	Chambord	DeKuyper Cordials
	Bailey's Irish Cream	Jagermeister
	Campari	TGI Friday's
	Hiram Walker Cordials	Kahlua
		Grand Marnier
Wine:	Kendall Jackson	Inglenook
	Almaden	Perrier Jouet
	Banfi	Sebastiani
	Beringer	Stags Leap
	Caymus	Sterling
	Chateau Lafite	Veuve Clicquot
	Rothschild	Rosemount
	Gundlach Bundschu	Ravenswood
	Penfolds	Columbia Crest
	Hess Collection	Chateau St. Michelle
	Moet & Chandon	Niebaum-Coppola
	Dom Perignon
Specialty Beer and Other:	Goose Island	Sierra Nevada
	Grolsch	Hooper's Hooch
	K Cider	Seagram's Coolers
		Seagram's Smooth
Non-Alcohol:	Perrier	Stewart's
	Daily's	Nantucket Nectars
		San Pellegrino

Given the three tier regulatory structure, the wine and spirits distribution industry varies greatly from other industries such as food, drugs, non-alcohol-based beverages and paper products. As suppliers can compete directly with the distributors in these other industries by shipping directly to retailers, distributor margins can be much lower than those in the wine and spirits industry. In addition, the liquor industry as a whole has shown a remarkable resilience to economic downturns relative to other industries.

-Suppliers 6and -Products

NWS ~~has~~represents ~~entered~~many ~~into written distribution agreements with several~~ of ~~its~~the ~~principal~~largest suppliers ~~that~~of ~~generally may~~wine beand ~~extended~~spirits ~~on an annual basis but are terminable upon 30 days or 60 days written notice to NWS. NWS has entered into various long-term agreements with certain suppliers that are disclosed~~ in the ~~financial statements. In~~United ~~addition~~States, ~~NWS~~and ~~has informal~~offers ~~arrangements~~hundreds ~~with many~~ of ~~its~~brands ~~suppliers~~and ~~whereby~~more ~~NWS~~than ~~distributes the~~12,000 ~~suppliers’~~individual products. ~~pursuant~~The tobreakdown ~~purchase~~of ~~orders~~sales ~~without~~among ~~written distribution~~wine, ~~agreements.~~spirits ~~Although~~and ~~the~~other ~~written~~products ~~agreements~~distributed ~~provide~~by NWS ~~with the non-exclusive right to distribute the suppliers’ products~~ in ~~a particular state~~2005, in2004 ~~practice the suppliers have generally selected a distributor to be the exclusive distributor of specified products in each state. In each of Indiana~~ and ~~Michigan,~~2003 ~~NWS~~ is ~~presently acting~~ as ~~the~~follows: ~~exclusive distributor with respect to virtually all of the products it distributes.~~

NWS has entered into binding agreements to purchase products with certain of its suppliers in Indiana and Michigan. The following figures represent approximate aggregate case sales and net sales from suppliers with which the Company entered into such agreements in fiscal 2003 and brands for which the Company owns the distribution rights in Illinois:


	Wine (in thousands)									Spirits (in thousands)									Other (in thousands) (1)
	2005			2004			2003			2005			2004			2003			2005			2004			2003
Product sales	$	137,355		$	140,874		$	165,388		$	267,540		$	241,175		$	392,580		$	119,504		$	131,566		$	131,891
Distribution fees		—			—			—			29,268			27,045			22,999			—			—			—
Percentage of total Company revenue		24.9	%		26.1	%		23.2	%		53.8	%		49.6	%		58.3	%		21.4	%		24.3	%		18.5	%

Case sales:	11,416,000
Net sales:	$284,000,000

(1)	Other includes beer, tobacco, malt based, and non-alcoholic products

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

In ~~addition~~ ~~to its core alcohol-based beverage distribution operations~~Michigan, ~~NWS has conducted related beverage operations through a division, Cameron Springs Water Company, and through NWS~~ADA’s ~~U.S.~~have ~~Beverage~~exclusive ~~operations.~~relationships ~~Cameron Springs, a bottled water supplier in Indiana,~~with ~~was~~suppliers ~~sold~~by ~~to Perrier Group for approximately $10.4 million in cash~~law, ~~which~~and ~~was~~receive indistribution ~~excess~~fees ~~of net~~from ~~book~~suppliers ~~value~~ as ofset ~~June~~by ~~2000.~~the ~~U.S. Beverage commenced operations as a division of NWS in March 1997 to market and sell imported~~state, ~~specialty~~rather ~~and~~than ~~microbrewed~~purchasing ~~beers~~from ~~and~~the ~~specialty~~suppliers ~~malt products~~for ~~nationally.~~resale ~~The brand distribution contracts related~~ to ~~the U~~customers.S. ~~Beverage operations~~This ~~are~~arrangement ~~held by an entity, in which NWS-Illinois~~ has ~~100%~~the ~~voting~~effect ~~control.~~of ~~In select~~understating ~~markets,~~the ~~NWS~~importance ~~sells and distributes premium cigars primarily as a complement to NWS’ distribution~~ of ~~fine wines and~~ spirits. in

~~In April~~- ~~2000,~~5 ~~U.S.~~- Beverage entered into an agreement with the Goose Island Brewing Company by which U.S. Beverage became the exclusive sales and marketing firm for the Goose Island brand throughout the United States. On January 2, 2002 U.S. Beverage entered into a distribution contract with Grolsch International, BV as the exclusive importer, seller and marketer of Grolsch products within the United States. Commencing April 1, 2002, U.S. Beverage became the exclusive marketer and distributor of Seagram’s Coolers.

NWS’ overall product mix. For purposes of illustrating the scale of NWS’ operations in ~~Customers~~Michigan, the total wholesale prices of products delivered by NWS for Michigan in 2005, 2004 and 2003 was approximately $404.0 million, $389.0 million and $334.0 million, respectively, based on the average fixed wholesale prices of the spirits delivered by NWS.

Most states, including Indiana, Illinois and Michigan, require wine and spirits retailers to purchase alcohol-based beverages from licensed distributors. Suppliers in these states may not legally sell directly to retail customers. NWS’ ~~customers~~products ~~fall into two broad~~include ~~categories~~many ~~depending~~of ~~on where~~ the ~~alcohol-based~~leading ~~beverage~~brands ~~ultimately~~of ~~will~~spirits ~~be consumed: on-premise~~ and ~~off-premise~~wine. ~~Off-premise~~The ~~customers~~Company ~~include~~represents ~~package~~nine ~~liquor~~of ~~stores,~~the ~~grocery stores,~~top ~~drug~~ten ~~stores~~brands and ~~mass~~distributes ~~merchandisers.~~products ~~On-premise~~from ~~customers~~eight ~~include~~of ~~hotels, restaurants~~the ~~and~~top ~~bars,~~ten ~~and similar establishments~~suppliers. ~~NWS~~The ~~currently~~following ~~serves~~table ~~over~~lists ~~36,000~~the ~~retail locations~~top inten ~~Indiana,~~brands ~~Illinois and Michigan. No single customer represented more than 5.4%~~ of ~~NWS’~~spirits ~~2003~~during ~~total~~2004 ~~revenue.~~and ~~As is customary in~~ the ~~industry,~~ NWS’ ~~products are~~business ~~generally~~or ~~purchased~~affiliate ~~under~~that ~~standard~~distributes ~~purchase~~or ~~orders~~markets ~~and~~that ~~not~~particular ~~under long-term supply contracts~~brand. ~~As a result, backlog is not meaningful in the wholesale distribution industry.~~

~~The following~~Brand ~~table~~& ~~summarizes~~Category Supplier NWS’ ~~customer~~representation ~~base~~Bacardi ~~for~~Rum ~~NWS-Illinois~~Bacardi USA None Smirnoff Vodka Diageo IN, ~~NWS-Indiana~~MI Captain Morgan Rum Diageo IN, ~~and~~MI ~~NWS~~Absolut Vodka Absolut Spirits/Future Brands IN, MI, KY Jack Daniel’s Straight Whiskey Brown-~~Michigan:~~Forman Beverages IL, KY Crown Royal Canadian Whiskey Diageo IN, MI Jose Cuervo Tequila Diageo IN, MI Jim Beam Straight Whiskey Jim Beam Brands IN, MI, KY DeKuyper Cordials Jim Beam Brands IN, MI, KY Seagram’s Gin Pernod Ricard USA IN

~~Type~~NWS represents many of ~~Customer~~the ~~Percentage~~leading ~~ofCompany~~domestic ~~2003~~and ~~Revenue~~imported ~~Representative~~wine ~~Customers~~brands including the following, among many others.

~~Off~~Brand Supplier NWS representation Almaden Canandaiqua Wine IN Beringer Beringer Blass Wine Estates IN Yellow Tail W.J. Deutsch & Sons IL Arbor Mist Canandaigua Wine IN Inglenook Canandaigua Wine IN Vendange Canandaigua Wine IN Kendall-~~Premise~~Jackson Kendall-Jackson Wine Estates IN, KY Concha y Toro Banfi Vintners IN, IL Cavit Palm Bay Imports IL, IN Riunite Banfi Vintners IL, IN Lindemans Southcorp Wines USA IN, KY

~~Package~~NWS has ~~Stores~~entered ~~Grocery~~into ~~stores,~~written ~~drug~~distribution ~~stores~~agreements ~~and~~with ~~mass~~several ~~merchandisers~~of ~~38.2%~~its 26principal suppliers that generally may be extended on an annual basis but are terminable upon 30 days or 60 days written notice to NWS.2 ~~Gold~~NWS ~~Standard~~has ~~and~~entered ~~Cap'n~~into ~~Cork~~various ~~Kroger,~~long-term agreements ~~Dominicks,~~with ~~Marsh,~~certain ~~American~~suppliers ~~Stores~~as ~~(Osco),~~disclosed ~~Walgreens,~~in ~~CVS,~~the ~~Sam's~~consolidated ~~Club~~financial statements. In addition, ~~Meijer~~NWS 7has informal arrangements with many of its suppliers whereby NWS distributes the suppliers’ products pursuant to purchase orders without written distribution agreements. Although the terminable written agreements provide NWS with the non-~~Eleven~~exclusive right to distribute the suppliers’ products in a particular state, ~~White~~in ~~Hen~~practice the suppliers have generally selected a distributor to be the exclusive distributor of specified products in each state. In each of Indiana and Michigan, ~~Village~~NWS is presently acting as the exclusive distributor with respect to virtually all of the products it distributes.

~~Other~~- ~~Percent of total 8.~~6 ~~73.0%~~-

~~Restaurants~~NWS ~~and~~has ~~Bars~~entered ~~21.4~~into ~~Charlie~~distribution ~~Trotter's,~~agreements ~~Hard~~with ~~RockCafe,~~certain ~~House~~ of ~~Blues~~its suppliers in Indiana, Illinois, ~~Mortons~~Michigan, ~~Lettuce~~and ~~Entertain~~USB. U,The ~~Levy,~~following ~~Ruth's~~figures ~~Chris~~represent approximate aggregate case sales and net sales for fiscal 2005 from suppliers with which the Company entered into such agreements, and brands for which the Company owns the distribution rights:

Hotels, Entertainment 2.5 Four Seasons, Hyatt, Hilton, the United Center


Case sales:		11,461,000
Net sales:	$	332,534,000

~~Other~~Related ~~3.1 Crooked Stick Golf Course, American Legion~~Operations

~~Percent~~During of1998 ~~total~~NWS 27formed a distributorship in Kentucky (Commonwealth Wine & Spirits, LLC) in partnership with two existing Kentucky-based distributors, The Vertner Smith Company (“Vertner”) and Kentucky Wine & Spirits (“Kentucky W&S”).0 NWS has a 25% interest in the partnership and is reflected in the Company’s recorded equity in income of Commonwealth Wine & Spirits, LLC in the accompanying consolidated statement of operations.

~~Management believes~~In ~~that~~addition ~~the~~to ~~number~~its ~~and~~core ~~diversity~~alcohol-based ofbeverage ~~NWS’~~distribution ~~customers~~operations, ~~and~~NWS ~~the~~has ~~nature~~conducted ofrelated ~~NWS’~~beverage ~~business~~operations ~~strengthens~~through a division, Cameron Springs Water Company, and through NWS’ ~~liquidity~~USB operations. ~~Indiana~~Cameron ~~has~~Springs, a ~~15-day~~bottled ~~credit~~water ~~law~~supplier ~~beyond~~in ~~which retail~~Indiana, ~~customers~~was ~~are~~sold ~~restricted~~to ~~from~~Perrier ~~buying~~Group ~~alcohol-based~~during ~~beverages~~June ~~from~~2000 ~~any~~for ~~distributor~~approximately $10.4 million in cash, which was in ~~the~~excess ~~market.~~of ~~Illinois~~net ~~has~~book avalue. ~~similar~~USB ~~30-day~~commenced ~~credit~~operations ~~law.~~as ~~Typically,~~a ~~NWS’~~division ~~bad~~of ~~debt expenses~~NWS ~~are~~in ~~incurred~~March ~~less~~1997 ~~than~~to 30market ~~days~~and ~~after~~sell ~~shipment~~malt ~~since~~based ~~the~~products, ~~credit~~imported, ~~laws~~specialty ~~prohibit extension~~and ofmicrobrewed ~~terms~~beers nationally. ~~Average~~In ~~bad~~select ~~debt~~markets, ~~expense~~NWS ~~for~~sells ~~the~~and ~~past~~distributes ~~five~~premium ~~years~~cigars primarily ~~has~~as ~~been~~a ~~less~~complement ~~than 0.10%~~to NWS’ distribution of ~~revenue~~fine wines and spirits.

~~Marketing~~Customers ~~and Sales~~

~~Brand Management. NWS~~Most ~~was~~states, ~~one~~including ofIndiana, ~~the~~Illinois ~~first~~and ~~distributors~~Michigan, ~~to recognize~~require ~~the~~wine ~~benefits~~and ofspirits aretailers ~~dedicated approach~~ to ~~brand~~purchase ~~management~~alcohol-based ~~and separating~~beverages it from ~~sales~~licensed ~~execution~~distributors. ~~Our~~Suppliers ~~approach~~in ~~has~~these ~~contributed~~states may not legally sell directly to ~~our~~retail ~~success~~customers. NWS’ ~~Suppliers~~customers ~~appreciate~~fall ~~and~~into ~~depend~~two ~~upon~~broad categories depending on where the ~~local~~alcohol-based ~~expertise~~beverage ~~and~~ultimately ~~understanding~~will ~~of the~~be ~~intricacies~~consumed: ofon-premise ~~the~~and ~~market~~off-premise. ~~Our~~Off-premise ~~brand~~customers ~~managers~~include package liquor stores, ~~through~~grocery ~~interaction~~stores, ~~with~~drug ~~our~~stores and mass merchandisers. ~~sales~~On-premise ~~teams~~customers include hotels, restaurants and ~~analysis~~bars, ofand ~~the~~similar ~~competitive~~establishments. ~~landscape~~NWS currently serves over 32,000 ~~adjust~~retail ~~suppliers~~locations in Indiana, Illinois and Michigan. No single customer represented more than 3.0% of NWS’ 2005 total ~~national~~revenue. ~~brand~~As ~~strategies~~is tocustomary ~~plans~~in ~~that~~the ~~work~~industry, NWS’ products are generally purchased under standard purchase orders and not under long-term supply contracts. As a result, backlog is not meaningful in ~~our~~the ~~respective~~wholesale ~~states~~distribution industry.

Industry-wide the percentage of case sales of wine and spirits for off-premise 8and on-premise in the United States for 2004 were approximately 77.3% and 22.7%, respectively. While the vast majority of case sales are from the off-premise outlets, approximately 54.1% of industry-wide retail wine and spirits dollar sales in the United States during 2004 were from on-premise outlets. The following table summarizes NWS’ customer base for NWS-Illinois, NWS-Indiana, and NWS-Michigan:

Sales Teams. NWS sales organizational design is predicated upon category knowledge and expertise, trade channel knowledge and effectiveness, and geographic coverage. Through its marketing and sales force, NWS acts as the field marketing and merchandising arm of its suppliers by maintaining regular contact with NWS’ off-~~premise~~ ~~and~~7 on-~~premise~~ customers. NWS provides its customers with a wide variety of services in addition to order taking, merchandising, and delivery. These services include item selection and SKU optimization using space and financial tools, fact-based business presentations to capitalize on fair share, consumer pull-through marketing programs and communicating business-building solutions.

NWS’ sales force and management is equipped with laptop computers, which expedites order entry and provides instant feedback to customers regarding order activity. NWS provides its customers and suppliers with the ability to directly enter and track orders via electronic data interchange. In addition, NWS’ proprietary information systems provide its sales and marketing personnel, customers and suppliers with access to a database of information regarding the purchase and sale of alcohol-based beverages in specific geographic markets. NWS’ suppliers have immediate access to information regarding product and demographic trends within specific geographic markets and NWS’ customers have access to information regarding popular products or other trends from similarly situated retail locations. Management believes that its management information systems enhance its operating performance and improve its relationships with customers and suppliers.


Type of Customer	Percentage of Tier 2 2005 Revenue by Trade Channel	Representative Customers
Off-Premise
Package Stores	39.4%	Gold Standard and Cap’n Cork Marsh, Dominicks, Kroger, American Stores (Osco), CVS, Sam’s Club, Meijer, Costco
Grocery stores, drug stores and mass merchandisers	27.3
Other	6.6

Percent of total	73.3%

On-Premise Restaurants and Bars	21.3	Charlie Trotter’s, House of Blues, Applebee’s, Lettuce Entertain U, TGI Fridays, Ruth’s Chris
Hotels, Entertainment	1.0	Four Seasons, Hyatt, Hilton, Marriott, United Center

Other	4.4	Crooked Stick Golf Course, American Legion

Percent of total	26.7%

~~Warehousing~~Management believes that the large number and ~~Distribution~~diversity of NWS’ customers and the regulatory nature of NWS’ business strengthens NWS’ liquidity. Indiana has a 15-day credit law beyond which retail customers are restricted from buying alcohol-based beverages from any distributor in the market. Illinois has a similar 30-day credit law. Typically, NWS’ bad debt expenses are incurred less than 30 days after shipment since the credit laws prohibit extension of terms. Average bad debt expense for the past five years has been less than 0.10% of revenue.

~~NWS utilizes~~Marketing ~~a series of three master warehouses, two hyper-terminals~~ and ~~seven~~Sales cross-docking facilities strategically located throughout Indiana, Illinois and Michigan to store and ship its products pending sale to customers. NWS uses common carriers to transport products from suppliers to its master warehouses. Master warehouses located in Chicago, Indianapolis and Detroit serve as the primary storage facilities for NWS’ inventory. Upon receipt of the product at one of the master warehouses, the products are inspected and stored on pallets or in racks. Temperature-sensitive products, such as fine wines, are stored in temperature-controlled areas of the warehouses. Hyper-terminals located in South Bend, Indiana and Grand Rapids, Michigan stock only high volume products and provide an extension of the master warehouses. NWS strives to optimize inventory levels, taking into account minimum out-of-stock percentages, projected sales, including seasonal demands, periodic supplier shipments to meet supplier sales requirements and working capital requirements.

~~NWS’ customers~~Brand ~~ordinarily receive either next day or second-day delivery~~Management. InNWS ~~general,~~was ~~orders are~~one ~~collected~~of ~~during~~ the ~~day~~first ~~for~~distributors ~~batch~~to ~~routing~~recognize ~~and~~the ~~order~~benefits ~~“picking”~~of ata ~~night.~~dedicated ~~The Chicago~~approach ~~and~~to ~~Detroit~~brand ~~master~~management ~~warehouses each use an automated material handling system, including scanners, automated conveyors, dispensers~~ and ~~sorters.~~separating ~~Products~~it from ~~the~~sales ~~master warehouses~~execution ~~are~~which ~~then~~has ~~shuttled~~contributed ~~nightly~~ to ~~either~~the ~~a hyper-terminal or a cross-docking~~Company’s ~~facility~~success. ~~where~~Suppliers ~~the~~appreciate ~~orders are consolidated~~ and ~~loaded~~depend ~~onto~~upon ~~delivery~~the ~~trucks.~~local ~~Cross-docking facilities~~expertise ~~located in Collinsville, Illinois, Champaign, Illinois, Peoria, Illinois, Evansville, Indiana,~~ and ~~Traverse~~understanding ~~City,~~of ~~Saginaw and Escanaba, Michigan further extend~~ the ~~service~~ ~~areas~~intricacies of the ~~master warehouses~~market. ~~Orders~~The ~~for~~Company’s ~~delivery~~brand ~~out of the various cross-docking facilities are picked in the master warehouses~~managers, ~~shipped~~through ininteraction ~~during~~with ~~the night, and then transferred onto local delivery trucks for final delivery.~~ NWS’ ~~owns~~sales orteams ~~leases~~and ~~a total~~analysis ~~fleet~~ of ~~approximately~~the ~~322~~competitive ~~delivery trucks~~landscape, ~~consisting of 238 delivery trucks, 15~~adjust ~~tractors,~~suppliers’ 21national ~~trailers,~~brand 44strategies ~~vans~~to ~~and~~plans 4that ~~pick-up~~work ~~trucks.~~in Tothe ~~maximize prompt and efficient product delivery, NWS~~Company’s ~~fleet~~respective ~~is allocated among NWS’ master warehouses, hyper-terminals and cross-docking facilities located throughout Indiana, Illinois and Michigan~~states.

~~As a~~Multiple ~~result~~Sales ofDivisions. aNWS ~~number~~has ofadapted ~~factors~~to ~~including~~industry ~~state~~changes ~~laws~~ and ~~regulations,~~product ~~NWS~~portfolio ~~maintains independent~~growth ~~distribution~~through ~~networks~~the increation ~~Indiana,~~of ~~Illinois~~multiple ~~and Michigan~~sales divisions. ~~The~~Under ~~Indiana distribution~~this ~~network~~structure, ~~operates~~potentially ~~with~~competitive ~~the~~products ~~Indianapolis~~are ~~master~~placed ~~warehouse~~in ~~feeding~~separate ~~the~~sales ~~South Bend~~divisions ~~hyper-terminal~~to ~~and~~gain ~~the~~focus ~~Evansville~~and ~~cross-docking~~grow ~~facility. The Michigan distribution network operates with~~ the ~~Detroit~~business. ~~master~~Though ~~warehouse~~NWS ~~feeding~~has ~~the~~utilized ~~Grand~~this ~~Rapids~~structure ~~hyper-terminal and~~for ~~the~~more ~~cross-docking~~than ~~facilities~~15 ~~located~~years in ~~Escanaba~~Indiana, ~~Saginaw~~recent ~~and~~supplier ~~Traverse~~consolidation ~~City. The~~has ~~Illinois~~led ~~distribution~~to ~~network is separated into~~ the ~~metropolitan~~creation ~~Chicago area, and all other service areas. The Chicago area is serviced out~~ of ~~the~~separate ~~Chicago~~sales ~~master~~divisions ~~warehouse~~in Michigan, ~~while~~ ~~the~~as ~~downstate~~well ~~areas~~as ~~are~~an ~~serviced~~expanded byorganization ~~the smaller cross docking facilities~~ in ~~Champaign,~~ ~~Peoria and Collinsville~~Indiana.

Sales Teams. NWS sales organizational design is predicated upon category knowledge and expertise, trade channel knowledge and -effectiveness, 9and -geographic coverage. Through its marketing and sales force, NWS acts as the field marketing and merchandising arm of its

~~Competition~~- 8 -

~~The wine~~suppliers ~~and~~by ~~spirits~~maintaining ~~wholesale~~regular ~~distribution~~contact ~~business~~with ~~is highly competitive.~~ NWS’ ~~primary competition~~off-premise ~~in Illinois includes Judge & Dolph~~ and ~~Southern~~on-premise ~~Wine & Spirits~~customers. InNWS ~~Indiana,~~provides ~~the~~its ~~only~~customers ~~significant~~with ~~competitor is Olinger (~~a ~~partnership~~wide ofvariety ~~Glazer and Romano). None~~ of ~~the~~services ~~ten~~in ~~largest~~addition ~~United~~to ~~States~~order ~~distributors~~taking, ~~competes~~merchandising, ~~with~~and ~~NWS in Michigan~~delivery. ~~Distributors~~ ~~compete~~These ~~for~~services ~~new~~include ~~suppliers~~item orselection ~~brands~~and ~~based~~SKU onoptimization ~~reputation,~~using ~~market~~space ~~share, access to customers~~ and ~~ability~~financial totools, ~~satisfy~~fact-based ~~supplier~~business ~~demands.~~presentations ~~Competition from larger distributors~~to ~~will~~capitalize ~~likely~~on ~~increase~~fair inshare, ~~the~~consumer ~~future~~pull-through asmarketing ~~consolidation~~programs ~~among~~and ~~suppliers~~communicating ~~and~~business-building ~~distributors continues~~solutions.

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

NWS ~~currently~~’ ~~owns~~sales ~~and~~force ~~leases a number of properties,~~ and ~~historically~~management itis ~~has~~equipped ~~owned~~with ~~and/or leased~~laptop ~~others. Under applicable environmental laws~~computers, ~~NWS~~which ~~may~~expedites beorder ~~responsible~~entry ~~for remediation~~and ofprovides ~~environmental~~instant ~~conditions~~feedback ~~relating~~ to ~~the~~customers ~~presence~~regarding oforder ~~hazardous substances on such properties~~activity. ~~The~~NWS ~~liability~~provides ~~imposed~~its bycustomers ~~such laws is often joint~~ and ~~several~~suppliers ~~without~~with ~~regard for whether~~ the ~~property~~ability ~~owner~~to ordirectly ~~operator~~enter ~~knew~~and ~~of,~~track ororders ~~was~~via ~~responsible~~electronic ~~for,~~data ~~the presence of such hazardous substances~~interchange. In addition, ~~the~~NWS’ ~~presence~~proprietary ofinformation ~~such hazardous substances, or~~systems ~~the~~provide ~~failure~~its tosales ~~properly~~and ~~remediate~~marketing ~~such substances~~personnel, ~~may~~customers ~~adversely~~and ~~affect~~suppliers ~~the~~with ~~property owner’s~~access ~~ability~~ to ~~borrow~~a ~~using~~database ~~the~~of ~~real~~information ~~estate~~regarding asthe ~~collateral~~purchase and tosale ~~transfer~~of ~~its interest~~alcohol-based beverages in ~~the~~specific ~~real~~geographic ~~estate~~markets. ~~Although~~ NWS’ issuppliers ~~not~~have ~~aware~~immediate ofaccess ~~the presence of hazardous~~to ~~substances~~information ~~requiring~~regarding ~~remediation,~~product ~~there~~and ~~can~~demographic betrends nowithin ~~assurance~~specific ~~that~~geographic ~~releases~~markets ~~unknown~~and to NWS ~~have~~’ ~~not~~customers ~~occurred.~~have ~~Except~~access ~~for~~to ~~blending~~information ~~and~~regarding ~~bottling~~popular ofproducts aor ~~few~~other oftrends ~~its~~from ~~own~~similarly ~~brands,~~situated ~~NWS~~retail ~~does not~~locations. ~~manufacture~~Management ~~any of the wine or spirit products it sells and~~ believes that ~~it has~~ ~~conducted~~ its ~~business~~management ininformation ~~substantial~~systems ~~compliance~~enhance ~~with~~its ~~applicable~~operating ~~environmental~~performance ~~laws~~ and ~~regulations.~~ ~~Compliance~~improve ~~with~~its ~~environmental~~relationships ~~laws~~with ~~has~~customers ~~not~~and ~~had a material effect upon NWS’ capital expenditures, earnings or competitive position~~suppliers.

~~Employees~~Warehousing and Distribution

As NWS utilizes a series of ~~March 31~~three master warehouses, ~~2003~~three hyper-terminals and six cross-docking facilities strategically located throughout Indiana, Illinois and Michigan to store and ship its products pending sale to customers. NWS’ ~~had~~customers ~~approximately~~ordinarily ~~1,430~~receive ~~employees~~either next day or second-day delivery. AsIn ~~indicated~~general, inorders are collected during the day for batch routing and order “~~Business~~picking” —at ~~Recent~~night. ~~Developments,”~~The ~~NWS~~Chicago ~~has~~and ~~recently~~Detroit ~~lost~~master ~~business~~warehouses ~~in Illinois~~each ~~but~~use ~~added~~an ~~business~~automated inmaterial ~~Indiana~~handling system, including scanners, automated conveyors, dispensers and ~~Michigan~~sorters. ~~These~~Products ~~developments~~from ~~will~~the ~~likely continue~~master warehouses are then shuttled nightly to either ~~effect~~a hyper-terminal or a cross-docking facility where the ~~Company’s~~orders ~~workforce~~are inconsolidated and loaded onto delivery trucks. Cross-docking facilities further extend the ~~future~~service areas of the master warehouses. ~~Approximately~~Orders ~~148~~for ~~employees~~delivery out of the various cross-docking facilities are picked in ~~Michigan~~the ~~and~~master ~~302~~warehouses, ~~employees~~shipped in ~~Illinois~~during ~~are~~the ~~represented~~night, byand ~~labor~~then ~~unions~~transferred onto local delivery trucks for final delivery. InNWS ~~Illinois~~owns or leases a total fleet of approximately 307 delivery vehicles, consisting of 229 delivery trucks, 14 tractors, 24 trailers and 40 vans. As a result of a number of factors including state laws and regulations, NWS ~~has~~maintains ~~relationships~~independent ~~with~~distribution ~~three~~networks ~~unions:~~in Indiana, Illinois and Michigan.

~~(1)~~- ~~Teamsters~~9 ~~Union~~- ~~Local 744, annual agreements expiring March 30, 2004 and March 30, 2005;~~

~~(3)~~Competition ~~Teamsters, Chauffeurs & Helpers Union Local 50, expiring August 31, 2004.~~

There are significant barriers to entry into the wholesale wine and spirits distribution business. These Inbarriers ~~Michigan,~~include ~~NWS~~established ~~has~~supplier-distributor relationships, ~~with~~specialized ~~four~~distribution ~~unions:~~equipment such as material handling systems and delivery vehicles, important industry knowledge regarding pricing, inventory management, and distribution logistics. Historically, it is extremely rare for organizations not already engaged as wine and spirits distributors to enter the business. New distributors typically enter existing markets through acquisition.

The wine and spirits wholesale distribution business is highly competitive. NWS’ primary competition in Illinois includes Judge & Dolph and Southern Wine & Spirits. In Indiana, the only significant competitor is Olinger (1a partnership of Glazer and Romano). ~~Teamsters~~None ~~Union~~of ~~Local~~the ~~337,~~ten ~~expiring~~largest ~~March~~United States 4distributors competes with NWS in Michigan. Distributors compete for new suppliers or brands based on reputation, ~~2005;~~market share, access to customers and ability to satisfy supplier demands.

~~(2)~~Environmental ~~Teamsters~~Matters ~~Union Local 406, expiring March 1, 2005;~~

~~(3)~~The ~~Teamsters~~Company ~~Union~~currently ~~Local~~owns ~~299~~and leases a number of properties, ~~expiring~~and ~~March~~historically 2it has owned and/or leased others. Under applicable environmental laws, ~~2004;~~the Company may be responsible for remediation of environmental conditions relating to the presence of hazardous substances on such properties. The liability imposed by such laws is often joint and several without regard for whether the property owner or operator knew of, or was responsible for, the presence of such hazardous substances. In addition, the presence of such hazardous substances, or the failure to properly remediate such substances, may adversely affect the property owner’s ability to borrow using the real estate as collateral and to transfer its interest in the real estate. 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. The Company does not manufacture any of the wine or spirit products it sells and believes that it has conducted its business in substantial compliance with applicable environmental laws and regulations. Compliance with environmental laws has not had a material effect upon the Company’s capital expenditures, earnings or competitive position.

~~(4)~~Employees ~~Teamsters Union Local 486, expiring March 5, 2004.~~

As of March 31, 2005, NWS had approximately 1,435 employees. -Approximately 10164 -employees in Michigan and 322 employees in Illinois are represented by labor unions. In Illinois, NWS has relationships with three unions:

~~Employees of~~(1) ~~NWS~~Liquor inand ~~Indiana~~Allied ~~are~~Workers ~~not~~Union ~~represented~~Local by3, ~~any~~annual ~~labor~~agreements ~~unions.~~expiring September 30, 2007 and October 31, 2007;

~~NWS~~(2) ~~has~~Teamsters ~~not~~Union ~~experienced~~Local ~~any work~~525, ~~stoppages~~expiring inAugust ~~more~~31, ~~than~~2005; ~~20 years as a result of labor disputes~~ and ~~considers its employee relations to be good.~~

~~Regulatory~~(3) ~~Considerations~~Teamsters Union Local 744, expiring May 30, 2008.

~~The manufacturing, importation, distribution and sale of alcohol~~-~~based~~ ~~beverages~~10 is subject to regulation by the federal government through the Department of the Treasury, Bureau of Alcohol, Tobacco and Firearms (BATF), as well as by state and local regulatory agencies. Suppliers, distributors and retailers must be properly licensed in order to sell alcohol-~~based~~ ~~beverages.~~

~~(1)~~In ~~Tier~~Michigan, ~~one~~NWS ishas ~~comprised~~relationships ofwith ~~suppliers~~four ~~that~~unions: ~~produce alcohol-based beverages and/or importers of alcohol-based beverages.~~

(21) ~~Tier~~Teamsters ~~two~~Union isLocal ~~comprised of distributors~~299, ~~such~~expiring asMarch ~~NWS.~~2, 2007;

(32) ~~Tier~~Teamsters ~~three~~Union isLocal ~~comprised~~337, ofexpiring ~~retail~~March ~~licensees.~~8, 2008;

~~Under~~(3) ~~this~~Teamsters ~~system,~~Union ~~suppliers~~Local ~~sell to distributors~~406, ~~distributors~~annual ~~sell~~agreements ~~to retailers,~~expiring ~~and~~September ~~retailers sell to consumers. For the most part~~10, ~~suppliers~~2006 ~~may not sell to retailers or consumers~~ and ~~distributors~~March may not sell directly to consumers. All states prohibit suppliers or distributors from having an interest in retail licensees. NWS directly and through its affiliates holds federal basic permits and state permits/licenses as a distributor and importer. Also7, ~~NWS-Illinois~~ ~~holds~~2008; ~~out-of-state shipper permits that allow it to ship products from one state to a licensed distributor in any one of the other states.~~and

~~NWS is~~(4) ~~required~~Teamsters toUnion ~~have~~Local ~~each of its officers~~486, ~~directors~~expiring ~~and~~March ~~principal stockholders who owns 5% or more of the issued and outstanding stock qualified by federal and state governmental agencies to have an interest in a licensed company. NWS’ officers~~2, ~~directors and principal stockholders have been qualified by BATF and state regulatory agencies to hold licenses/permits as a wholesaler/importer~~2007.

~~Distributors like~~Employees ~~NWS face scrutiny in a number~~ of important areas, including initial licensing or permitting and sales and marketing activities with or on behalf of retail customers. The distributors may not give or transfer anything of value to their customers in exchange for business or other consideration. The definition of “value” differs from state to state. NWS ~~participates~~ in ~~significant~~Indiana ~~promotional activities for suppliers and customers. Suppliers also~~ are ~~increasingly~~not ~~asking~~represented ~~distributors to be responsible for activities and related costs formerly undertaken~~ by ~~suppliers~~any aslabor ~~suppliers pursue ways to reduce their operating costs~~unions. These increased demands will likely challenge distributors, including NWS, which desire to meet the wishes of their suppliers and customers. As a result, NWS regularly provides training and education programming for its sales and marketing personnel.

NWS ~~believes~~ ~~that~~has itnot isexperienced inany ~~compliance~~work ~~with~~stoppages ~~applicable regulations~~ in ~~all~~more ~~material~~than ~~respects. Consistent~~22 ~~with~~years ~~industry~~as ~~practice,~~a ~~the~~result ~~sales and marketing activities permitted by distributors for the benefit~~ of ~~tier~~labor ~~one~~disputes ~~suppliers~~and ~~are generally regulated by state~~considers ~~licensing~~its ~~authorities,~~employee ~~which~~relations ~~authorize various trade practice activities by statute, regulation or administrative bulletin. NWS relies on such enforcement guidance, which is subject~~ to ~~change~~be ~~at the discretion of the regulatory authorities, in determining the scope of its permitted sales and marketing activities~~good.

Regulatory ~~As part~~Considerations of its regulatory compliance program, NWS is in frequent contact with regulatory agencies so that NWS can: (1) be kept current on regulatory developments affecting NWS; (2) obtain answers from the agencies to questions from company personnel regarding compliance issues; (3) encourage enforcement of applicable laws and regulations on a consistent basis throughout its markets. NWS believes that prompt and consistent enforcement by the regulatory agencies is important and benefits NWS.

The manufacturing, importation, distribution and sale of alcohol-based 11beverages are subject to regulation by the federal government through the Alcohol and Tobacco Tax and Trade Bureau, as well as by state and local regulatory agencies. Suppliers, distributors and retailers must be properly licensed in order to sell alcohol-based beverages.

~~Item~~In 2most states, the alcohol-based beverage industry operates within what is commonly referred to as a three-tier system of distribution. ~~Properties~~ The three tiers are identified as follows:

~~NWS’ distribution~~(1) ~~facilities~~Tier ~~consist~~one ofis ~~three~~comprised ~~warehouses,~~of ~~two~~suppliers ~~hyper-terminals~~that ~~and~~produce ~~seven cross~~alcohol-~~docking~~based ~~facilities.~~beverages ~~NWS’~~and/or ~~corporate~~importers ~~headquarters~~of ~~are~~alcohol-based ~~located~~beverages, insuch ~~Indianapolis, Indiana.~~as USB.

~~The master~~(2) ~~warehouses,~~Tier ~~located~~two inis ~~Indianapolis,~~comprised ~~Chicago,~~of ~~and Detroit~~distributors, ~~serve~~such as ~~the primary storage facilities and regional offices for~~ NWS~~. The Chicago warehouse contains approximately 650~~-Indiana,~~000~~ ~~square feet of warehousing space, including a designated temperature controlled area for temperature~~NWS-~~sensitive products. The Indianapolis warehouse contains approximately 351~~Illinois,~~000~~ ~~square feet of warehousing space, including a designated temperature controlled area for temperature~~NWS-~~sensitive products. The Detroit warehouse consists of approximately 238~~Michigan,~~000~~ ~~square feet of warehousing space, including a material handling system~~ and ~~eight shipping docks~~NWSM-LLC.

~~The~~(3) ~~following~~Tier ~~chart~~three ~~lists~~is ~~NWS’~~comprised ~~warehouses~~of ~~and~~retail ~~delivery, production and office facilities:~~licensees.

	Location	Owned/Leased	TotalSquareFeet	Principal Function
Indiana	Indianapolis	Owned	351,000	Master Warehouse/Office
	South Bend	Owned	76,900	Hyper-Terminal/Office
	Evansville	Owned	5,800	Cross-Docking Facility
	Evansville	Owned	2,400	Office
	Ft. Wayne	Leased	5,500	Office
	Crown Point	Leased	7,900	Office
	Indianapolis	Owned	3,500	Office - Leased to Perrier
	Indianapolis	Owned	15,000	Warehouse - Leased to Perrier
	Indianapolis	Owned	19,500	Partially leased Office Property
Connecticut	Stamford	Leased	5,700	Office
Illinois	Chicago	Owned	650,000	Master Warehouse/Office
	Chicago	Leased	1,840	Leased Office Property
	Champaign	Leased	50,000	Cross-Docking Facility/Office
	Peoria	Leased	56,000	Cross-Docking Facility/Office
	Collinsville	Leased	14,200	Cross-Docking Facility/Office
	Rockford	Leased	5,000	Office
	Springfield	Leased	1,000	Office
Michigan	Detroit (Brownstown)	Leased	238,000	Master Warehouse/Office
	Grand Rapids	Leased	100,000	Hyper-Terminal/Office
	Escanaba	Leased	7,500	Cross-Docking Facility/Office
	Saginaw	Leased	1,000	Cross-Docking Facility
	Traverse City	Leased	5,000	Cross-Docking Facility

Under this system, suppliers sell to distributors, distributors sell to retailers, and retailers sell to consumers. For the most part, suppliers may not sell to retailers or consumers and distributors may not sell directly to consumers. All states prohibit suppliers or distributors from having an interest in retail licensees. NWS directly and through its affiliates holds federal basic permits and state permits/licenses as a distributor and importer. Also, NWS-Illinois holds out-of-state shipper permits that allow it to ship products from one state to a licensed distributor in any one of the other states.

NWS’ is required to have each of its officers, directors and ~~lease~~principal ~~agreements~~stockholders ~~for~~who own 5% or more of the ~~Detroit~~issued ~~master~~and ~~warehouse~~outstanding stock qualified by federal and ~~the~~state ~~Grand~~governmental ~~Rapids~~agencies ~~hyper-terminal~~to ~~each~~ have an interest in a ~~ten-year~~licensed ~~term,~~company. ~~expiring~~NWS’ ~~April 20~~officers, ~~2007~~directors and ~~January 31,~~principal ~~2007,~~stockholders have been ~~respectively,~~qualified by the Alcohol and ~~provide~~Tobacco ~~NWS~~Tax ~~with~~and anTrade ~~option~~Bureau and state regulatory agencies to ~~purchase~~hold ~~the~~licenses/permits ~~properties~~as a wholesaler/importer.

~~Item~~- ~~3. Legal~~11 ~~Proceedings~~-

Distributors like NWS face scrutiny in a number of important areas, including initial ~~Item~~licensing 4or permitting and sales and marketing activities with or on behalf of retail customers. ~~Submission~~ The distributors may not give or transfer anything of ~~Matters~~value to atheir ~~Vote~~customers in exchange for business or other consideration. The definition of “value” ~~Security~~differs ~~Holders~~from state to state. NWS participates in significant promotional activities for suppliers and customers. Suppliers also are increasingly asking distributors to be responsible for activities and related costs formerly undertaken by suppliers as suppliers pursue ways to reduce their operating costs. These increased demands will likely challenge distributors, including NWS, which desire to meet the wishes of their suppliers and customers. As a result, NWS regularly provides training and education programming for its sales and marketing personnel.

NWS believes that it is in compliance with applicable regulations in all material respects. Consistent with industry practice, the sales and marketing activities permitted by distributors for the ~~None~~benefit of tier one suppliers are generally regulated by state licensing authorities, which authorize various trade practice activities by statute, regulation or administrative bulletin. NWS relies on such enforcement guidance, which is subject to change at the discretion of the regulatory authorities, in determining the scope of its permitted sales and marketing activities.

As part of its regulatory compliance program, NWS is in frequent contact with regulatory agencies so that NWS can: (1) be kept current on -regulatory 12developments -affecting NWS; (2) obtain answers from the agencies to questions from company personnel regarding compliance issues; (3) encourage enforcement of applicable laws and regulations on a consistent basis throughout its markets. NWS believes that prompt and consistent enforcement by the regulatory agencies is important and benefits NWS.

The Company files reports with the SEC and the public can read and copy any materials filed with the SEC at the SEC’s Public ~~Part~~Reference IIRoom at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains all of the Company’s reports at http://www.sec.gov. The Company maintains an Internet site at http://www.nwscorp.com which contains reports that were filed with the SEC.

Item 52. ~~Market~~ ~~for~~Properties ~~Registrant’s Common Equity and Related Stockholder Matters~~

~~Market~~NWS’ ~~Information. There~~distribution isfacilities noconsist ~~established~~of ~~trading~~three ~~market~~master ~~for~~warehouses, ~~the~~three ~~common~~hyper-terminals ~~stock~~and ofsix cross-docking facilities. NWS’ corporate headquarters are located in Indianapolis, Indiana.

The master warehouses, located in Indianapolis, Chicago, and ~~Holders~~Detroit, serve as the primary storage facilities and regional offices for NWS. As The Chicago warehouse contains approximately 650,000 square feet of ~~June~~warehousing 20space, ~~2003~~including a designated temperature controlled area for temperature-sensitive products. The Indianapolis warehouse contains approximately 351,000 ~~the~~square ~~number~~feet of ~~record~~warehousing ~~holders~~space, ofincluding ~~each~~a ofdesignated ~~the~~temperature ~~classes~~controlled area for temperature-sensitive products. The Detroit warehouse consists of ~~the~~approximately 238,000 ~~Company’s~~square ~~common~~feet ~~stock~~of ~~were~~warehousing asspace. ~~follows:~~

Voting common stock	2
Non-voting common stock	3

- 12 -

~~Equity~~The ~~Compensation~~following ~~Plans. The~~chart ~~Company~~lists ~~does not~~NWS’ ~~have~~warehouses ~~any~~and ~~equity~~delivery, ~~compensation~~production ~~plans.~~and office facilities:

Item 6. Selected Consolidated Financial Data


Segment	State	Location	Owned/ Leased	Total Square Feet	Principal Function
Product sales

	Indiana	Indianapolis South Bend Evansville Evansville Ft. Wayne Crown Point Indianapolis Indianapolis Indianapolis	Owned Owned Owned Owned Leased Leased Owned Owned Owned	351,000 76,900 5,800 2,400 5,500 7,900 3,500 15,000 19,500	Master Warehouse/Office Hyper-Terminal/Office Cross-Docking Facility Office Office Office Office - Leased to Perrier Warehouse-Leased to Perrier Office

	Connecticut	Stamford	Leased	5,700	Office

	Illinois	Chicago Chicago Champaign Peoria Collinsville Rockford	Owned Leased Leased Leased Leased Leased	650,000 1,840 50,000 56,000 14,200 5,000	Master Warehouse/Office Leased Office Property Hyper-Terminal/Office Cross-Docking Facility/Office Cross-Docking Facility/Office Office

All other

	Michigan	Detroit (Brownstown) Grand Rapids Escanaba Saginaw Traverse City	Leased Leased Leased Leased Leased	238,000 97,000 7,500 1,000 5,000	Master Warehouse/Office Hyper-Terminal/Office Cross-Docking Facility/Office Cross-Docking Facility Cross-Docking Facility

~~You should~~NWS’ ~~read~~lease agreements for the ~~following~~Detroit ~~summary~~master ~~historical~~warehouse ~~financial~~and ~~information~~the inGrand ~~conjunction~~Rapids ~~with “Management’s~~hyper-terminal ~~Discussion~~each ~~and~~have ~~Analysis~~a often-year ~~Financial~~term, ~~Condition~~expiring ~~and~~April ~~Results~~20, ~~of Operations”~~2007 and ~~the~~January ~~consolidated~~31, ~~financial~~2007, ~~statements~~respectively, and ~~notes~~provide ~~thereto~~NWS ~~included~~with inan option to purchase the ~~Item~~properties. 8The ~~and~~facilities in Michigan are used to operate the ~~schedules~~Company’s ~~accompanying~~distribution ~~this~~fee ~~report~~business.

~~Distribution fees~~Item include the per case distribution fee for cases of spirits delivered in and on behalf of the State of Michigan, and as such, NWS does not take title to or finance inventory as part of its distribution fee business3. ~~Please~~Legal ~~also~~Proceedings ~~note that NWS has elected “S” corporation status under the Internal Revenue Code and consequently, it does not incur liability for federal and state income taxes.~~

~~For purposes~~The ofCompany ~~calculating~~is ~~earnings~~a party to ~~fixed~~various ~~charges,~~lawsuits ~~earnings~~and ~~consist~~claims ofarising ~~net~~in ~~income~~the ~~plus fixed~~normal ~~charges~~course of business. ~~Fixed~~While ~~charges~~the ~~consist~~ultimate resolution of ~~interest~~lawsuits ~~expense,~~or ~~amortization~~claims ofagainst ~~debt~~the ~~expense~~Company ~~and discount~~cannot orbe ~~premium~~predicted ~~relating~~with tocertainty, ~~indebtedness~~management ~~and~~is ~~the~~vigorously ~~portion~~defending all ~~(30%)~~claims ofand ~~rental~~does ~~expense~~not ~~on operating~~expect ~~leases~~that ~~which~~these wematters ~~estimate~~will tohave bea ~~representative~~material ofadverse effect on the ~~interest~~financial ~~factor attributable~~position toor ~~rental~~results ~~expense~~of operations of the Company.

- 13 -

	Years Ended March 31, (Dollars and cases in thousands, except per case amount)
	2003			2002			2001			2000			1999
Statement of Income Data:
Net product sales	$	689,859		$	659,594		$	636,879		$	603,625		$	535,355
Distribution fees		22,999			21,963			21,573			20,770			17,832
Total revenue		712,858			681,557			658,452			624,395			553,187
Cost of products sold		552,833			530,910			513,928			488,444			436,734
Gross profit		160,025			150,647			144,524			135,951			116,453
Selling, general and
administrative expenses		144,550			131,025			125,034			119,396			104,770
Income from operations		15,475			19,622			19,490			16,555			11,683
Interest expense		(9,308	)		(11,934	)		(13,214	)		(13,274	)		(11,355	)
Other income (expense) (1)		9,622			(228	)		7,849			1,139			341
Net income	$	15,789		$	7,460		$	14,125		$	4,420		$	669
Other Financial Data:
EBITDA (2)	$	34,704		$	27,669		$	36,229		$	26,599		$	20,398
EBITDA margin		4.9	%		4.1	%		5.5	%		4.3	%		3.7	%
Net income margin		2.2	%		1.1	%		2.1	%		0.7	%		0.1	%
Cash provided by
operating activities		14,656			22,030			7,357			16,648			6,013
Cash provided (used)
by investing activities		(2,489	)		(5,307	)		2,717			(7,715	)		(20,846	)
Cash provided (used)
by financing activities		(18,082	)		(9,082	)		(9,539	)		(7,282	)		15,371
Depreciation and amortization		9,607			8,275			8,890			8,905			8,374
Capital expenditures (3)		2,337			4,332			6,083			6,672			7,858
Ratio of earnings to
fixed charges		2.2	x		1.5	x		1.9	x		1.3	x		1.1	x
Operating Statistics:
Product Sales Operations
Cases shipped (spirits
and wine)		6,295			6,351			6,425			6,394			6,182
Gross profit margin		19.9	%		19.5	%		19.3	%		19.1	%		18.4	%
Fee Operations
Cases shipped (spirits)		2,549			2,721			2,684			2,786			2,731
Distribution fee per case	$	7.60		$	7.48		$	7.32		$	6.50		$	6.50

	As of March 31, (in thousands)
	2003		2002		2001		2000		1999
Balance Sheet Data
Cash	$	5,820	$	11,735	$	4,094	$	3,559	$	1,908
Total assets		203,708		201,405		192,290		188,197		178,868
Total debt		98,303		109,805		110,571		112,471		117,222
Total long-term
liabilities		110,677		111,678		110,487		111,571		116,559
Stockholders' equity		27,854		23,095		24,669		18,183		16,266

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

-On 14October -8, 2004, the shareholders of National Wine & Spirits, Inc. voted unanimously, via written consent, to remove J. Smoke Wallin from the Board of Directors, effective October 8, 2004.

~~NOTES~~- TO14 ~~SELECTED~~- ~~CONSOLIDATED FINANCIAL DATA~~

~~(2)~~ Part ~~EBITDA~~II ~~is defined as net income plus interest expense, depreciation and amortization.~~

~~EBITDA~~ Item ~~is a non-GAAP financial measure within the meaning of Regulation G~~5. ~~EBITDA~~Market is presented because it is a widely accepted financial indicator used by investors and analysts to analyze and compare companies on the basis of debt service capability. Management uses EBITDA to set targets and monitor and assess financial performance. EBITDA is not intended to represent cash flows for ~~the~~Registrant’s ~~periods~~Common ~~presented~~Equity, ~~nor~~Related ~~has~~Stockholder itMatters ~~been presented as an alternative to net income as an indicator of operating performance~~ and ~~should~~Issuer ~~not~~Purchases ~~be considered in isolation or as a substitute for measures~~ of ~~performance~~Equity ~~and~~Securities ~~cash flow prepared in accordance with generally accepted accounting principles.~~

~~The~~Market ~~most comparable GAAP measure for EBITDA is net income~~Information. ~~Following~~There is ano ~~reconciliation~~established ~~between~~trading ~~net~~market ~~income and EBITDA~~ for the ~~fiscal~~common ~~years~~stock ~~1999~~of ~~through~~NWS. ~~2003:~~

	Years Ended March 31 (in thousands)
	2003		2002		2001		2000		1999
Net Income	$	15,789	$	7,460	$	14,125	$	4,420	$	669
Interest expense		9,308		11,934		13,214		13,274		11,355
Depreciation		7,188		6,561		7,046		7,270		6,967
Amortization		2,419		1,714		1,844		1,635		1,407
EBITDA	$	34,704	$	27,669	$	36,229	$	26,599	$	20,398

Holders. As of June 8, 2005, the number of record holders of each of the classes of the Company’s common stock were as follows:

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


Voting common stock		2
Non-voting common stock		3

~~(3)~~Dividends. The ~~breakdown~~ability of ~~our~~the ~~capital~~Company ~~expenditures~~to bypay ~~significant~~dividends ~~project~~to its shareholders is ~~set~~restricted ~~forth~~by ~~below~~certain covenants contained in its credit facility as well as certain restrictions contained in the Company’s indentures relating to its senior notes. Subject to these limitations, the Company has historically paid dividends to its shareholders for tax liabilities and for limited other purposes. In fiscal 2005 and 2004, the amounts of the dividends totaled $0.2 million and $6.0 million, respectively, in the aggregate.

	Years Ended March 31 (in thousands)
	2003		2002		2001		2000		1999
Business expansion	$	140	$	1,144	$	2,374	$	3,112	$	4,856
Information systems		1,121		1,418		1,750		970		1,281
Equipment		1,076		1,770		1,959		2,590		1,721
	$	2,337	$	4,332	$	6,083	$	6,672	$	7,858

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

-Item 156. -Selected Consolidated Financial Data

~~Item~~The 7. following summary historical financial information should be read in conjunction with “Management'’s Discussion ~~And~~and Analysis Of of Financial Condition ~~And~~and Results Ofof Operations”, the consolidated financial statements and notes thereto included in Item 8 and the schedules accompanying this report.

~~You should~~Distribution ~~read~~fees include the ~~following~~per ~~discussion~~case distribution and brokerage fees for cases of spirits delivered in ~~conjunction~~and ~~with~~on ~~“Selected~~behalf ~~Consolidated Financial~~of ~~Data”~~the State of Michigan, and as such, NWS’ ~~historical~~does ~~consolidated~~not ~~financial~~take ~~statements~~title ~~and~~to ~~the accompanying~~or ~~notes~~finance ~~included~~inventory ~~elsewhere~~as inpart ~~this~~of ~~Form~~its ~~10-K~~distribution and brokerage fee business. ~~Unless~~Please ~~otherwise~~also ~~indicated,~~note ~~all~~that NWS has elected “S” corporation status under the Internal Revenue Code and consequently, ~~references~~it todoes ~~years~~not ~~are~~incur toliability ~~NWS’~~for ~~fiscal~~federal ~~year~~and ~~ended~~state ~~March 31~~income taxes.

For purposes of calculating earnings to fixed charges, earnings consist of net income plus fixed charges. Fixed charges consist of interest expense, amortization of debt issue cost and discount or premium relating to ~~Disclosure~~indebtedness ~~Regarding~~and ~~Forward-Looking~~the ~~Statements~~portion (30%) of rental expense on operating leases which NWS estimates to be representative of the interest factor attributable to rental expense.

~~This Form 10~~-K, ~~including,~~15 ~~but not limited to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” sections, contains “forward~~-~~looking~~ statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology, such as “may,” “intend,” “will,” “expect,” “anticipate,” “should,” “plans to,” “estimate” or “continue” or the negative thereof or other variations thereon or comparable terminology. In particular, any statement, express or implied, concerning future operating results or the ability to generate revenues, income or cash flow to service the Company’s debt are forward-looking statements. Although the Company believes that the expectations will prove to have been correct. All forward-looking statements are expressly qualified by such cautionary statements, and the Company undertakes no obligation to update such forward-looking statements.

National Wine & Sprits, Inc. (the “Company”) is one of the largest distributors of wine and spirits in the United States. Substantially all of the Company’s current operations are in Illinois, Indiana, Michigan, Kentucky, and from U.S. Beverage, L.L.C. (USB), the Company’s national import, craft and specialty beer marketing and distribution business. The Company’s reported revenues include net product sales in Illinois, Indiana, Michigan, and from USB, with distribution fees from the Michigan distribution operation.


	Year Ended March 31, (Dollars and cases in thousands, except ratios and per case amount)
	2005			2004			2003			2002			2001
Statement of Operations Data:
Net product sales	$	524,399		$	513,615		$	689,859		$	659,594		$	636,879
Distribution fees		29,268			27,045			22,999			21,963			21,573

Total revenue		553,667			540,660			712,858			681,557			658,452

Cost of products sold		428,576			421,468			552,833			530,910			513,928

Gross profit		125,091			119,192			160,025			150,647			144,524
Selling, general and administrative expenses		112,988			120,270			144,550			131,025			125,034

Income (loss) from operations		12,103			(1,078	)		15,475			19,622			19,490
Interest expense		(9,535	)		(8,826	)		(9,308	)		(11,934	)		(13,214	)
Other income (expense)(1)		2,871			780			9,622			(228	)		7,849

Net income (loss)	$	5,439		$	(9,124	)	$	15,789		$	7,460		$	14,125

Other Financial Data:
EBITDA (2)	$	25,525		$	11,778		$	34,704		$	27,669		$	36,229
Net income (loss) margin		1.0	%		(1.7	)%		2.2	%		1.1	%		2.1	%
Cash provided by operating activities	$	12,054		$	16,005		$	15,185		$	22,030		$	7,357
Cash provided (used) by investing activities		(3,133	)		64			(2,489	)		(5,307	)		2,717
Cash used by financing activities		(7,430	)		(20,423	)		(18,611	)		(9,082	)		(9,539	)
Depreciation and amortization		10,551			12,076			9,607			8,275			8,890
Capital expenditures (3)	$	1,211		$	985		$	2,337		$	4,332		$	6,083
Ratio of earnings to fixed charges		1.4x			0.1x			2.2x			1.6x			2.0x
Operating Statistics:
Product Sales Operations
Gross profit margin		18.3	%		17.9	%		19.9	%		19.5	%		19.3	%
Cases shipped (spirits and wine)		4,630			4,496			6,295			6,351			6,425
Fee Operations
Cases shipped (spirits)		2,907			2,912			2,549			2,721			2,684
Distribution fee per case as of March 31	$	7.78		$	7.78		$	7.60		$	7.48		$	7.32

	As of March 31 (in thousands)
	2005			2004			2003			2002			2001
Balance Sheet Data:
Cash	$	2,957		$	1,466		$	5,820		$	11,735		$	4,094
Total assets		193,789			187,100			203,814			201,405			192,290
Total debt		83,157			86,357			98,303			109,805			110,571
Total long-term liabilities		107,855			108,475			110,676			111,678			110,487
Stockholders’ equity		17,738			12,593			27,854			23,095			24,669

~~EBITDA is~~- ~~used~~16 ~~throughout~~- this Item as a financial indicator. Each reference to EBITDA herein is qualified by reference to, and should be read in conjunction with this paragraph and the following two paragraphs and the reconciliation below. EBITDA, as used herein, is defined as net income plus interest expense, depreciation and amortization. EBITDA should not be construed as an alternative to income or net cash flow from operating activities and should not be construed as an indication of operating performance or as a measure of liquidity.

~~The most~~NOTES ~~comparable~~TO ~~GAAP~~SELECTED ~~measure~~CONSOLIDATED ~~for~~FINANCIAL ~~EBITDA~~DATA ~~is net income. Following is a reconciliation between net income and EBITDA for the fiscal years 1999 through 2003:~~

	Years Ended March 31 (in thousands)
	2003		2002		2001		2000		1999
Net Income	$	15,789	$	7,460	$	14,125	$	4,420	$	669
Interest expense		9,308		11,934		13,214		13,274		11,355
Depreciation		7,188		6,561		7,046		7,270		6,967
Amortization		2,419		1,714		1,844		1,635		1,407
EBITDA	$	34,704	$	27,669	$	36,229	$	26,599	$	20,398

(1)

The increase in Other income (expense) in 2005, 2003 and 2001 resulted from receipt of an arbitration award of $2.3 million, one time payments of $9.2 million, and gain on sale of bottled water division of $7.5 million, respectively.

-(2) 16EBITDA is defined as net income or loss plus interest expense, depreciation and amortization. EBITDA is a non-GAAP financial measure within the meaning of Regulation G. EBITDA is presented because it is a widely accepted financial indicator used by investors and analysts to analyze and compare companies on the basis of debt service capability. Management uses EBITDA to set targets and monitor and assess financial performance. EBITDA is not intended to represent cash flows for the periods presented, nor has it been presented as an alternative to net income (loss) as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance and cash flow prepared in accordance with generally accepted accounting principles.

The most comparable GAAP measure for EBITDA ~~information reflected~~is ~~herein~~net ~~may~~income ~~not~~(loss). beFollowing ~~comparable~~is toa ~~similarly~~reconciliation ~~titled~~between ~~measures~~net ~~used~~income by(loss) and EBITDA ~~other~~for ~~companies.~~the fiscal years 2001 through 2005:

For the year ended March 31, 2003, net income was $15.8 million versus $7.5 million for the prior year period, while EBITDA was $34.7 million, versus $27.7 million for the prior year period. The increase in net income was primarily attributable to a vendor settlement payment of $9.2 million and net gains of $2.0 million from discounted repurchases of the Company’s senior notes. Although the increased volume from the Company’s United States Beverage division contributed to the increased sales for the annual period ended March 31, 2003, net income and EBITDA were offset by decreased sales volume and lower profitability due to the loss of the Pernod and Diageo brands in certain markets.


	Year Ended March 31 (in thousands)
	2005		2004			2003		2002		2001
Net Income (loss)	$	5,439	$	(9,124	)	$	15,789	$	7,460	$	14,125
Interest expense		9,535		8,826			9,308		11,934		13,214
Depreciation		4,590		5,947			7,188		6,561		7,046
Amortization		5,961		6,129			2,419		1,714		1,844

EBITDA	$	25,525	$	11,778		$	34,704	$	27,669	$	36,229


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

(3) The components of capital expenditures by type is set forth below.

	Year Ended March 31 (in thousands)
	2005		2004			2003		2002		2001
Business expansion	$	—	$	—		$	140	$	1,144	$	2,374
Information systems		501		490			1,121		1,418		1,750
Equipment		710		495			1,076		1,770		1,959

	$	1,211	$	985		$	2,337	$	4,332	$	6,083

~~The Company~~- ~~received~~17 a decision from Diageo during the quarter ended March 31, 2003 concerning distribution rights for Illinois. Diageo and Schieffelin & Somerset (S&S) had been evaluating distributor proposals since March 2002 as a part of their ongoing state-~~by-state~~ effort to consolidate distribution rights of existing brands and brands they acquired from Seagram in 2001. The Company was informed by Diageo that it was not chosen as the exclusive Diageo distributor for the State of Illinois and that the Company’s Illinois distribution rights would terminate on February 24, 2003. Revenue for the affected Diageo brands in Illinois for the year ended March 31, 2003 was approximately $75 million, and total Diageo cases shipped were approximately 0.5 million. For the same annual period, distribution of these Diageo brands in Illinois contributed approximately $14 million to the gross profit of the Company. As part of the settlement of all claims arising out of the Diageo settlement in Illinois, Diageo paid $9.2 million to the Company.

On ~~January~~Item ~~30,~~7. ~~2003, the Company entered into an agreement in principle to form a strategic alliance with Glazer~~Management’s ~~Wholesale~~Discussion ~~Drug~~And ~~Company~~Analysis ~~(“Glazer”)~~Of ~~for~~Financial ~~the~~Condition ~~purpose~~And ~~of distributing~~Results ~~alcohol-based~~Of ~~beverages~~Operations in the State of Illinois. On February 27, 2003, the Company and Glazer entered into a management services agreement under which Glazer would provide management assistance and consulting services in Illinois. A separate contribution agreement was signed on March 25, 2003, which provided that the parties may agree in the future to conduct operations in Illinois through a new entity to be equally owned by NWS-Illinois and Glazer.

The ~~Company~~ ~~was~~following ~~notified~~discussion onshould ~~February~~be ~~18,~~read ~~2003~~in ~~that~~conjunction itwith ~~had~~“Selected ~~been~~Consolidated ~~selected~~Financial asData” ~~the exclusive distributor of Diageo spirits~~ and ~~wine brands in Indiana.~~ NWS’ ~~Indiana currently~~historical ~~distributes~~consolidated ~~Diageo~~financial ~~products~~statements ~~on an exclusive basis,~~ and ~~this decision extends~~ the ~~arrangement~~ ~~for~~accompanying ~~seven~~notes ~~years.~~included ~~The~~elsewhere ~~Company~~in ~~does~~this ~~not~~Form ~~currently~~10-K. ~~represent~~Unless ~~the~~otherwise ~~majority~~indicated, ~~of S&S~~all ~~products~~references into ~~Indiana.~~years ~~Decisions~~are byto ~~S&S~~NWS’ ~~concerning~~fiscal ~~distribution~~year ~~rights~~ended ~~for Indiana~~March ~~have not been announced~~31.

~~The Company~~Disclosure ~~also~~Regarding ~~was~~Forward-Looking ~~chosen~~Statements as the exclusive broker and distribution agent of Diageo and S&S spirits brands and as the exclusive distributor of Diageo’s low proof mixed spirits drinks in Michigan. This decision provides additional volume for the Company’s Michigan operation since S&S products were not previously distributed by the Company in Michigan.

This Form 10-K, including, but not limited to the ~~Outlook~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” sections, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology, such as “may,” “intend,” “will,” “expect,” “anticipate,” “should,” “plans to,” “estimate” or “continue” or the negative thereof or other variations thereon or comparable terminology. In particular, any statement, express or implied, concerning future operating results or the ability to generate revenues, income or cash flow to service the Company’s debt are forward-looking statements. Although the Company believes that the expectations will prove to be correct, all forward-looking statements are expressly qualified by such cautionary statements, and the Company undertakes no obligation to update such forward-looking statements.

The Company’s outlook for fiscal 2004 is for lower profit and EBITDA levels due to the loss of the brands in the Illinois market, as compared to the prior fiscal year. EBITDA should not be construed as an alternative to operating income or net cash flow from operating activities and should not be construed as an indication of operating performance or as a measure of liquidity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview.”

~~As consolidations~~National ~~and~~Wine ~~supplier~~& Spirits, ~~realignments~~Inc. ~~continue~~(the ~~within~~“Company”) ~~the~~is ~~Illinois~~one ~~market,~~of the ~~Company has~~largest ~~analyzed~~distributors ~~its~~of ~~operations~~wine ~~in Illinois~~ and ~~has~~spirits ~~taken steps to appropriately size its workforce~~ in ~~relation~~the toUnited ~~its customers’ and suppliers’ needs~~States. AsSubstantially itall ~~adjusts~~of the ~~size~~ ~~and~~Company’s ~~scope~~current ofoperations ~~its~~are in Illinois, ~~operations~~Indiana, ~~the~~Michigan, ~~Company~~Kentucky ~~will~~(through ~~continue~~its toinvestment ~~concentrate on~~in ~~building~~an ~~customer~~affiliate), and ~~supplier~~from ~~relationships~~USB, ~~and maintaining~~ the ~~infrastructure~~Company’s ~~necessary to~~national ~~operate~~import, ~~its~~craft ~~Illinois~~and ~~statewide~~specialty ~~business~~beer ~~with~~marketing ~~lower costs~~ and ~~increased~~distribution ~~efficiencies~~business. The Company’s ~~has~~reported ~~also~~revenues ~~discontinued~~include ~~warehousing~~net ~~operations~~product sales in ~~its~~Illinois, ~~Champaign~~Indiana, ~~Illinois~~Michigan, and ~~Peoria,~~ ~~Illinois~~from ~~facilities in order to reduce costs~~USB, ~~but~~with distribution itfees ~~continues~~from tothe ~~use~~Michigan ~~those locations~~distribution ~~as cross-docking~~ and ~~office~~brokerage ~~facilities~~operation. ~~Continuing efforts are also being made to replace lost revenue in Illinois.~~

The Company evaluates its operations and liquidity upon two reportable segments, which are business units that engage in product sales and all other activities. Product sales operations are conducted in Indiana, -Illinois, 17Michigan, -and from the USB distribution business. The majority of other activities relate to distribution and brokerage fee operations in Michigan.

~~Stable to increasing revenue and~~ EBITDA inis ~~the~~used ~~Indiana,~~throughout ~~Michigan,~~this ~~and~~Item ~~USB~~as ~~operations~~a ~~are currently~~financial ~~expected to mitigate the loss of revenue in the Illinois market for fiscal 2004~~indicator. ~~Additionally,~~ ~~the~~Each ~~Company~~reference ~~will continue~~ to ~~benefit~~EBITDA inherein ~~the~~is ~~near~~qualified ~~term~~by ~~from~~reference ~~the collection of accounts receivable and inventory liquidation related~~ to, ~~lost distribution rights in Illinois. Representatives of Glazer~~ and ~~the~~should ~~Company also continue to pursue new business~~be ~~opportunities~~read in ~~Illinois.~~conjunction Atwith ~~the~~this ~~same~~paragraph ~~time, the size~~ and ~~scope of~~ the ~~Illinois~~following ~~business will~~two beparagraphs ~~the subject of on-going analysis. The Company~~ and ~~Glazer are both committed to~~ the ~~profitability~~ ofreconciliation ~~the~~below. ~~Illinois~~EBITDA, ~~operation~~as ~~given~~used ~~Glazer’s~~herein, ~~agreement~~is todefined ~~fund one-half of operating losses~~ as ~~defined~~net inincome ~~the~~or ~~management~~loss ~~services~~plus ~~agreement~~interest ~~between~~expense, ~~Glazer~~depreciation and ~~the Company~~amortization. EBITDA should not be construed as an alternative to ~~operating~~ income or net cash flow from operating activities and should not be construed as an indication of operating performance or as a measure of liquidity. ~~See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview.”~~

~~The Company~~EBITDA ~~will~~is ~~utilize~~a ~~the~~non-GAAP ~~positive~~financial ~~cash~~measure ~~flow~~within ~~from~~ the ~~downsizing~~meaning of ~~the~~Regulation Company’s Illinois operations, proceeds from the vendor settlement payment, borrowings under its line of credit and existing cash to fund operating costs, interest expense, and possibly further senior note repurchasesG. ByEBITDA ~~reducing~~is ~~the~~presented ~~Company’s~~because ~~interest~~it ~~expense through~~is ~~open~~a ~~market~~widely ~~repurchases~~accepted offinancial ~~senior~~indicator ~~notes,~~used ~~aggressive~~by ~~cost~~investors ~~reduction initiatives in its Illinois business,~~ and ~~stable~~analysts to ~~increasing~~analyze ~~earnings~~ and ~~cash~~compare ~~flow~~companies ~~from~~on ~~Indiana, Michigan, and USB businesses,~~ the ~~Company~~basis ~~expects~~of todebt ~~maintain~~service ~~adequate~~capability. ~~earnings~~Management ~~and~~uses ~~cash~~EBITDA ~~flow~~ to ~~fund~~ ~~working~~set ~~capital~~targets and ~~debt~~monitor ~~service~~and ~~needs~~assess ~~for~~financial ~~the~~performance. ~~year~~EBITDA ~~ending~~is ~~March 31, 2004.~~ not

~~Results~~- of18 ~~Operations~~-

	Years ended March 31, (Cases in Thousands)
	2003					2002					2001
	Cases		PercentChange			Cases		PercentChange			Cases
Wine (product sales operations)		2,934		5	.6%		2,778		(8	.4)%		3,032
Spirits (product sales operations)		3,361		(1	.1)%		3,399		0	.2%		3,393
Spirits (distribution fee operations)		2,549		(6	.3)%		2,721		1	.4%		2,684
Total wine and spirits		8,844		(0	.6)%		8,898		(2	.3)%		9,109
Other		8,933		73	.6%		5,146		2	.5%		5,021
Total		17,777		26	.6%		14,044		(0	.6)%		14,130

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

~~Case~~intended ~~sales~~to ofrepresent Kcash ~~Cider~~flows ~~were~~for ~~reported~~the asperiods presented, ~~wine~~nor ~~case~~has ~~sales~~it ~~through~~been ~~March~~presented ~~31, 2002.~~as ~~Case~~an ~~sales~~alternative ~~of K Cider subsequent~~ to ~~that~~net ~~date~~income ~~have~~or ~~been~~loss ~~recorded~~ as ~~other case~~an ~~sales.~~indicator ~~The~~of ~~reclassification~~operating ofperformance ~~case~~and ~~sales~~should ofnot Kbe ~~Cider~~considered ~~reduced~~in ~~wine~~isolation ~~case sales~~or ~~and~~as ~~increased~~a ~~other~~substitute ~~case~~for ~~sales~~measures byof ~~174,000~~performance ~~for~~and ~~the~~cash 12flow ~~months~~prepared ~~ended~~in ~~March~~accordance with ~~31,~~generally ~~2002~~accepted accounting principles.

The Umost comparable GAAP measure for EBITDA is net income or loss.S. ~~Beverage’s~~Following ~~results~~is ~~are~~a ~~included~~reconciliation inbetween ~~the~~net ~~other~~income ~~category~~or loss and EBITDA for the ~~current year~~fiscal ~~and~~years ~~prior~~2001 ~~years.~~through 2005:

Fiscal 2003 Compared with Fiscal 2002


	Year Ended March 31 (in thousands)
	2005		2004			2003		2002		2001
Net Income (loss)	$	5,439	$	(9,124	)	$	15,789	$	7,460	$	14,125
Interest expense		9,535		8,826			9,308		11,934		13,214
Depreciation		4,590		5,947			7,188		6,561		7,046
Amortization		5,961		6,129			2,419		1,714		1,844

EBITDA	$	25,525	$	11,778		$	34,704	$	27,669	$	36,229

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

~~Total product~~Executive ~~revenue~~Summary increased $30.3 million, or 4.6%, to $689.9 million for the year ended March 31, 2003 versus $659.6 million for the prior year period. The revenue increase for the year ended March 31, 2003 as compared to the prior year was primarily due to increased sales by the Company’s USB division. USB commenced nationwide distribution of Grolsch beers and Seagram’s Coolers in January 2002 and April 2002 respectively. Case and dollar volume of wine in the product sales divisions remained stable; increasing 5.6% and 2.4%, respectively, during the current annual period ended March 31, 2003 over the prior year period. Spirits case and dollar volume in the product sales divisions declined 1.1% and 3.8%, respectively, primarily due to the loss of certain distribution rights in the Illinois market. Fee revenue for the year ended March 31, 2003 increased 4.7% on lower case sales from the comparable prior annual period. The Company was able to increase fee revenue due to a $0.16 per case fee increase approved by the State of Michigan for 2002 and greater brokerage fee revenue for the year ended March 31, 2003 as compared to the prior year period.

The Company’s net income and EBITDA increased from the prior year due to greater gross profit on spirits case volume, reduced marketing and administration expense, and increased management -fees. 18Net -income and EBITDA increased to $5.4 million and $25.5 million, respectively, for the year ended March 31, 2005. The Company was able to increase net income during the current fiscal year by $14.6 million primarily from increased gross profit of $5.9 million, the strategic alliance with Glazer’s Distributors of Illinois, Inc. (“Glazer”) in Illinois which resulted in greater management fees (as described in footnote 15) of $6.1 million, and reductions in administrative expenses of $2.3 million, as compared to the prior fiscal year.

The Company’s total fiscal 2005 revenue increased by $13.0 million primarily due to increased product sales and distribution fees of $10.8 million and $2.2 million, respectively. Gross ~~Profit~~profit from product sales for the fiscal year ended March 31, 2005 increased by $3.7 million from the prior fiscal year primarily due to increased spirits volume of $26.4 million and price increases put in place during the fiscal year. An increase in the distribution fees during the current fiscal year of $2.2 million, as compared to the prior fiscal year, were primarily the result of greater brokerage commissions of $1.4 million and an increase in the per-case delivery fee from $7.60 to $7.78 in February 2004.

~~Gross margin~~The onCompany’s ~~product~~operating ~~sales~~expenses ~~increased $8.3 million, or 6.5% for the year ended March 31, 2003~~during ~~over~~ the ~~prior~~current ~~year~~fiscal ~~period. Gross profit percentage on product sales increased to 19.9% for the~~ year ~~ended March 31, 2003 versus 19.5% for the comparable prior year period. Both the increase in gross margin dollars and percentage~~ were primarily ~~the~~reduced ~~result~~by of the ~~USB operations~~increased ~~during~~management ~~the~~fees ~~year~~of ~~ended~~$6.1 ~~March~~million ~~31,~~related ~~2003,~~to ~~which was offset somewhat by declines in~~ the ~~gross margin dollars and percentage in other product sales markets. The~~ Company’s Illinois and Indiana gross profit margins were under pressure during fiscal 2003 due to the intensified marketing efforts from competing distributors during the period of uncertainty concerning product line representationbusiness.

~~Operating~~- ~~Expenses~~19 -

~~Warehouse and~~Management’s ~~delivery~~Discussion ~~expenses remained very stable, increasing by $0.2 million during the current year period over the prior year period. Reduced case volumes in the Illinois~~ and ~~Michigan markets~~Analysis ~~resulted~~of inFinancial ~~stable~~Condition ~~operational costs. The reduced volume has allowed for savings in personnel, offset by increases in wage rates~~ and ~~other~~Results ~~operational~~of ~~costs.~~Operations (continued)

~~Selling expenses~~These increased ~~primarily~~fees ~~due~~from tothe ~~additional~~prior ~~advertising,~~fiscal ~~wages,~~year ~~and~~were ~~related travel~~due ~~expenses~~to ~~incurred by~~ the ~~Company’s~~modification ~~USB~~of ~~division~~the agreement during the ~~year~~current ~~ended~~fiscal ~~March~~year ~~31,~~and ~~2003 from~~ the ~~prior~~related ~~year~~financial ~~period.~~performance ~~These~~of ~~additional~~NWS-Illinois ~~expenditures~~in ~~are~~2005. ~~directly~~The ~~related~~Company was able to ~~the additional~~reduce ~~volume~~administrative ~~created~~expenses by ~~the~~$2.3 ~~nationwide~~million ~~sales~~during ofthe ~~Grolsch,~~current ~~Seagram’s~~fiscal ~~Coolers~~year ~~and~~compared ato the ~~product~~prior ~~launch~~annual period, including reductions in ~~the~~health ~~spring~~costs of ~~2003~~$0.8 ~~Wage~~million, ~~increases~~reduced ~~and~~professional ~~additional~~fees ~~promotional~~of ~~costs~~$0.6 ~~in the~~million, ~~Indiana~~reduced ~~and~~amortization ~~Illinois~~expense ~~markets~~of ~~also~~$0.4 ~~contributed~~million, toand ~~the~~lower ~~increased~~casualty ~~selling~~insurance ~~expense~~costs of $0.4 million.

~~Administrative expense~~Cash ~~increased~~flow ~~$2.7~~from ~~million~~operations for the year ended March 31, ~~2003~~2005 were $12.1 million, a decrease of $3.9 million from the prior ~~year~~fiscal ~~period~~year. ~~Increased~~ ~~administrative~~This ~~costs~~comparative ~~related~~decrease toin ~~the~~operating ~~USB~~cash ~~division~~flow ~~for~~was ~~wages,~~primarily ~~benefits,~~the ~~and amortization~~result of ~~distributor~~a ~~rights~~reduction ~~were~~in ~~primarily~~working ~~responsible~~capital ~~for~~of ~~the~~$29.5 ~~increase~~million from the Company’s Illinois business during the prior fiscal year’s ~~comparable~~which ~~period~~did not occur during the current fiscal year. ~~Increased~~The ~~costs~~Company ~~for~~was ~~casualty~~able ~~insurance~~to reduce debt by $3.2 million during the current fiscal year while increasing cash balances by $1.5 million from March 31, ~~professional~~2004. Stockholder ~~fees,~~distributions ~~and~~for ~~health~~the ~~care,~~year ~~across~~ended ~~all~~March ~~divisions~~31, 2005 were ~~responsible~~$0.2 ~~for~~million as compared to $6.0 million during the ~~remaining administrative~~prior ~~expense~~fiscal ~~increase~~year primarily due to lower income tax obligations of the shareholders.

~~Income~~Results ~~From~~of Operations

~~Operating income was $15.5 million for the year ended March 31, 2003, compared to $19.6 million for the prior year period.~~ The ~~decline~~following intable ~~revenue~~includes ~~and~~information ~~resulting~~regarding ~~decrease in operating income~~total ~~from~~cases ~~the~~shipped ~~Company’s~~by ~~Illinois~~NWS ~~business was primarily responsible for the decrease~~ in ~~operating~~ ~~income~~2005, ~~which~~2004 ~~more~~and ~~than~~2003: ~~offset the increased operating income from the USB operations.~~

Interest Expense


	Year Ended March 31 (Cases in thousands)
	2005	2004					2003
	Cases	Percent Change		Cases	Percent Change		Cases
Wine (product sales)	2,307	0.1	%	2,304	(21.5	)%	2,934
Spirits (product sales)	2,323	6.0	%	2,192	(34.8	)%	3,361
Spirits (distribution fees)	2,907	(0.2	)%	2,912	14.2	%	2,549

Total wine and spirits	7,537	1.7	%	7,408	(16.2	)%	8,844

Other	8,316	(9.0	)%	9,139	2.3	%	8,933

Total	15,853	(4.2	)%	16,547	(6.9	)%	17,777

Interest expense declined $2.6 million, or 22.0% to $9.3 million for the year ended March 31, 2003 from the prior year period. Reduced revolving credit balances during the year ended March, 31, 2003, the decline in the prime rate upon which the CompanyUSB’s ~~revolving~~ ~~line~~results ofare ~~credit~~included isin ~~based and gains from~~ the ~~discounted~~other ~~repurchases~~category ~~of the Company's senior notes were primarily responsible~~ for the ~~decreased~~current expense. As of March 31, 2003 the appicable interest rate on the revolving line of credit was 4.5%. The Company repurchased $17.9 million of its senior notes on the open market during the quarter ended March 31, 2003 at 86% of face value and ~~expensed associated~~prior ~~unamortized debt issuance costs resulting in the $2~~years.0 million gain. The open market repurchases of $17.9 million of senior notes had a minimal effect on cash interest expense for the year ended March 31, 2003, as the purchases were completed during March, 2003.

~~Other~~- ~~Income~~20 -

-Management’s 19Discussion -and Analysis of Financial Condition and Results of Operations (continued)

~~Net~~Fiscal ~~Income~~2005 Compared with Fiscal 2004

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

Total revenue increased $13.0 million to $553.7 million for ~~EBITDA~~the year ended March 31, 2005 as compared to the prior fiscal year. Product sales case volume in the spirits category increased 6.0%, which resulted in an increase of $26.4 million in product sales revenue, and the case volume in the wine category was stable for the current fiscal year as compared to the prior year. Revenue from wine decreased by $3.5 million, primarily due to the Company not representing certain wine brands in its Illinois business during the last six months of the current fiscal year. Distribution fee revenue increased by $2.2 million for the year ended March 31, 2005, primarily due to greater brokerage commissions of $1.4 million and an increase in the per case distribution fees effective during February 2004. Other case volume declined from the prior year period, which resulted in a decrease of $12.1 million in product sales revenue when compared to the prior year period.

~~For financial~~Gross ~~analysis~~Profit purposes only, the Company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for the year ended March 31, 2003 was $34.7 million as compared to $27.7 million for the prior year’s comparable 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. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview.”

Gross profit increased $5.9 million to $125.1 million due to the increased product sales revenue resulting from the additional brand ~~Fiscal~~representation ~~2002~~in ~~Compared~~certain ~~with~~markets ~~Fiscal~~on ~~2001~~an exclusive basis and increased distribution and brokerage revenue. Gross profit percentage on product sales of 18.3% for the current fiscal year was above the 17.9% for the prior year, primarily the result of price increases that were enacted in certain product sales markets which offset the effect of competitive conditions in the Company’s Illinois market and the settlement of a purchase commitment of $1.0 million during the Company’s first fiscal quarter. Distribution fees increased by $2.2 million during the current year’s period, primarily due to an increase in the per-case distribution fee and increased brokerage fees of $1.4 million on additional brands that are represented during the current year compared to the prior year’s comparable period.

~~Revenue. The~~Operating ~~Company~~Expenses reported product sales for the year ended March 31, 2002 of $659.6 million, an increase of $22.7 million, or 3.6% over the prior year period. The increase was primarily the result of continued consumer preference for premium-priced goods in both the spirits and wine categories. The revenue growth was primarily from the spirits category, which experienced a 2.6% increase in revenue on flat case sales for the current fiscal year as compared to the prior annual period. Revenue from wine sales remained stable, increasing 0.4% for the current fiscal year on slightly lower case sales as compared to the prior annual period. The case sales decline was primarily the result of the Indiana market, which did not represent the Sutter Home line during the most recent fiscal year, which adversely affected case sales by 115,000 as compared to the prior annual period. Distribution fee revenue remained stable at $22.0 million for the year ended March 31, 2002, compared to $21.6 million for the prior annual period. A rate increase authorized by the State of Michigan of $0.16 per case was effective February 1, 2002.

~~Gross Profit. Gross~~Total ~~profit~~operating ~~dollars~~expenses ondeclined ~~product~~by ~~sales increased~~ $5.7.3 million ~~for~~from the prior year, ~~ended~~primarily ~~March~~from ~~31,~~increased ~~2002,~~management anfees ~~increase~~related to the Company’s Illinois business of 4$6.7%1 million and reduced administrative costs of approximately $2.3 million, ~~from~~which more than offset increased expenses in the ~~prior~~Company’s ~~year~~sales ~~period~~area of $1.0 ~~Gross~~million. ~~profit~~Excluding ~~percentage~~management onfees, operating expenses in the product sales ~~was~~segment ~~19.5% for~~during the current fiscal year ~~ended~~decreased ~~March~~$2.7 31million from the prior year, primarily ~~2002~~from ~~versus~~reduced 19administrative expenses of $2.3%6 ~~for~~million ~~the~~and ~~prior~~reduced ~~year~~sales ~~period~~expenses of approximately $0.5 ~~The increase~~million. Operating expenses in ~~gross~~the ~~margin~~Company’s ~~dollars~~fee ~~were~~operations ~~primarily~~for ~~from~~the current year increased ~~revenue~~by inapproximately ~~the~~$1.6 million primarily ~~Illinois~~due ~~market~~to ~~and~~greater ~~increased~~sales ~~margin~~expense ~~percentage~~of on$1.6 ~~stable~~million ~~revenue~~during ~~for~~the current fiscal year as compared to the ~~Indiana~~ ~~market~~prior fiscal year.

~~Operating Expenses. Total~~- ~~operating~~21 ~~expenses~~- for the year ended March 31, 2002 increased $6.0 million, or 4.8% over the operating expenses for the year ended March 31, 2001. The Company had stable warehouse and delivery costs, while experiencing higher costs for professional fees, sales and marketing wages, and casualty and health insurance.

~~Selling~~Management’s ~~expenses~~Discussion ~~increased $1.1 million to $46.8 million for the year ended March 31, 2002 as compared to the prior year period. Additional sales~~ and ~~marketing~~Analysis ~~costs,~~of ~~including~~Financial ~~staff~~Condition and ~~wage~~ ~~increases~~Results ~~were~~of ~~primarily~~Operations ~~responsible for the greater selling expenses.~~(continued)

~~Total administrative~~Warehouse ~~expense increased $4.9 million or 12.3% for the year ended March 31, 2002 versus the prior annual period. Increases in health & welfare benefits, casualty~~ and ~~workman’s~~ ~~compensation~~delivery ~~insurance,~~expenses ~~and professional fees~~ were ~~primarily responsible~~flat ~~for~~during the ~~increase from the prior annual period. The Company has experienced higher costs for employee’s health care throughout the~~ current fiscal year, ~~both~~as incompared to the ~~partially self~~prior ~~funded~~year. ~~plan,~~Reductions ~~and by increases~~ in ~~multi-employer~~depreciation ~~fully~~expense ~~insured~~of ~~plans that cover bargaining unit employees~~$1.1 ~~The~~million ~~Company~~offset ~~renewed its property and casualty insurance in December, 2001 and expects to report~~ increased costs ~~for~~of ~~the~~wages ~~current~~of ~~policy~~$0.6 ~~period~~million ~~due to increased rates on facilities,~~ and ~~excess~~greater ~~liability~~fuel ~~coverage. Professional fees have increased from the comparable prior annual period due to~~ costs ~~related to the implementation~~ of ~~enhanced~~$0.4 ~~internal control procedures and the change of auditors from the prior year~~million.

Selling expenses for the product sales segment decreased $0.5 ~~Income~~million from ~~Operations. Total~~the ~~operating~~prior ~~income~~fiscal ~~increased~~year, primarily due to reductions in brand promotion costs of $02.18 million, orwhich 0offset increased wages of approximately $2.1% ~~for~~million. ~~the~~Sales ~~year~~salaries ~~ended March~~and ~~31,~~associated ~~2002,~~travel ~~over~~expenses for the ~~prior~~fee ~~annual~~operations ~~period.~~increased during ~~The~~the ~~slight~~current ~~increase~~fiscal inyear ~~operating~~by ~~income~~approximately ~~was primarily~~$1.3 million due to the ~~increased~~addition ~~gross~~of ~~profit~~the ~~dollars~~Moet ~~and~~Hennessy ~~reduced~~brands ~~operating~~and ~~expenses~~expansion byof the ~~Indiana~~ ~~market~~Fortune ~~for~~and ~~the~~Diageo ~~year~~brokerage ~~ended~~fee ~~March~~operations ~~31, 2002~~ as compared to the prior ~~annual~~fiscal ~~period~~year.

Administrative expenses decreased by $2.3 million from the -prior 20fiscal -year. The decrease was primarily from reduced health care costs of $0.8 million, lowered professional fees of $0.6 million, reduced casualty insurance of $0.4, and reduced expenses for information services of $0.4 million.

~~Interest~~Management ~~Expense. Interest~~fees ~~expense~~from ~~decreased~~Glazer, ~~$1.3~~as ~~million~~part orof ~~9.7% for~~ the ~~year~~management services ~~ended~~agreement, ~~March~~were ~~31,~~$18.7 ~~2002 compared~~million tofor the ~~prior~~fiscal year., ~~The~~as ~~Company~~compared ~~was able~~ to ~~take~~$12.6 ~~advantage~~million offor ~~LIBOR pricing, which reduced~~ the ~~Company’s~~prior ~~rate~~fiscal ~~relative~~year. toThese ~~prime~~increased ~~based~~fees ~~pricing~~from onthe ~~its~~prior ~~revolving line of credit. The Company~~year’s ~~reduction~~annual inperiod ~~its~~were ~~average~~due ~~borrowings~~to on the ~~revolving~~modification ~~line~~ of ~~credit~~ ~~and~~ the ~~reductions~~agreement induring ~~the~~September ~~prime~~2004 ~~rate were primarily responsible for the reduced~~and ~~expense for~~ the ~~year~~impact ~~ended~~of ~~March 31, 2002, compared to the prior annual period. The Company~~NWS-Illinois’s ~~revolver~~financial ~~rate was 4~~performance.~~75%~~ ~~at March 31, 2002 and was 8.5% at March 2001.~~

~~Other~~ Income~~. Other~~ ~~income~~From ~~decreased~~Operations $8.1 million from the comparable annual period, primarily due to the $7.5 million gain from the sale of the bottled water division in June 2000, increased equity losses and impairment in value from the investment in eSkye, and reduced interest income due to reductions in balances of the shareholder notes in NWSC.

~~Net~~Operating ~~Income. Net~~ income ~~decreased~~increased by $613.72 million for the fiscal year ended March 31, ~~2002,~~2005 ~~as compared~~ to $12.1 versus the prior ~~annual~~year ~~period~~fiscal year. The ~~decrease~~Company’s ~~was~~increased ~~primarily~~gross ~~due~~profit toby ~~the~~$5.9 ~~gain~~million, ~~from~~reduced ~~the~~administrative ~~sale~~expenses ~~of the~~by ~~bottled~~$2.3 ~~water~~million, ~~division~~and greater management fees of $76.51 million ~~during~~were the ~~previous~~primary ~~annual~~reasons ~~period.~~for ~~Net~~the increase in operating income~~, excluding~~ ~~the~~as ~~gain~~compared ~~from~~to the ~~sale~~prior offiscal ~~the~~year. ~~bottled~~Operating ~~water~~income ~~division,~~for ~~increased~~the ~~13.0%~~fee oroperations segment increased $0.9 6 million for the current fiscal year, ~~ended~~primarily due ~~March~~to ~~31,~~the ~~2002,~~increased asdistribution ~~compared~~and tobrokerage ~~the~~fees ~~prior~~of ~~annual~~$2.2 ~~period~~million that more than offset increased selling costs of $1.6 million.

~~For~~Interest ~~financial~~Expense analysis purposes only, the Company’s earnings before interest, taxes, depreciation and amortization (EBITDA) for the year ended March 31, 2002 was $27.7 million, a decrease of $8.6 million, or 23.6% as compared to the prior annual period. The decrease was primarily due to the gain from the sale of the bottled water division of $7.5 million during the previous annual period. EBITDA should not be construed as an alternative to operating income or net cash flow from operating activities and should not be construed as an indication of operating performance or as a measure of liquidity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview.”

Interest expense increased $0.7 million to $9.5 million for the fiscal year ended March 31, 2005 as compared to the prior fiscal year, ~~Liquidity~~primarily ~~and~~due ~~Capital~~to ~~Resources~~gains from the repurchase of the Company’s senior notes of $0.7 million which occurred during the prior year period. The Company repurchased $1.95 million of its senior notes during the current fiscal year for $1.8 million, which resulted in a gain of $0.1 million after the write-off of unamortized debt issuance costs.

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

~~On March~~The ~~31,~~receipt ~~2003 the Company entered into a new credit agreement with LaSalle Bank N.A., as lender and agent, and National City Bank~~ of ~~Indiana,~~an ~~that~~arbitration ~~provides~~award ~~a revolving line~~ of ~~credit for borrowings of up to~~ $402.03 million, ~~including standby~~was orprimarily ~~commercial~~responsible ~~letters~~for of credit of up to $5.0 million, through April 1, 2008. The line of credit borrowings are collateralized by and based upon eligible accounts receivable and inventories, as defined, and are guaranteed by the Company’s ~~subsidiaries.~~increase ~~Interest~~in isOther ~~payable~~income ~~monthly~~for at the ~~LIBOR~~fiscal ~~rate or~~year ~~the~~ended ~~higher~~March of31, ~~the~~2005 ~~prime~~as ~~lending~~compared ~~rate~~to or the ~~federal funds rate, plus a margin~~prior ~~percentage.~~fiscal ~~The Company’s revolver rate of interest was 4~~year.5% ~~at March 31, 2003.~~

~~At March~~- ~~31,~~22 ~~2003,~~- the Company had $4.0 million of outstanding advances on its $40.0 million revolving credit facility and $4.5 million of letters of credit outstanding, resulting in availability of $30.5 million. The Company anticipates that the collateral base for the revolving credit facility will provide adequate availability to fund operations and working capital needs during fiscal 2004.

Net cash used by investing activities was $2.5 million for the year ended March 31, 2003, a decrease of $2.8 million from the comparable prior year period. The decreased use of cash, as compared to the prior yearManagement’s ~~comparable~~Discussion ~~period,~~and ~~was~~Analysis ~~primarily due to reduced capital expenditures~~ of ~~$2.0~~Financial ~~million~~Condition and ~~increased~~Results ~~distributions received from Commonwealth Wine & Spirits, LLC~~ of ~~$0.9~~Operations ~~million. The Company reduced its capital~~(continued) expenditures during fiscal 2003 due to the uncertainty surrounding supplier consolidations. The Company intends to continue the reduced level of capital expenditures during fiscal 2004 at maintenance levels between $2 million and $2.5 million.

-Net 21Income -or Loss

Net ~~cash~~ ~~used~~income bywas ~~financing activities increased by~~ $95.04 million for ~~the~~current fiscal year ended March 31, ~~2003~~ as2005, ~~compared~~which ~~to the prior year period. Purchases of the Company’s senior notes in the open market were primarily responsible for the~~ increased ~~use of funds~~ by ~~financing activities. The Company purchased~~ $1714.96 million offrom ~~its~~the ~~senior~~prior ~~notes at approximately 86% of face during~~ fiscal ~~2003~~year. ~~The~~Improvement ~~Company may continue to selectively pursue repurchase opportunities~~ in the ~~open~~net ~~market~~income ~~during~~from ~~fiscal 2004. The revolving credit facility allows up to $20 million of debt repurchases subsequent to March 31, 2003, if after giving effect to~~ the ~~purchase,~~product ~~there~~sales issegment ~~$15 million~~ of ~~availability under the~~ $~~40 million revolving credit facility~~13.7 ~~Outstanding advances on the revolving credit facility were $4.0~~ million at ~~March 31, 2004, which~~ was ~~used~~primarily ~~for working capital needs. The Company will utilize~~ the ~~positive~~ ~~cash~~reason ~~flow~~for ~~from~~ the ~~downsizing~~increase ofin ~~Illinois~~net ~~operations,~~income ~~proceeds~~for ~~from~~ the ~~vendor settlement~~current ~~payment, existing cash and its credit facility to fund operations and possible additional senior note repurchases during~~ fiscal ~~2004. The Company’s distributions to stockholders increased by $0.9 million for the~~ year ~~ended March 31, 2003~~ as compared to the prior ~~year~~fiscal ~~period. Distributions for the~~ year ~~ended March 31, 2003 were used by the shareholders for income tax estimates of $5~~.8 million and to repay the Company’s shareholder receivable of $2.7 million. Other uses of shareholder distributions were to purchase the equity interests of a subsidiary’s minority shareholder for $0.3 million and provide funds to a minority shareholder of $0.6 million. The Company expects shareholder distributions to be reduced during fiscal 2004 due to reduced tax liabilities. Shareholder distributions other than for tax liabilities are limited by the revolving credit facility and indenture.

~~Total assets~~EBITDA increased to $203.7 million at March 31, 2003, a $2.3 million increase from March 31, 2002. The increase in assets and other liabilities were primarily due to the acquisition of distribution rights for brands represented by NWS Indiana and USB. Distribution rights of $12.6 million were acquired that had deferred payment terms, of which $1.6 million was paid as of March 31, 2003. Cash balances decreased $5.9 million during the year ended March 31, 2003 due to funding of working capital and shareholder distributions. Accounts receivable balances at March 31, 2003 were $5.7 million lower than the March 31, 2002 balances, primarily from the reduced volume in the Illinois market. Total debt of $98.3 million at March 31, 2003 as compared to March 31, 2002 decreased due to the Company’s repurchase of $17.9 million of its senior notes on the open market. Notes payable to stockholders increased by $2.4 million due to the offset of the shareholder receivable against the shareholder payable at March 31, 2002. Equity increased to $27.9 million at March 31, 2003 as compared to March 31, 2002 due to net income of $15.8 million less shareholder distributions of $9.4 million and an increase in unrecognized net pension loss of $1.6 million.

~~The~~ For financial analysis purposes only, the Company’s earnings ~~expects~~before interest, taxes, depreciation, and amortization (EBITDA) for the fiscal year ended March 31, 2005 was $25.5 million as compared to ~~maintain~~$11.8 ~~adequate~~million ~~cash~~for ~~balances~~the prior fiscal year. Please see the discussion and ~~revolving~~reconciliation ~~credit~~regarding ~~facility~~EBITDA ~~availability~~as toa ~~satisfy~~non-GAAP ~~the~~financial ~~Company~~measure set forth in “Management’s ~~anticipated~~Discussion ~~working~~and ~~capital~~Analysis of Financial Condition and ~~debt~~Results ~~service~~of Operations – Overview”. EBITDA should not be construed as an alternative to operating income or loss, or net ~~requirements~~cash ~~during~~flow ~~fiscal~~from ~~2004~~operating activities and should not be construed as an indication of operating performance or as a measure of liquidity.

~~Other~~Fiscal 2004 Compared with Fiscal 2003

~~As a~~Revenue matter of policy, the Company plans to review and evaluate all professional services firms every three to four years. This review will include but is not limited to legal, audit and information systems services.

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

~~Inflation has~~- ~~not~~23 ~~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.

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 ownerManagement’s ~~ability~~Discussion ~~to borrow using the real estate as collateral~~ and toAnalysis ~~transfer its interest in the real estate. Although the Company is not aware~~ of ~~the~~Financial ~~presence~~Condition ~~of hazardous substances requiring remediation, there can be no assurance that releases unknown to the Company have not occurred. Except for blending~~ and ~~bottling~~Results of aOperations ~~few of the Company’s~~(continued) private label brands, the Company does not manufacture any of the wine or spirit products it sells and believes that it has conducted its business in substantial compliance with applicable environmental laws and regulations. Compliance with environmental laws has not had a material effect upon NWS’ capital expenditures, earnings or competitive position.

-Gross 22Profit -

Gross profit decreased $40.8 million to $119.2 million as a ~~Critical~~result ~~Accounting~~of ~~Policies~~decreased product sales, partially offset by an increase in distribution fees. Gross margin on product sales decreased $44.9 million for the year ended March 31, 2004 as compared to the prior annual period. The sales volume decline in the Company’s Illinois business was primarily responsible for the drop in gross margin dollars during the year ended March 31, 2004, as compared to the prior year’s annual period. Gross profit percentage on product sales of 17.9% was below the prior year’s comparable period of 19.9% primarily due to increased brand support by USB of approximately $5.1 million, amortization of distribution rights of approximately $3.6 million, and competitive pricing in the Company’s Illinois operations due to the reduced brand representation. Incremental gross margin from the fee operations segment of $4.0 million was primarily due to the addition of the S&S, Fortune and increased volume of the Diageo and Allied Domecq brands.

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

~~The~~Operating ~~Company~~expenses ~~continually~~for ~~evaluates~~the ~~its~~product ~~accounting~~sales ~~policies~~segment ~~and estimates it~~decreased ~~uses~~$26.8 million to ~~prepare~~$95.1 million, or 22.0% for the ~~consolidated~~year ~~financial~~ended ~~statements. In~~March ~~general~~31, ~~management~~ 2004 as compared to the prior year’s ~~estimates~~annual ~~are~~period. ~~based~~Management onfees ~~historical~~received ~~experience~~from Glazer in the Company’s Illinois business, onstaffing ~~information~~adjustments, and cost reduction ~~from~~initiatives ~~third~~were ~~party~~primarily ~~professionals~~responsible ~~and~~for onthe ~~various~~reduction ~~other~~in ~~assumptions~~product ~~that~~sales ~~are believed~~operating toexpenses beduring ~~reasonable~~the ~~under~~year ended March 31, 2004 as compared to the ~~facts~~prior ~~and~~year’s ~~circumstances~~annual period. ~~Actual results~~ ~~could~~Operating ~~differ~~expenses ~~from~~in ~~those~~the ~~estimates~~Company’s ~~made~~fee operations increased by ~~management~~approximately $2.5 million due to the increased case volume over the year ended March 31, 2004 as compared to the prior year’s annual period.

~~The~~Warehouse ~~Company~~and ~~believes~~delivery ~~its critical~~expenses ~~accounting~~in ~~policies~~the ~~and~~product ~~estimates,~~sales assegment ~~reviewed~~were ~~and~~reduced ~~discussed~~by ~~with~~$3.6 million during the ~~Audit~~ ~~Committee~~year ofended March 31, 2004 as compared to the ~~Board~~prior ofannual ~~Directors~~period, ~~include~~due ~~accounting~~to reductions in personnel and case volume in the Company’s Illinois business. Warehouse and delivery expenses for ~~impairment~~the ~~of long-lived~~Company’s ~~assets, accounts~~fee ~~receivable~~operations ~~valuation,~~increased ~~inventory~~by ~~valuation~~approximately $1.0 million, primarily from ~~vendor~~increased ~~allowances~~labor expense, equipment repair and ~~pensions~~ supplies that resulted from the increased case volume.

~~Impairment~~Selling ofexpenses ~~Long-lived Assets. The~~for ~~Company~~the ~~evaluates~~product ~~long-lived~~sales ~~assets~~segment ~~and~~decreased ~~intangibles~~$9.2 ~~subject~~million tofrom ~~amortization~~the ~~whenever~~prior ~~events~~year’s orannual ~~changes~~period, inprimarily ~~circumstances~~as ~~indicate~~a ~~that~~result ~~the carrying amount~~ of an ~~asset~~significant ~~may~~cost ~~not~~reductions bein ~~recoverable. In performing~~ the ~~review~~Company’s ofIllinois ~~recoverability,~~operation. ~~the~~The Company’s ~~estimates~~Illinois ~~future~~expense ~~cash~~reduction ~~flows~~for ~~expected~~sales tosalaries, ~~result~~commissions, ~~from the~~travel, ~~use~~entertainment, ~~of the asset~~ and ~~its~~promotion ~~eventual~~costs ~~disposition. The estimates~~ of ~~future cash~~approximately ~~flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgments~~$9. ~~The~~7 ~~time~~million ~~periods~~was ~~for estimating~~the ~~future~~result ~~cash~~of ~~flows is often lengthy, which increases~~ the ~~sensitivity to~~reduced ~~assumptions~~sales ~~made~~volume. ~~Depending~~ onSales ~~the~~salaries ~~assumptions~~ and ~~estimates~~associated ~~used, the~~travel ~~estimated~~expenses ~~future~~for ~~cash~~the ~~flows~~fee ~~projected~~operations inincreased ~~the~~by ~~evaluation~~approximately of$1.4 ~~long-lived~~million ~~assets~~due ~~can vary~~to ~~within~~the aaddition ~~wide range~~ of ~~outcomes. The Company considers~~ the ~~probability of~~S&S ~~possible~~brands ~~outcomes~~and inexpansion ~~determining~~of the ~~best~~Fortune ~~estimate~~and ofDiageo ~~future~~brokerage ~~cash flows~~operations.

~~Receivables~~Administrative ~~and~~expenses ~~Credit Policies. The~~for ~~carrying~~the ~~amount~~product ofsales ~~accounts~~segment ~~receivable is~~decreased ~~reduced~~ by an$2.2 ~~allowance~~million ~~that~~for ~~reflects~~the ~~management’s~~year ~~best~~ended ~~estimate~~March ~~of the~~31, ~~amounts~~2004 ~~that~~as ~~will~~compared ~~not~~to bethe ~~collected. Management~~prior ~~individually~~year’s ~~reviews~~annual ~~all accounts~~period. ~~receivable~~The ~~balances~~decrease ~~and~~was ~~creates~~primarily anthe ~~allowance~~result ~~for~~of ~~doubtful~~expense ~~accounts based~~reductions onin the ~~credit~~MIS ~~worthiness~~area of ~~specific~~ ~~accounts~~$0.7 million, office wages and antaxes ~~estimate~~of $0.8 million, property taxes of ~~other~~ ~~uncollectible~~$0.6 ~~accounts~~million, ~~based~~and onreduced ~~historical~~depreciation expense ~~performance~~of $0.3 million.

~~Vendor~~- ~~Allowances Received. The~~24 ~~Company records vendor allowances and discounts in accordance with EITF 02~~-~~16:~~ Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor. The Company receives allowances from vendors as a result of purchasing and promoting their products. Vendor allowances provided as a reimbursement of specific, incremental, and identifiable costs incurred to promote a vendor's products are recorded as an expense reduction when the cost is incurred. All other vendor allowances, including vendor allowances received in excess of the Company's cost to promote a vendor's product, or vendor allowances directly related to purchase of a vendor's product are initially deferred. The deferred amounts are then recorded as a reduction of cost of good sold when the related product is sold.

At the end of each year, the Company determines the discount rate to be used to calculate the present value of plan liabilities. The discount rate is an estimate of the current interest rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the Company uses the preceding NovemberManagement’s ~~Moody’s~~Discussion AAand ~~Corporate~~Analysis ~~Bond Index rounded down to the nearest ¼~~ of aFinancial ~~percentage~~Condition ~~point. At~~and ~~March~~Results ~~31, 2003, the Company determined this rate to be 6.5%, a decrease~~ of 50Operations ~~basis points from the rate used at March 31, 2002. Changes in discount rates over the past three years have not materially affected pension income~~ (~~cost~~continued)~~, and the net effect of~~ ~~changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, have been deferred, in accordance with SFAS No. 87.~~

Management fees from Glazer as part of the -management 23services -agreement were $12.6 million for the year ended March 31, 2004. These payments were $11.7 million greater than the fees during the prior fiscal year because the agreement was put in place near the end of 2003.

~~The~~Loss ~~significant~~From ~~declines~~Operations in the financial markets over the past two years coupled with the decline in interest rates have caused the Company’s accumulated pension obligation to exceed the fair value of the related plan assets. As a result, in 2003 the Company recorded an increase to accrued pension liability and a non-cash charge to equity of approximately $1.1 million. This charge may be reversed in future periods if market conditions improve or interest rates rise.

Operating income for the product sales segment declined ~~For~~$18.1 million for the year ended March 31, ~~2003~~2004, ~~the~~to ~~Company~~an ~~recognized~~operating ~~consolidated~~loss ~~pretax pension cost~~ of $03.5 0 million, upversus ~~from~~ $015.31 million inof ~~2002. The~~operating ~~Company~~income ~~currently~~for ~~expects that~~ the ~~consolidated~~prior ~~pension~~annual ~~cost~~period. ~~for~~The ~~2004~~decline ~~will~~in ~~not~~revenue beand ~~materially~~gross ~~different~~profit from ~~2003. The~~ the Company’s ~~required~~Illinois ~~minimum~~division, ~~amount~~and ofthe increased ~~2004~~brand ~~contributions will~~promotion ~~not~~costs ~~exceed~~in ~~actual~~the ~~contributions~~Company’s ~~made~~USB division, were primarily responsible for the decrease in ~~2003~~operating income. ~~However,~~ ~~the~~Fee ~~Company may~~operations ~~elect~~experienced toan increase of $1.5 million in operating income during the ~~level~~year ofended ~~contributions~~March in31, 2004 ~~over~~as compared ~~2003~~to ~~levels~~the ~~based on~~prior aannual ~~number~~period, primarily due to the increased fee revenue of ~~factors,~~$4.0 ~~including~~million ~~performance~~with an operating expense increase of ~~pension~~$2.5 ~~investments,~~million. ~~changes~~The ~~in interest~~Company ~~rates,~~was able to achieve fee revenue increases prior to the addition of the incremental sales staffing and ~~changes~~brand inpromotion ~~workforce~~costs ~~compensation~~associated with the newly acquired brands.

~~Aggregate~~Interest ~~Contractual~~Expense ~~Commitments~~

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

	Payments Due by Period
Contractual Obligations	Total	Less than1 year	1-3 years	3-5 years	More than5 years
Long-term debt obligations	$ 98,303,000	---	---	---	$ 98,303,000
Operating lease obligations	13,059,000	3,635,000	5,883,000	2,857,000	684,000
Distribution rights
obligations	12,690,000	2,329,000	3,657,000	3,329,000	3,375,000
Guaranteed minimum	2,722,000	2,722,000	---	---	---
royalties
Deferred pension and other liabilities(1)	698,000	698,000	---	---	---
	$127,472,000	$9,384,000	$9,540,000	$6,186,000	$102,362,000

Other Income

~~(1)~~ The ~~amounts~~reduction ~~for~~in ~~deferred~~other ~~pension~~income ~~and~~for ~~other~~the ~~liabilities~~year ~~include~~ended ~~only~~March ~~those~~31, 2004 ~~amounts~~was primarily due ~~within~~to the one time payments of $9.2 million received during fiscal ~~2004~~2003. Equity in income from Commonwealth Wine & Spirits, asLLC ~~future~~increased ~~amounts~~$0.4 ~~are~~million ~~not~~during ~~estimable~~the atyear ~~this~~ended ~~time~~March 31, 2004 as compared to the prior annual period.

~~Recently~~Net ~~Issued~~Loss ~~Accounting Pronouncements~~

InNet ~~June~~income ~~2001,~~declined ~~the~~from ~~Financial Accounting Standards Board issued Statements of Financial Accounting Standards No~~$15.8 ~~141,~~million ~~Business Combinations,~~during ~~and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under~~ the ~~new rules, goodwill (and intangible assets deemed to have indefinite lives)~~prior ~~will~~year’s ~~no longer be amortized but will be subject to~~ annual ~~impairment~~period ~~tests. Other intangible assets will continue~~ to bea ~~amortized~~net ~~over~~loss ~~their~~of ~~useful lives~~$9. ~~The~~1 ~~Company~~million ~~adopted~~for the ~~new~~year ~~rules~~ended onMarch ~~accounting for goodwill and other intangible assets effective April 1~~31, ~~2002~~2004. ~~Under~~Net ~~SFAS~~losses ~~No.~~in ~~142,~~the ~~goodwill impairment~~product issales ~~deemed~~segment tofrom ~~exist if~~ the ~~carrying~~Company’s ~~value~~Illinois ofand aUSB ~~reporting~~operations ~~unit~~as ~~exceeds its~~compared ~~estimated~~to ~~fair value. In calculating~~ the ~~impairment~~prior ~~charge~~annual period, ~~the~~and ~~fair values of~~ the ~~reporting~~one ~~units~~time ~~were estimated using a discounted cash flow methodology.~~payments ~~The Company performed the required impairment tests~~ of ~~goodwill~~$9.2 ~~and~~million ~~indefinite lived~~during ~~intangibles~~fiscal as2003 ofwere ~~April~~the 1,primary ~~2002~~reasons ~~and~~for ~~March~~the ~~31,~~decrease ~~2003~~in ~~and~~income ~~found~~during ~~them~~the ~~not~~current ~~to be~~fiscal ~~impaired~~year.

~~In August 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long~~-~~Lived~~ ~~Assets~~25 ~~which requires impairment losses to be recorded on long~~-~~lived~~ assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. Statement 144 also addresses the accounting for expected disposals of long-lived assets. The Company adopted Statement 144 during the first quarter of fiscal 2003 and, based on current circumstances, it has not had a material effect on the Company's results of operations or its financial position.

-Management’s 24Discussion -and Analysis of Financial Condition and Results of Operations (continued)

InEBITDA June 2002, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities, effective for exit or disposal activities that are initiated after December 31, 2002. This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). Although the Company was engaged in an employee reduction at March 31, 2003, the associated costs from the adoption of this standard did not have a material impact on its financial statements.

~~The~~For ~~Company~~financial ~~adopted~~analysis ~~the~~purposes ~~Emerging~~only, ~~Issues~~the ~~Task~~Company’s earnings ~~Force~~before ~~Issue~~interest, ~~02-16:~~taxes, ~~Accounting~~depreciation, ~~by a~~and ~~Customer~~amortization (~~Including a Reseller~~EBITDA) for ~~Certain~~the ~~Consideration~~year ~~Received~~ended ~~from~~March ~~a Vendor for arrangements either modified or created after December~~ 31, ~~2002. This~~2004 ~~statement~~was ~~reached~~$11.8 amillion ~~consensus~~as ~~that~~compared ~~cash~~to ~~consideration~~$34.7 ~~represents~~million ~~a reimbursement~~for ofthe ~~costs~~prior ~~incurred~~year’s byannual ~~the~~reporting ~~customer~~period. toPlease ~~sell~~see the ~~vendor’s products~~discussion and ~~should~~reconciliation regarding beEBITDA ~~characterized~~ as a ~~reduction~~non-GAAP offinancial ~~that~~measure ~~cost~~set ~~when~~forth ~~recognized~~ in ~~the customer~~“Management’s ~~income~~Discussion ~~statement~~and ifAnalysis ~~the~~of ~~cash~~Financial ~~consideration~~Condition ~~represents~~and ~~a reimbursement~~Results of aOperations ~~specific,~~– ~~incremental,~~Overview”. ~~identifiable~~EBITDA ~~cost~~should ~~incurred~~not bybe ~~the customer~~construed inas ~~selling~~an ~~the~~alternative ~~vendor’s~~to ~~products~~operating income or ~~services.~~loss, Ifor ~~the~~net ~~amount of~~ cash ~~consideration~~flow ~~paid~~from byoperating ~~the~~activities ~~vendor~~and ~~exceeds the cost being reimbursed, that excess amount~~ should not be ~~characterized~~construed ~~in the customer’s income statement~~ as a ~~reduction~~an ofindication ~~cost~~ of ~~sales~~operating ~~when~~performance ~~recognized~~or inas ~~the~~a ~~customer’s~~measure ~~income statement. The Company has reviewed its accounting policies and methods and concluded that the recording~~ of ~~cash consideration received from vendors were recorded in accordance with the statement~~liquidity.

InLiquidity ~~November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantor’s Accounting~~ and ~~Disclosure~~Capital ~~Requirements~~Resources for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that upon issuance of certain guarantees, a guarantor must recognize a liability for the fair value of the obligation assumed under the guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements regarding certain guarantees and product warranties. The recognition provisions of National Wine & Spirits, Inc. FIN 45 is effective for guarantees issued or modified after December 31, 2002. The Company implemented the recognition provisions of FIN 45 in January 2003 there has been no material effect on the Company’s financial position or results of operations.

~~In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46) Consolidation of Variable Interest Entities.~~ The ~~term “variable interest is defined in FIN 46 as “contractual, ownership or other pecuniary interest in an entity that change with changes in the entity~~Company’s ~~net~~ ~~asset~~primary ~~value.”~~cash ~~Variable~~requirements ~~interest~~have ~~are~~been ~~investments~~to orfund ~~other~~accounts ~~interest~~receivable, ~~that will~~inventories, ~~absorb~~and apayment ~~portion~~ of andistribution ~~entity’s expected losses if they occur or~~rights ~~receive~~obligations ~~portions~~for of the ~~entity’s~~product ~~expected~~markets ~~residual~~in ~~returns~~Illinois, ifIndiana, ~~they~~Michigan, ~~occur~~and USB. The Company ~~does~~has ~~not~~historically ~~expect~~satisfied ~~the~~its ~~recognition~~cash ~~provisions~~requirements ofprincipally ~~FIN~~through 46cash toflow ~~have~~from ~~a material~~operations, ~~impact~~trade onterms, ~~the~~bank ~~Company’s~~borrowings ~~financial~~and ~~position~~existing orcash ~~results of operations~~balances.

The Company amended its $40 million revolving ~~Item~~credit 7Afacility as of June 30, 2004. ~~Quantitative~~ ~~and~~The ~~Qualitative~~amendment ~~Disclosures~~permits the Company to repurchase up to $10.0 million of its senior notes subject to certain availability levels. The Company repurchased $1.95 million of its senior notes during the fiscal year ~~About~~ended ~~Market~~March ~~Risk~~31, 2005 for $1.8 million, which resulted in a gain of $0.1 million after the write-off of unamortized debt issuance costs.

At March 31, 2005, the Company had $1.8 million of outstanding advances on its $40.0 million revolving line of credit facility and also had $4.0 million in letters of credit outstanding, resulting in availability of $34.2 million. Interest ~~Rate~~is ~~Risk~~payable monthly at the LIBOR rate or the higher of the prime lending rate or the federal funds rate, plus a margin percentage. The Company did not have any advances priced at the LIBOR based rate at March 31, 2005 and the Company’s prime based revolver rate of interest on March 31, 2005 was 5.75%. The line of credit borrowings are collateralized by and based upon eligible accounts receivable and inventories, as defined, and are guaranteed by the Company’s subsidiaries. The Company must maintain certain interest coverage and funded debt coverage ratios, with which the Company was in compliance at March 31, 2005. The Company anticipates that the collateral base for the revolving credit facility will provide adequate availability to fund operations and working capital needs during fiscal 2006.

~~The Company uses long~~-~~term~~ ~~debt~~26 ~~as a primary source of capital in its business. The following table presents the principal cash repayments and related weighted average interest rates by maturity date for the Company’s long~~-~~term~~ ~~fixed-rate debt and other types of long-term debt at March 31, 2003:~~

	2003	2004	2005	2006	2007	Thereafter	Total	Fair Value
Fixed	$ ---	$ ---	$ ---	$ ---	$ ---	$ 89,975,000	$ 89,975,000	$ 80,978,000
Avg. Rate	---	---	---	---	---	10.125%	10.125%
Variable	$ ---	$ ---	$ ---	$ ---	$ ---	$ 8,328,000	$ 8,328,000	$ 8,328,000
Avg. Rate	---	---	---	---	---	4.38%	4.38%

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

Cash provided by operating activities was $12.1 million -for 25the -fiscal year ended March 31, 2005 versus cash provided of $15.9 million for the prior fiscal year. This comparative decrease in operating cash flow was primarily the result of a reduction in working capital of $29.5 million from the Company’s Illinois business during the prior fiscal year which did not occur during the current year. Cash used by working capital for the fiscal year ended March 31, 2005 was approximately $3.0 million, primarily due to the funding of accounts receivable for the product sales segment of $3.0 million. Cash provided by net income (loss) and adjustments for depreciation and amortization were $16.0 million for the current fiscal year and $3.0 million for the prior fiscal year.

Net cash used by investing activities was $3.1 million for ~~Item~~the 8fiscal year ended March 31, 2005 compared to cash provided of $0. ~~Financial~~1 ~~Statements~~million during the prior fiscal year. Purchases of intangibles were $3.3 million greater during the current fiscal year that the prior year, and ~~Supplementary~~were ~~Data~~primarily related to an agreement with a supplier to receive certain future contractual benefits. The Company’s capital expenditures during the current fiscal year were approximately $0.2 million greater than the prior fiscal year, but were below the spending level of previous fiscal years.

Net cash used by ~~INDEPENDENT~~financing ~~AUDITORS'~~activities ~~REPORT~~was $7.4 million for the fiscal year ended March 31, 2005, a decrease of $12.9 million from the prior fiscal year. The Company repurchased approximately $9.9 million of its senior notes during the prior fiscal year while repurchasing $1.8 million during the current fiscal year. Additionally, distributions to stockholders during the current fiscal year were $0.2 million, while distributions to stockholders were $6.0 million during the prior fiscal year. Stockholder distributions other than for tax liabilities are limited by the revolving credit facility and indenture.

ToDuring 1998 Mr. LaCrosse, Chairman of the ~~Board~~Company, transferred substantially all of ~~Directors~~his ~~and~~non-voting ~~Stockholders~~stock to a family trust, as part of an ~~National~~estate-planning ~~Wine~~plan, &in ~~Spirits~~exchange for a note. As part of that transfer, ~~Inc~~the Company has distributed funds to Mr. LaCrosse, the family trust, and Mrs. Johnston during the prior fiscal years and were made within the terms and conditions contained in the Company’s indenture governing its senior notes (including the limitation on restricted payments) and the revolving credit facility. As of March 31, 2005 there was approximately $2.5 million owed to Mr. LaCrosse by the family trust related to the 1998 transfer and sale of the non-voting stock.

WeThe ~~have~~Company’s ~~audited~~total ~~the~~assets ~~accompanying~~of ~~consolidated~~$193.8 ~~balance~~million ~~sheet~~at ofMarch ~~National Wine & Spirits~~31, ~~Inc.~~2005 ~~and~~increased ~~subsidiaries~~by as$6.7 ofmillion from March 31, ~~2003,~~2004. ~~and~~The ~~the~~increase ~~related consolidated~~in ~~statements~~assets ofwas ~~income,~~primarily ~~stockholders’~~due ~~equity,~~to ~~and~~an ~~cash~~increase ~~flows~~in ~~for the~~distribution ~~year~~rights ~~then~~of ~~ended~~approximately $5.7 ~~Our~~million, ~~audit~~greater accounts ~~also~~receivable ~~included~~of ~~the~~$3.1 ~~2003~~million ~~financial~~and ~~statement schedule~~additional ~~listed~~cash inbalances ~~the~~of ~~Index~~$1.5 atmillion, ~~Item~~which ~~16.~~were ~~These~~offset ~~financial~~by ~~statements~~a ~~and financial~~decrease ~~statement~~in ~~schedule~~net ~~are~~property ~~the~~and ~~responsibility~~equipment of ~~the~~$3.8 ~~Company’s management~~million. ~~Our~~The ~~responsibility~~increase isin toaccounts ~~express~~receivable anbalances ~~opinion~~was onprimarily in the ~~2003~~product ~~financial statements~~sales segment and ~~financial~~due ~~statement~~to ~~schedules~~an ~~based~~increase onin ~~our~~net ~~audit.~~sales ~~The~~of ~~financial statements~~$8.0 ~~and~~million ~~financial~~during ~~statement~~the ~~schedule~~last asquarter of ~~March~~the ~~31,~~current ~~2002,~~fiscal ~~were~~year ~~audited by~~as ~~other~~compared ~~auditors~~to ~~who~~the ~~have~~prior ~~ceased~~year’s ~~operations~~comparable period. ~~Those~~Total ~~auditors~~debt ~~expressed~~of ~~an unqualified~~$83.2 ~~opinion~~million onat ~~those~~March ~~financial~~31, ~~statements~~2005 ~~and~~was ~~stated~~$3.2 ~~that~~million ~~such~~lower ~~2002 financial~~than ~~statement~~at ~~schedule~~March 31, 2004, ~~when~~primarily ~~considered~~from inthe ~~relation~~repurchase toof the ~~2002~~Company’s ~~basic financial~~senior ~~statements~~notes ~~taken~~of as$1.9 amillion ~~whole,~~during ~~presented~~the ~~fairly,~~fiscal inyear ~~all~~ended ~~material respects~~March 31, ~~the~~2005. ~~information~~Equity ~~set~~increased ~~forth~~by ~~therein,~~$5.1 inmillion ~~their~~during ~~report~~the ~~dated~~current ~~May~~fiscal 21year to $17.7 million at March 31, 2005 primarily due to ~~2002~~net income of $5.4 million.

We- ~~conducted~~27 ~~our~~- audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

AsManagement’s ~~discussed~~Discussion inand ~~Note~~Analysis 1of toFinancial ~~the~~Condition ~~consolidated~~and ~~financial~~Results ~~statements, in 2003 the Company changed its method~~ of ~~accounting~~Operations ~~for goodwill and other intangible~~(continued) ~~assets.~~

AsThe discussed above, the financial statements of National Wine & Spirits, Inc. and subsidiaries as of March 31, 2002, and for the year then ended, were audited by other auditors who have ceased operations. As described in Note 8, these financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), which was adopted by the Company asexpects ~~of April 1, 2002. Our audit procedures with respect~~ to ~~the~~maintain ~~disclosures in Note 8 with~~adequate ~~respect~~cash to 2002 included (1) comparing the previously reported net income to the previously issued financial statements and the adjustments to reported net income representing amortization expense recognized in those periods related to goodwill and intangible assets that are no longer being amortized as a result of initially applying SFAS 142 to the Company's underlying analysis obtained from managementbalances, ~~and (2) testing the mathematical accuracy of the reconciliation of adjusted net income to reported net income. In our opinion~~collateral, ~~the disclosures for 2002 in Note 8 are appropriate. Also, the 2002 financial statements have been reclassified to include additional disclosures relating to the accounts receivable vendor~~ and ~~distribution~~revolving ~~rights~~credit ~~obligations~~facility asavailability ~~described in Note 1. Our audit procedures with respect~~ to ~~the~~satisfy ~~2002 disclosures in Note 1 included (1) comparing~~ the ~~previously reported prepaid expenses and deferred pension liability to previously issued financial statements, (2) comparing the accounts receivable vendor and distribution rights obligations to the~~ Company'’s ~~underlying~~ ~~analysis~~anticipated ~~obtained~~working ~~from~~capital ~~management,~~ and ~~(3)~~debt ~~testing~~service ~~the~~requirements ~~mathematical accuracy~~during offiscal ~~the underlying analysis~~2006. In our opinion, such have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2002 financial statements of the Company other than with respect to such reclassifications and accordingly, we do not express an opinion or any form of assurance on the 2002 financial statements taken as a whole.

~~DELOITTE~~Aggregate &Contractual ~~TOUCHE~~Commitments ~~LLP~~

~~Indianapolis,~~The ~~Indiana June~~following 27table sets forth NWS’ contractual obligations for the periods set forth as of March 31, 2005: ~~2003~~

- 26 -


	Payments Due by Period
*Contractual Obligations*	Total		Less than 1 year	1-3 years	3-5 years		More than 5 years
Long-term debt obligations ⁽²⁾	$	83,157,000	—	—	$	83,157,000	—
Operating lease obligations		11,081,000	3,980,000	5,121,000		1,443,000	537,000
Distribution rights obligations		28,610,000	4,729,000	11,754,000		10,802,000	1,325,000
Purchase obligations		58,093,000	58,093,000	—		—	—
Defined benefit plan funding ⁽¹⁾		1,100,000	1,100,000	—		—	—
Brand promotion⁽³⁾		7,700,000	3,083,000	2,325,000		2,200,000	92,000

~~THE~~(1) ~~FOLLOWING~~The ISamounts Afor ~~COPY~~funding OFof Athe ~~REPORT~~defined ~~PREVIOUSLY~~benefit ~~ISSUED~~plan BYinclude ~~ARTHUR~~only ~~ANDERSEN LLP~~those ~~AND~~amounts ~~HAS~~due ~~NOT~~within ~~BEEN~~fiscal ~~REISSUED~~2006, BYas ~~ARTHUR~~future ~~ANDERSEN~~amounts ~~LLP~~are not estimable at this time.

~~REPORT~~(2) OFThe ~~INDEPENDENT~~interest ~~PUBLIC~~component ~~ACCOUNTANTS~~related to long-term debt obligations are not included in the table due to the variable nature of certain debt instruments the Company holds.

To(3) ~~the~~Brand ~~Board~~promotion ofobligations ~~Directors~~are ~~and~~based ~~Stockholders~~on ~~of National~~contractual ~~Wine~~commitments &with ~~Spirits,~~certain ~~Inc~~suppliers to provide marketing support for the supplier’s brands.

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

WeAs ~~conducted~~a ~~our~~matter ~~audit~~of inpolicy, ~~accordance with auditing standards generally accepted in~~ the ~~United~~Company ~~States.~~plans ~~Those~~to ~~standards~~review ~~require that we plan~~ and ~~perform the audit~~ toevaluate ~~obtain~~all ~~reasonable~~professional ~~assurance~~services ~~about~~firms ~~whether~~every ~~the~~three ~~financial~~to ~~statements~~four ~~are~~years. ~~free of~~This ~~material~~review ~~misstatement.~~will Aninclude ~~audit~~but ~~includes~~is ~~examining,~~not onlimited ato ~~test basis~~legal, ~~evidence supporting the amounts and disclosures in the financial statements. An~~ audit ~~also~~ ~~includes assessing the accounting principles used~~ and ~~significant~~information ~~estimates made~~systems ~~by management, as well as evaluating the overall financial statement presentation~~services. ~~We believe that our audit provides a reasonable basis for our opinion.~~

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

~~Our~~Inflation ~~audit~~has ~~was~~not ~~made~~had ~~for~~a ~~the~~significant ~~purpose~~impact ~~of forming an opinion~~ on the ~~basic consolidated~~Company’s ~~financial~~operations ~~statements~~but ~~taken~~there ascan abe ~~whole.~~no ~~The~~assurance ~~schedule~~that ~~listed~~inflation inwill ~~Item 14(a)~~not ishave ~~presented~~a negative ~~for~~effect ~~purposes~~on ~~of complying with~~ the ~~Securities and Exchange Commission~~Company’s ~~rules and is not a required part of the basic consolidated~~ financial ~~statements. The information as of and for the year ended March 31~~condition, ~~2002~~ ~~contained~~results ~~in this schedule has been subjected to the auditing procedures applied in our audit~~ of ~~the~~operations ~~basic~~or ~~consolidated~~debt ~~financial~~service ~~statements~~capabilities ~~and,~~ in ~~our opinion, is fairly stated in all material respects in relation to~~ the ~~basic consolidated financial statements taken as a whole~~future.

~~ARTHUR~~Environmental ~~ANDERSEN~~Matters ~~LLP Indianapolis, Indiana, May 21, 2002.~~

The Company currently owns and leases a number of properties, and historically it has owned and/or leased others. Under applicable -environmental 27laws, -the Company may be responsible for remediation of environmental conditions relating to the presence of certain

~~REPORT~~- OF28 ~~INDEPENDENT~~- ~~AUDITORS~~

WeManagement’s ~~have~~Discussion ~~audited~~and ~~the~~Analysis ~~accompanying consolidated statements~~ of ~~income,~~Financial ~~stockholders’~~Condition ~~equity~~ and ~~cash~~Results ~~flows~~ of ~~National~~Operations ~~Wine & Spirits, Inc. for the year ended March 31, 2001. Our audits also included the financial statement schedule listed in the Index at Item 16~~ (acontinued) ~~for the year ended March~~ 31, 2001. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

hazardous substances on such properties. The liability Weimposed ~~conducted~~by ~~our~~such ~~audit~~laws inis ~~accordance~~often ~~with~~joint ~~auditing~~and ~~standards~~several ~~generally~~without ~~accepted in~~regard for whether the ~~United~~property ~~States.~~owner ~~Those~~or ~~standards~~operator ~~require~~knew ~~that~~of, weor ~~plan~~was ~~and~~responsible ~~perform~~for, the ~~audit to~~presence ~~obtain~~of ~~reasonable~~such ~~assurance~~hazardous ~~about~~substances. ~~whether~~In addition, the ~~financial~~presence ~~statements~~of ~~are~~such ~~free of~~hazardous ~~material~~substances, ~~misstatement.~~or Anthe failure ~~audit~~to ~~includes~~properly ~~examining~~remediate such substances, onmay aadversely ~~test~~affect ~~basis,~~the ~~evidence supporting~~property owner’s ability to borrow using the ~~amounts~~real estate as collateral and ~~disclosures~~to transfer its interest in the ~~financial~~real ~~statements~~estate. AnAlthough ~~audit~~the Company is not aware of the presence of ~~also~~hazardous ~~includes~~substances ~~assessing~~requiring remediation, there can be no assurance that releases unknown to the ~~accounting~~Company ~~principles~~have ~~used~~not occurred. Except for blending and ~~significant~~bottling ~~estimates made~~of bya ~~management,~~few asof ~~well~~the asCompany’s ~~evaluating~~private label brands, the ~~overall~~Company ~~financial~~does ~~statement~~not manufacture any ~~presentation.~~of Wethe ~~believe~~wine or spirit products it sells and believes that ~~our~~it ~~audit~~has ~~provide~~conducted its business in substantial compliance with applicable environmental laws and regulations. Compliance with environmental laws has not had a ~~reasonable~~material ~~basis~~effect ~~for~~upon ~~our~~NWS’ ~~opinion~~capital expenditures, earnings or competitive position.

InCritical ~~our~~Accounting ~~opinion,~~Policies the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of National Wine & Spirits, Inc. for the year ended March 31, 2001 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein for the year ended March 31, 2001.

~~Ernst~~The &Company’s ~~Young~~consolidated ~~LLP~~financial ~~Indianapolis,~~statements ~~Indiana~~and ~~June~~accompanying ~~26,~~notes ~~2001,~~have ~~except~~been ~~for~~prepared ~~Note~~in 2accordance aswith generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to ~~which~~make estimates and assumptions that affect the ~~date~~reported isamounts ~~December~~of 28assets, ~~2001~~liabilities, revenues, and expenses during the reporting periods.

The Company continually evaluates its accounting policies and -estimates 28it -uses to prepare the consolidated financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

~~National~~The ~~Wine~~Company &believes ~~Spirits~~its critical accounting policies and estimates, ~~Inc.~~as reviewed and discussed with the audit committee of the Board of ~~Consolidated~~Directors, ~~Balance~~include ~~Sheets~~accounting for impairment of long-lived assets, accounts receivable valuation, inventory valuation, vendor allowances, and pensions.

	March 31
	2003			2002
Assets
Current assets:
Cash and cash equivalents	$	5,820,000		$	11,735,000
Accounts receivable:
Trade, less allowance for doubtful accounts
of $1,274,000 and $1,291,000		31,888,000			37,557,000
Vendor, less allowance for doubtful accounts
of $211,000 and $0		11,369,000			4,059,000
Inventory		82,982,000			81,940,000
Prepaid expenses		4,301,000			3,307,000
Total current assets		136,360,000			138,598,000
Property and equipment, net		36,498,000			41,440,000
Other assets:
Notes receivable		513,000			462,000
Cash surrender value of life insurance		3,815,000			3,368,000
Investment in Commonwealth Wine & Spirits, LLC		5,637,000			6,611,000
Investment in eSkye Solutions, Inc.		---			160,000
Intangible assets, net of amortization		18,328,000			8,091,000
Goodwill		1,246,000			1,251,000
Deferred pension costs		715,000			1,198,000
Deposits and other		596,000			226,000
Total other assets		30,850,000			21,367,000
Total assets	$	203,708,000		$	201,405,000
Liabilities And Stockholders' Equity
Current liabilities:
Accounts payable	$	39,550,000		$	40,795,000
Accrued payroll and payroll taxes		7,486,000			7,676,000
Excise taxes payable		4,503,000			6,053,000
Other accrued expenses		13,638,000			12,108,000
Total current liabilities		65,177,000			66,632,000
Deferred pension liability		3,005,000			1,873,000
Distribution rights obligations		9,369,000			---
Long-term debt		98,303,000			109,805,000
Total liabilities		175,854,000			178,310,000
Stockholders' equity:
Voting common stock, $.01 par value. 200,000 shares
authorized, 104,520 shares issued
and outstanding		1,000			1,000
Nonvoting common stock, $.01 par value
20,000,000 shares authorized, 5,226,001
shares issued and outstanding shares		53,000			53,000
Additional paid-in capital		25,009,000			25,009,000
Retained earnings (deficit)		5,081,000			(1,293,000	)
Accumulated other comprehensive income-unrecognized net pension loss
		(2,290,000	)		(675,000	)
Total stockholders' equity		27,854,000			23,095,000
Total liabilities and stockholders' equity	$	203,708,000		$	201,405,000

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

~~See~~- ~~accompanying~~29 ~~notes.~~-

~~National~~Management’s ~~Wine~~Discussion &and ~~Spirits,~~Analysis ~~Inc. Consolidated~~of ~~Statements~~Financial Condition and Results of ~~Income~~Operations (continued)

	Years Ended March 31
	2003			2002			2001
Net product sales	$	689,859,000		$	659,594,000		$	636,879,000
Distribution fees		22,999,000			21,963,000			21,573,000
Total revenue		712,858,000			681,557,000			658,452,000
Cost of products sold		552,833,000			530,910,000			513,928,000
Gross profit		160,025,000			150,647,000			144,524,000
Selling, general and administrative expenses:
Warehouse and delivery		39,833,000			39,610,000			39,657,000
Selling		57,452,000			46,840,000			45,691,000
Administrative		47,265,000			44,575,000			39,686,000
		144,550,000			131,025,000			125,034,000
Income from operations		15,475,000			19,622,000			19,490,000
Interest expense:
Related parties		(197,000	)		(258,000	)		(405,000	)
Third parties		(11,110,000	)		(11,676,000	)		(12,809,000	)
Gain from repurchase of long term debt		1,999,000			---			---
		(9,308,000	)		(11,934,000	)		(13,214,000	)
Vendor settlement income		9,200,000			---			---
Gain on sale of bottled water division		---			---			7,524,000
Interest income		152,000			286,000			738,000
Rental and other income		118,000			390,000			59,000
Equity in income of Commonwealth Wine & Spirits, LLC		312,000			407,000			315,000
Equity in losses of eSkye Solutions, Inc.		(160,000	)		(1,311,000	)		(787,000	)
Total other income (expense)		9,622,000			(228,000	)		7,849,000
Net income	$	15,789,000		$	7,460,000		$	14,125,000

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

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

Vendor Allowances Received. The Company records vendor -allowances 30and discounts in accordance with EITF 02-16: Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor. The Company receives allowances from vendors as a result of purchasing and promoting their products. Vendor allowances provided as a reimbursement of specific, incremental, and identifiable costs incurred to promote a vendor’s products are recorded as an expense reduction when the cost is incurred. All other vendor allowances, including vendor allowances received in excess of the Company’s cost to promote a vendor’s product, or vendor allowances directly related to purchase of a vendor’s product are initially deferred. The deferred amounts are then recorded as a reduction of cost of good sold when the related product is sold.

~~National~~Many ~~Wine~~of &the ~~Spirits,~~vendor ~~Inc~~allowance programs are not part of written contracts and collectibility of amounts owed to NWS under such agreements cannot be assured. Management reviews vendor accounts receivable balances for ~~Consolidated~~collectibility ~~Statements~~and ofrecords ~~Stockholders~~an allowance for management’s ~~Equity~~best estimate of uncollectible accounts.

	$.01 Par Value Common Stock Voting Non-Voting				AdditionalPaid-inCapital		RetainedEarnings(AccumulatedDeficit)			AccumulatedOtherComprehensiveIncome			NotesReceivablefromStockholders			TotalStockholders'Equity
Balance at April 1, 2000	$	1,000	$	53,000	$	25,009,000	$	(3,768,000	)	$	---		$	(3,112,000	)	$	18,183,000
Net income		---		---		---		14,125,000			---			---			14,125,000
Decrease in notes
receivable from
stockholders, net		---		---		---		---			---			2,942,000			2,942,000
Distributions to
stockholders		---		---		---		(10,581,000	)		---			---			(10,581,000	)
Balance at March 31, 2001		1,000		53,000		25,009,000		(224,000	)		---			(170,000	)		24,669,000
Net income		---		---		---		7,460,000			---			---			7,460,000
Unrecognized net
pension loss		---		---		---		---			(675,000	)		---			(675,000	)
Comprehensive Income																	6,785,000
Decrease in notes
receivable from
stockholders, net		---		---		---		---			---			170,000			170,000
Distributions to
stockholders		---		---		---		(8,529,000	)		---			---			(8,529,000	)
Balance at March 31, 2002		1,000		53,000		25,009,000		(1,293,000	)		(675,000	)		---			23,095,000
Net income		---		---		---		15,789,000			---			---			15,789,000
Unrecognized net
pension loss		---		---		---		---			(1,615,000	)		---			(1,615,000	)
Comprehensive Income																	14,174,000
Distributions to
stockholders		---		---		---		(9,415,000	)		---			---			(9,415,000	)
Balance at March 31, 2003	$	1,000	$	53,000	$	25,009,000	$	5,081,000		$	(2,290,000	)	$	---		$	27,854,000

Payments to Customers. The Company records certain payments to customers as a reduction of revenue in accordance with EITF 01-09: Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Product). The company accrues a liability and records a reduction to revenue based on expected payments to be made to customers for specific programs. Management’s estimate of amounts expected to be paid to customers is determined by applying a product’s depletion rate that contemplates customers’ historical sales performance and current customer support programs to the current period’s product sales. Upon receiving an invoice from the customer, the Company then records the payment and reduces the liability accordingly.

Defined Benefit Pension Plan. The most significant element in determining the Company’s pension ~~See~~income ~~accompanying~~(cost) ~~notes~~in accordance with SFAS No. 87 is the expected return on plan assets. In 2004, the Company reduced its expected long-term rate of return on plan assets to 7.5% from 8.5% during the prior fiscal year. The assumed long-term rate of return on assets reflects the weighted average rate of earnings expected on the classes of funds invested, or to be invested to provide for the plan benefits. An analysis of the composition of the plan’s investments and investment policy compared against the investment’s expected returns results in

- 3130 -

	Year Ended March 31
	2003			2002			2001
Operating activities:
Net income	$	15,789,000		$	7,460,000		$	14,125,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of property and equipment		7,188,000			6,561,000			7,046,000
Amortization of intangible assets		2,419,000			1,714,000			1,844,000
Equity in losses of eSkye Solutions, Inc.		160,000			1,311,000			787,000
Equity in earnings of Commonwealth Wine & Spirits, LLC		(312,000	)		(407,000	)		(315,000	)
Provision for bad debt expense		329,000			552,000			599,000
(Gain) loss on repurchase of long term debt		(1,999,000	)		32,000			---
Gain on sales of assets		(274,000	)		(47,000	)		(7,835,000	)
Increase in cash surrender value of life insurance		(447,000	)		(547,000	)		(552,000	)
Changes in operating assets and liabilities
Accounts receivable		(1,970,000	)		(1,731,000	)		2,307,000
Inventories		(1,042,000	)		(2,324,000	)		(9,310,000	)
Prepaid expenses		(994,000	)		(512,000	)		(677,000	)
Deposits and other		(788,000	)		(101,000	)		56,000
Accounts payable		(1,245,000	)		5,056,000			(2,196,000	)
Accrued expenses and taxes		(2,158,000	)		5,013,000			1,478,000
Net cash and cash equivalents provided by operating
activities		14,656,000			22,030,000			7,357,000
Investing activities:
Purchases of property and equipment		(2,337,000	)		(4,332,000	)		(6,083,000	)
Purchases of intangible assets		(2,170,000	)		(1,841,000	)		(1,156,000	)
Proceeds from sale of property and equipment		365,000			112,000			10,860,000
Investment in eSkye Solutions, Inc.		---			---			(2,013,000	)
Distributions from Commonwealth Wine & Spirits, LLC		1,286,000			405,000			778,000
Collections on notes receivable		367,000			349,000			331,000
Net cash and cash equivalents (used) provided by
investing activities		(2,489,000	)		(5,307,000	)		2,717,000
Financing activities:
Proceeds from line of credit borrowings		54,250,000			146,900,000			149,250,000
Principal payments on line of credit borrowings		(50,250,000	)		(146,900,000	)		(150,250,000	)
Principal payments on long-term debt, including purchases of senior notes		(15,317,000	)		(2,653,000	)		(900,000	)
Proceeds of borrowings from stockholder		197,000			258,000			284,000
Repayments on borrowings from stockholders		(175,000	)		(253,000	)		(191,000	)
Receipts on notes receivable from stockholders and others		2,628,000			2,095,000			2,849,000
Distributions to stockholders		(9,415,000	)		(8,529,000	)		(10,581,000	)
Net cash and cash equivalents used by financing activities		(18,082,000	)		(9,082,000	)		(9,539,000	)
Net increase (decrease) in cash and cash equivalents		(5,915,000	)		7,641,000			535,000
Cash and cash equivalents, beginning of year		11,735,000			4,094,000			3,559,000
Cash and cash equivalents, end of year	$	5,820,000		$	11,735,000		$	4,094,000

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

the expected return on plan assets that is included in ~~See~~pension ~~accompanying~~income ~~notes~~(cost). The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset gains (losses) can affect future pension income (cost). Over the long term, the Company’s pension plan assets have earned an average annual return of 9.5%. However, the plan assets have lost an average of 2.9% per year during the last four years. The investment return on plan assets has been positive for the previous two years, but should the negative trend continue, the Company will again be required to reconsider its assumed expected rate of return on plan assets. If the Company were to lower this rate, future pension cost would increase.

At the end of each year, the Company determines the discount -rate 32to -be used to calculate the present value of plan liabilities. The discount rate is an estimate of the current interest rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the Company uses the preceding November’s Moody’s AA Corporate Bond Index rounded down to the nearest ¼ of a percentage point. At March 31, 2005, the Company determined this rate to be 5.75%, a decrease of 25 basis points from the rate used at March 31, 2004. Changes in discount rates over the past three years have not materially affected pension income (cost), and the net effect of changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, have been deferred, in accordance with SFAS No. 87.

The Company’s accumulated pension obligation exceeded the fair value of the related plan assets primarily due to the difference in the actual return on assets compared to the expected return on assets and the ~~National~~reduction ~~Wine~~in &the ~~Spirits,~~discount ~~Inc~~rate assumption. ~~Notes~~ As a result, in 2005 the Company recorded an increase to ~~Consolidated~~accrued ~~Financial~~pension ~~Statements~~liability and a non-cash charge to equity of approximately $0.1 million. This charge may be reversed in future periods if asset returns improve or interest rates rise. For the year ended March 31, ~~2003~~2005, the Company recognized consolidated pretax pension cost of $0.7 million, up from $0.6 million in 2004. The Company currently expects that the consolidated pension cost for 2006 will not be materially different from 2005. The Company’s required minimum amount of 2006 contributions are approximately $1.1 million. However, the Company may elect to increase the minimum level of contributions in 2006 based on a number of factors, including performance of pension investments, changes in interest rates, and the funded percentage of the plan.

~~1. Nature~~Recently ofIssued ~~Business and Summary of Significant~~ Accounting ~~Policies~~Pronouncements

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

~~National Wine & Spirits, Inc. (NWS or the Company), an S~~-~~Corporation,~~ is31 a holding company which operates primarily in the wine and liquor wholesale distribution business. Based in Indianapolis, National Wine & Spirits Corporation (NWSC) is a wholesale distributor of liquor and wines throughout Indiana and also operates a division for the distribution of cigars and accessories. Based in Chicago, NWS-~~Illinois,~~ LLC (NWS-LLC) is a wholesale distributor of liquor, wines, and beer throughout Illinois. NWS Michigan, Inc. (NWSM) and National Wine & Spirits, LLC (NWSM-LLC) are distributors of liquor and non-alcoholic products throughout Michigan. NWSM distributes products as an Authorized Distribution Agent (ADA) for the State of Michigan and derives revenue from distribution fees. Accordingly, NWSM’s results represent the entire “All Other” segment as described in Note 14. Based in Connecticut, U.S. Beverage, LLC (USB) distributes and markets import and craft beer along with malt based products throughout the United States.

~~Use~~Management’s Discussion and Analysis of ~~Estimates~~Financial Condition and ~~Assumptions~~Results of Operations (continued)

~~The~~In ~~preparation~~November of2004, ~~financial~~the ~~statements~~Financial inAccounting Standards ~~conformity~~Board ~~with~~issued ~~accounting~~SFAS ~~principles generally~~No. ~~accepted~~151, inInventory ~~the~~Costs, ~~United~~an ~~States~~amendment ~~requires~~of ~~management~~ARB toNo. ~~make~~43, ~~estimates and~~Chapter ~~assumptions~~4, ~~that~~to ~~affect~~clarify the ~~reported~~accounting for abnormal amounts of ~~assets~~idle ~~and~~facility ~~liabilities~~expense, freight, handling costs and wasted material (spoilage). This statement is ~~disclosures~~effective ofJune ~~contingent~~15, ~~assets~~2005. ~~and~~The ~~liabilities~~Company atis ~~the~~currently ~~date~~assessing, ofbut ~~the~~has ~~financial statements~~not ~~and~~yet determined the ~~reported~~effect ~~amounts~~ of ~~revenues~~SFAS ~~and~~No. ~~expenses~~151 ~~during~~on ~~the reporting~~its ~~period.~~financial ~~Actual~~position, results ~~could~~of ~~differ~~operations ~~from~~and ~~those~~cash ~~estimates~~flows.

~~Fair~~- ~~Value~~32 of- ~~Financial Instruments~~

~~Cash~~Item 7A. Quantitative and ~~Cash~~Qualitative ~~Equivalents~~Disclosures About Market Risk

~~For~~Interest ~~purposes~~Rate ofRisk the Consolidated Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company maintains its cash balances in bank deposit accounts which, at times, may exceed federally insured limits. The Company has experienced no such losses in these accounts.

The Company uses long-term debt as a primary source of capital in its business. The following table presents the principal cash repayments and related weighted average interest rates by maturity ~~Receivables~~date for the Company’s long-term fixed-rate debt and ~~Credit~~other ~~Policies~~types of long-term debt at March 31, 2005:

Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payments generally within 15 to 30 days from the invoice date.


	2006		2007		2008		2009			2010			Thereafter		Total			Fair Value
Fixed	$	—	$	—	$	—	$	77,079,000		$	—		$	—	$	77,079,000		$	77,079,000

Avg. Rate		—		—		—		10.125	%		—			—		10.125	%
Variable	$	—	$	—	$	—	$	1,750,000		$	4,328,000			—	$	6,078,000		$	6,078,000

Avg. Rate		—		—		—		6.00	%		5.75	%		—		5.82	%

The -Company 33is -exposed to fluctuations in interest rate risk as a result of its variable rate debt. A hypothetical 1% change in interest rates applied to the Company’s variable rate debt would not have a material impact on the Company’s earnings or cash flows. The Company’s objectives in managing its exposure to changes in interest rates are to limit the effect of interest rate changes on earnings and cash flows and to minimize the amount of borrowings under the Company’s revolving line of credit. This approach to managing interest rate risk does not consider the changes in the Company’s competitive environment indirectly related to changes in interest rates and management’s responses to these changes.

~~National~~- ~~Wine~~33 &- ~~Spirits, Inc. Notes to Consolidated Financial Statements (continued)~~

~~The~~Item ~~carrying amount of accounts receivable is reduced by an allowance that reflects management’s best estimate of the amounts that will not be collected~~8. ~~Management~~Financial ~~individually~~Statements ~~reviews all accounts receivable balances~~ and ~~creates~~ anSupplementary ~~allowance~~Data ~~for doubtful accounts based on the credit worthiness of specific accounts and an estimate of other uncollectible accounts based on historical performance and current economic conditions.~~

~~Inventory~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

~~Substantially~~To ~~all inventory is stated at~~ the ~~lower~~Board of ~~cost,~~Directors ~~determined by the last-in, first-out (LIFO) method, or market~~ and ~~primarily~~Stockholders ~~consists~~ of ~~packaged beer, wine, liquor, cigars and accessories.~~

~~Advertising~~National ~~Costs~~Wine & Spirits, Inc.

~~Advertising~~We ~~costs~~have ~~are~~audited ~~charged~~the toaccompanying ~~operations~~consolidated ~~when~~balance ~~incurred.~~sheets ~~Advertising~~of ~~expense~~National Wine ~~was~~& ~~$10~~Spirits,~~602,000,~~ $3Inc. and subsidiaries (the “Company”) as of March 31,~~610,000~~ 2005 and $42004 and the related consolidated statements of operations,~~767~~ stockholders’ equity,~~000~~ and cash flows for each of the three years in ~~2003~~the period ended March 31, 2005. ~~2002~~Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and ~~2001,~~financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an ~~respectively~~opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance ~~Property~~about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and ~~Equipment~~disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of National Wine & Spirits, ~~Property~~Inc. and ~~equipment~~subsidiaries ~~are~~as ~~recorded~~of atMarch ~~cost~~31, 2005 and ~~are~~2004 ~~depreciated~~and ~~using primarily~~ the ~~straight-line~~results ~~method~~of ~~over~~their operations and their ~~expected~~cash ~~useful~~flows ~~lives~~for each of the three years in the period ended March 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as ~~follows:~~a whole, present fairly, in all material respects, the information set forth therein.

Buildings and improvements	10-40 years
Furniture and equipment	3-10 years
Warehouse equipment	7-10 years
Automobiles and trucks	5-7 years

DELOITTE & TOUCHE LLP

~~Intangible~~Indianapolis, ~~Assets~~Indiana

~~Intangible~~June ~~assets with definite lives are amortized by the straight-line method (which~~14, ~~for~~2005 ~~loan acquisition costs, also approximates the yield method) over the terms of the agreements or their estimated useful lives, which range from two to twenty years.~~

~~Certain~~- ~~distribution~~34 ~~rights are classified as indefinite~~-~~lived~~ ~~intangible assets. Accordingly, effective April 1, 2002, these assets are no longer amortized but are tested for impairment annually.~~

~~Goodwill consists of costs in excess of the net assets acquired in connection~~ ~~with~~National anWine ~~acquisition~~& ~~in April~~Spirits, ~~1999~~Inc. Prior to April, 2002, goodwill was amortized using the straight-line method over 15 years. Effective April 1, 2002, the company adopted Statements of Financial Accounting Standards ("SFAS") No. 142, Accounting for Goodwill and Other Intangible Assets. As such, the Company no longer amortizes goodwill, but instead tests for impairment at least annually.

-Consolidated 34Balance -Sheets

National Wine & Spirits, Inc. Notes to Consolidated Financial Statements (continued)


	As of March 31
	2005			2004
Assets
Current assets:
Cash and cash equivalents	$	2,957,000		$	1,466,000
Accounts receivable:
Trade, less allowance for doubtful accounts of $761,000 and $1,081,000		28,558,000			25,427,000
Vendor, less allowance for doubtful accounts of $250,000 and $125,000		3,754,000			3,745,000
Inventory		80,568,000			80,196,000
Prepaid expenses and other current assets		4,997,000			4,493,000

Total current assets		120,834,000			115,327,000

Property and equipment, net		27,691,000			31,484,000
Other assets:
Notes receivable, less reserve of $0 and $221,000		—			197,000
Cash surrender value of life insurance		4,892,000			4,366,000
Investment in Commonwealth Wine & Spirits, LLC		5,284,000			5,593,000
Intangible assets, net of amortization		32,681,000			27,646,000
Goodwill		1,246,000			1,246,000
Deferred pension costs		569,000			642,000
Deposits and other		592,000			599,000

Total other assets		45,264,000			40,289,000

Total assets	$	193,789,000		$	187,100,000

Liabilities And Stockholders’ Equity
Current liabilities:
Accounts payable	$	39,851,000		$	40,503,000
Outstanding checks in excess of bank balance		—			91,000
Accrued payroll and payroll taxes		8,837,000			7,018,000
Excise taxes payable		4,286,000			4,813,000
Current portion of distribution rights obligations		5,136,000			4,115,000
Other accrued expenses		10,086,000			9,492,000

Total current liabilities		68,196,000			66,032,000

Deferred pension liability		3,073,000			3,061,000
Distribution rights obligations		21,625,000			19,057,000
Long-term debt		83,157,000			86,357,000

Total liabilities		176,051,000			174,507,000

Commitments and contingencies (Note 9)		—			—

Stockholders’ equity:
Voting common stock, $.01 par value. 200,000 shares authorized, 104,520 shares issued and outstanding		1,000			1,000
Nonvoting common stock, $.01 par value. 20,000,000 shares authorized, 5,226,001 shares issued and outstanding		53,000			53,000
Additional paid-in capital		25,009,000			25,009,000
Accumulated deficit		(4,822,000	)		(10,051,000	)
Accumulated other comprehensive loss-unrealized net pension loss		(2,503,000	)		(2,419,000	)

Total stockholders’ equity		17,738,000			12,593,000

Total liabilities and stockholders’ equity	$	193,789,000		$	187,100,000

See accompanying 1notes. ~~Nature~~ ~~of Business and Summary of Significant Accounting Policies(continued)~~

~~Long~~-~~lived~~ ~~Assets~~35 -

~~Income~~National ~~Taxes~~Wine & Spirits, Inc.

~~There~~Consolidated isStatements no provision for federal or state income taxes reflected in the financial statements because the stockholders have consented to NWS’ election to be taxed as an S corporation under the applicable provisions of ~~the Internal~~Operations ~~Revenue Code. NWS’ income is taxable directly to its stockholders.~~

Revenue Recognition


	Year Ended March 31
	2005			2004			2003
Net product sales	$	524,399,000		$	513,615,000		$	689,859,000
Distribution fees		29,268,000			27,045,000			22,999,000

Total revenue		553,667,000			540,660,000			712,858,000

Cost of products sold		428,576,000			421,468,000			552,833,000

Gross profit		125,091,000			119,192,000			160,025,000

Selling, general and administrative expenses:
Warehouse and delivery		37,196,000			37,147,000			39,833,000
Selling		50,688,000			49,640,000			57,452,000
Administrative		43,847,000			46,117,000			48,156,000
Management fees		(18,743,000	)		(12,634,000	)		(891,000	)

		112,988,000			120,270,000			144,550,000
Income (loss) from operations		12,103,000			(1,078,000	)		15,475,000

Interest expense:
Related parties		(203,000	)		(176,000	)		(197,000	)
Third parties		(9,440,000	)		(9,366,000	)		(11,110,000	)
Gain from repurchase of long term debt		108,000			716,000			1,999,000

		(9,535,000	)		(8,826,000	)		(9,308,000	)

Other income (expense):
Arbitration award and vendor settlement income		2,263,000			—			9,200,000
Interest income		3,000			21,000			152,000
Rental and other income		67,000			17,000			118,000
Equity in income of Commonwealth Wine & Spirits, LLC		538,000			742,000			312,000
Equity in losses of eSkye Solutions, Inc.		—			—			(160,000	)

		2,871,000			780,000			9,622,000

Net income (loss)	$	5,439,000		$	(9,124,000	)	$	15,789,000

~~NWSC,~~See ~~NWS-LLC, NWSM-LLC, and USB purchase inventory items for resale to~~accompanying ~~customers and are liable for payment to the suppliers, as well as collecting payment from customers~~notes. NWSM receives a fixed fee per case of liquor distributed for the State of Michigan (distribution fees) which is also responsible for payments to suppliers. All revenue is recognized at the time of shipment. All Michigan shipments are cash on delivery.

~~Net~~- ~~sales~~36 ~~and~~- distribution fees are recognized at the time product is shipped which is when title passes. Shipping and handling charged to customers is included in Net Product Sales. For the years ended March 31, 2003, 2002, and 2001, the Company incurred delivery expenses of $16,342,000, $16,533,000, and $16,474,000, respectively, which are included in warehouse and delivery expenses in the accompanying Consolidated Statements of Income.

~~The~~National ~~Company~~Wine ~~records~~& certain payments to customers as a reduction of revenue in accordance with EITF 01-09: Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Product). The Company recorded $8Spirits,~~925,000,~~ ~~$2,029,000 and $2,361,000 of consideration paid to customers as a reduction of revenue in the Consolidated Statements of Income for the years ended March 31, 2003, 2002 and 2001, respectively~~Inc.

~~Vendor~~Consolidated ~~Allowances~~Statements ~~Received~~of Stockholders’ Equity

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


	$.01 Par Value Common Stock				Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	Voting		Non-Voting		Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance at April 1, 2002	$	1,000	$	53,000	$	25,009,000	$	(1,293,000	)	$	(675,000	)	$	23,095,000

Net income		—		—		—		15,789,000			—			15,789,000
Unrealized net pension loss		—		—		—		—			(1,615,000	)		(1,615,000	)

Comprehensive Income														14,174,000

Distributions to Stockholders		—		—		—		(9,415,000	)		—			(9,415,000	)

Balance at March 31, 2003		1,000		53,000		25,009,000		5,081,000			(2,290,000	)		27,854,000

Net income (loss)		—		—		—		(9,124,000	)		—			(9,124,000	)
Unrealized net pension loss		—		—		—		—			(129,000	)		(129,000	)

Comprehensive loss														(9,253,000	)

Distributions to Stockholders		—		—		—		(6,008,000	)		—			(6,008,000	)

Balance at March 31, 2004		1,000		53,000		25,009,000		(10,051,000	)		(2,419,000	)		12,593,000

Net income		—		—		—		5,439,000			—			5,439,000
Unrealized net pension loss		—		—		—		—			(84,000	)		(84,000	)

Comprehensive income														5,355,000

Distributions to Stockholders		—		—		—		(210,000	)		—			(210,000	)

Balance at March 31, 2005	$	1,000	$	53,000	$	25,009,000	$	(4,822,000	)	$	(2,503,000	)	$	17,738,000

See accompanying -notes. ~~35 -~~

~~National~~- ~~Wine~~37 &- ~~Spirits, Inc. Notes to Consolidated Financial Statements (continued)~~

~~Recently~~National ~~Issued~~Wine ~~Accounting~~& ~~Pronouncements~~Spirits, Inc.

InConsolidated ~~June 2001, the Financial Accounting Standards Board issued~~ Statements of ~~Financial~~ ~~Accounting~~Cash ~~Standards~~Flows No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill (and intangible assets deemed to have indefinite lives) will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives. The Company adopted the new rules on accounting for goodwill and other intangible assets effective April 1, 2002. Under SFAS No. 142, goodwill impairment is deemed to exist if the carrying value of a reporting unit exceeds its estimated fair value. In calculating the impairment charge, the fair values of the reporting units were estimated using a discounted cash flow methodology. The Company performed the required impairment tests of goodwill and indefinite lived intangibles as of April 1, 2002 and March 31, 2003 and found them not to be impaired.

In August 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. Statement 144 also addresses the accounting for expected disposals of long-lived assets. The Company adopted Statement 144 during the first quarter of fiscal 2003 and, based on current circumstances, it has not had a material effect on the Company's results of operations or its financial position.


	Year Ended March 31
	2005			2004			2003
Operating Activities:
Net income (loss)	$	5,439,000		$	(9,124,000	)	$	15,789,000
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation of property and equipment		4,590,000			5,947,000			7,188,000
Amortization of intangible assets		5,961,000			6,129,000			2,419,000
Equity in losses of eSkye Solutions, Inc.		—			—			160,000
Equity in earnings of Commonwealth Wine & Spirits, LLC		(538,000	)		(742,000	)		(312,000	)
Provision for bad debt expense		193,000			547,000			329,000
Gain on repurchase of long term debt		(108,000	)		(716,000	)		(1,999,000	)
(Gain) loss on sales of assets		11,000			(270,000	)		(274,000	)

Increase in cash surrender value of life insurance		(526,000	)		(551,000	)		(447,000	)
Changes in operating assets and liabilities
Accounts receivable		(3,333,000	)		13,865,000			(1,970,000	)
Inventories		(372,000	)		2,786,000			(1,042,000	)
Prepaid expenses and other current assets		(504,000	)		(192,000	)		(994,000	)
Deposits and other		7,000			(4,000	)		(788,000	)
Accounts payable		(652,000	)		742,000			(1,245,000	)
Accrued expenses and taxes		1,886,000			(2,503,000	)		(1,629,000	)

Net cash and cash equivalents provided by operating activities		12,054,000			15,914,000			15,185,000

Investing activities:
Purchases of property and equipment		(1,211,000	)		(985,000	)		(2,337,000	)
Purchases of intangible assets		(3,519,000	)		(210,000	)		(2,170,000	)
Proceeds from sale of property and equipment		453,000			106,000			365,000
Proceeds from sale of intangible assets		100,000			272,000			—
Distributions from Commonwealth Wine & Spirits, LLC		847,000			786,000			1,286,000
Collections on notes receivable		197,000			95,000			367,000

Net cash and cash equivalents provided (used) by investing activities		(3,133,000	)		64,000			(2,489,000	)

Financing activities:
Cash provided (used) by outstanding checks in excess of bank balance		(91,000	)		91,000			—
Proceeds from line of credit borrowings		196,500,000			140,400,000			54,250,000
Principal payments on line of credit borrowings		(197,750,000	)		(141,400,000	)		(50,250,000	)
Principal payments on long-term debt, including purchases of senior notes		(1,842,000	)		(9,935,000	)		(15,317,000	)
Proceeds of borrowings from stockholder		—			—			197,000
Payments of distribution rights obligations		(4,037,000	)		(3,480,000	)		(529,000	)
Repayments on borrowings from stockholders		—			—			(175,000	)
Receipts on notes receivable from stockholders and others		—			—			2,628,000
Distributions to stockholders		(210,000	)		(6,008,000	)		(9,415,000	)

Net cash and cash equivalents used by financing activities		(7,430,000	)		(20,332,000	)		(18,611,000	)
Net increase (decrease) in cash and cash equivalents		1,491,000			(4,354,000	)		(5,915,000	)
Cash and cash equivalents, beginning of year		1,466,000			5,820,000			11,735,000

Cash and cash equivalents, end of year	$	2,957,000		$	1,466,000		$	5,820,000

InSee ~~April 2002 the Financial Accounting Standards Board issued Statement No.~~accompanying ~~145, Rescission of FASB Statements No~~notes. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions as well as addresses the classifications of gains and losses on debt extinguishment. Accordingly, the Company classified its gains from repurchases of its long-term debt in interest expense on the Consolidated Statement of Income.

- 3638 -

~~1. Nature~~National ofWine ~~Business~~& ~~and~~Spirits, ~~Summary~~Inc. ~~of Significant Accounting Policies(continued)~~

InNotes ~~June~~to ~~2002,~~Consolidated ~~the~~ Financial ~~Accounting Standards Board issued~~ Statements of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities, effective for exit or disposal activities that are initiated after December 31, 2002. This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). Although the Company was engaged in an employee reduction at March 31, 2003, the associated costs from the adoption of this standard did not have a material impact on its financial statements.

~~The~~March Company adopted the Emerging Issues Task Force Issue 02-16: Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor for arrangements either modified or created after December 31, ~~2002. This~~2005 statement reached a consensus that cash consideration represents a reimbursement of costs incurred by the customer to sell the vendor’s products and should be characterized as a reduction of that cost when recognized in the customer’s income statement if the cash consideration represents a reimbursement of a specific, incremental, identifiable cost incurred by the customer in selling the vendor’s products or services. If the amount of cash consideration paid by the vendor exceeds the cost being reimbursed, that excess amount should be characterized in the customer’s income statement as a reduction of cost of sales when recognized in the customer’s income statement. The Company has reviewed its accounting policies and methods and concluded that the recording of cash consideration received from vendors were recorded in accordance with the statement.

~~In November 2002, the FASB issued Interpretation No~~1. 45Nature ~~(FIN 45), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees~~ of ~~Indebtedness~~Business of Others. FIN 45 requires that upon issuance of certain guarantees, a guarantor must recognize a liability for the fair value of the obligation assumed under the guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and ~~annual financial~~Summary ~~statements regarding certain guarantees and product warranties. The recognition provisions~~ of ~~National~~Significant ~~Wine~~Accounting &Policies Spirits, Inc. FIN 45 is effective for guarantees issued or modified after December 31, 2002. The Company implemented the recognition provisions of FIN 45 in January 2003 there has been no material effect on the Company’s financial position or results of operations.

InNature ~~January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46) Consolidation~~ of ~~Variable~~Business ~~Interest~~and ~~Entities.~~Principles The term “variable interest” is defined in FIN 46 as “contractual, ownership or other pecuniary interest in an entity that change with changes in the entity’s net asset value.” Variable interest are investments or other interest that will absorb a portion of anConsolidation entity’s expected losses if they occur or receive portions of the entity’s expected residual returns if they occur. The Company does not expect the recognition provisions of FIN 46 to have a material impact on the Company’s financial position or results of operations.

National Wine & Spirits, Inc. (NWS or the Company), an S-Corporation, is a holding company which operates primarily in the wine and liquor ~~Reclassifications~~wholesale distribution business. Based in Indianapolis, National Wine & Spirits Corporation (NWSC) is a wholesale distributor of liquor and wines throughout Indiana and also operates a division for the distribution of cigars and accessories. Based in Chicago, NWS-Illinois, LLC (NWS-LLC) is a wholesale distributor of liquor, wines, and beer throughout Illinois. NWS Michigan, Inc. (NWSM) distributes liquor throughout Michigan and National Wine & Spirits, LLC (NWSM-LLC) is a wholesale distributor of non-alcoholic and low proof products throughout Michigan. NWSM distributes spirits products as an Authorized Distribution Agent (ADA) for the State of Michigan and derives revenue from distribution and brokerage fees. Accordingly, NWSM’s results represent the entire “All Other” segment as described in Note 13. Based in Connecticut, United States Beverage, LLC (USB) distributes and markets import and craft beer along with malt based products throughout the United States.

~~Certain~~The ~~amounts~~consolidated ~~from~~financial ~~prior~~statements ~~year's~~include the ~~financial~~accounts ~~statement~~of ~~have~~NWS, ~~been~~NWSC, ~~reclassified~~NWS-LLC, ~~to conform~~NWSM, toNWSM-LLC, ~~the~~and ~~current~~USB, ~~year~~all ~~presentation~~of which NWS wholly owns or owns 100% of the voting stock. ~~The~~All ~~Financial~~significant ~~Statements~~intercompany accounts and transactions have been eliminated from the consolidated financial statements. ~~reclassified~~Substantially toall ~~include~~revenues ~~additional~~result ~~disclosure~~from ~~relating~~the tosale ~~accounts~~of ~~receivable vendor~~liquor, beer and wine or distribution ~~rights~~fees. ~~obligations~~NWS performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral.

-Use 37of -Estimates and Assumptions

~~National~~The ~~Wine~~preparation &of ~~Spirits,~~financial ~~Inc.~~statements in conformity with accounting ~~Notes~~principles generally accepted in the United States requires management to ~~Consolidated~~make ~~Financial~~estimates ~~Statements~~and ~~(continued)~~assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

~~2. Investment~~Fair inValue ~~Unconsolidated~~of ~~Subsidiaries~~Financial Instruments

The Company’s cash, accounts receivable, accounts payable and certain other accrued liabilities are all short-term in nature and the carrying amounts ~~eSkye~~approximate ~~Solutions~~fair value. Long-term notes receivable and payable, ~~Inc~~except for the Company’s senior notes payable, have primarily variable interest rates, thus their carrying amounts approximate fair value. The fair value of the Company’s senior notes payable has been determined on the basis of the specific securities issued and outstanding and is estimated at $77,079,000 at March 31, 2005.

~~Prior~~- to39 ~~December~~- 28, 2001, the Company has been accounting for its investment in eSkye Solutions, Inc. (eSkye) on the cost method. On December 28, 2001 eSkye redeemed a significant portion of its outstanding preferred stock at a significant discount. Since the Company elected not to participate in this redemption, its voting control increased to over 20% of voting stock. In accordance with Accounting Principles Board Opinion No. 18 The Equity Method of Accounting for Investments in Common Stock (APB 18), the Company adopted retroactively the equity method of accounting. At December 28, 2001, prior period financial information was adjusted to reflect this adoption. In addition, APB 18 also requires the Company to evaluate whether or not an “other than temporary” decline in value of an investment has occurred. As a result of this evaluation, the Company recorded an impairment charge of $530,000 for the year ended March 31, 2002, which is included in “Equity in losses of eSkye Solutions, Inc.” in the Consolidated Statements of Income. In addition, losses applying the equity method were $781,000 for the year ended March 31, 2002, which were included in “Equity in losses of eSkye Solutions, Inc.” in the Consolidated Statements of Income. Losses under the equity method for the year ended March 31, 2003 were in excess of the remaining book value of the investment in eSkye. The Company recorded $160,000 in losses for the year ended March 31, 2003, reducing its investment to $0. At March 31, 2003, the Company's share of eSkye's voting stock was 20.5%.

InCash ~~December 1998, NWSC formed a new distributorship in Kentucky (Commonwealth Wine & Spirits, LLC) in partnership with two existing Kentucky-based distributors, The Vertner Smith Company (“Vertner”)~~ and ~~Kentucky~~Cash ~~Wine &~~Equivalents Spirits (“Kentucky W&S”). NWSC has accounted for its investment in Commonwealth Wine & Spirits, LLC using the equity method. Under the terms, NWSC invested $7,500,000 in exchange for a 25% interest in the new company. Vertner and Kentucky W&S equally own the remaining 75%. A portion of NWSC’s initial investment related to a franchise fee paid by NWSC on behalf of the new distributorship. As part of the operating agreement, NWSC’s initial cash distributions from the new distributorship are treated as return of NWSC’s original investment. As a result, the amortization of this franchise fee is allocated 100% to NWSC and is reflected in the Company’s recorded equity in income of Commonwealth Wine & Spirits, LLC in the accompanying consolidated income statement. The Company received distributions of $1,286,000, $405,000 and $778,000 and recorded equity in earnings of $312,000, $407,000 and $315,000 from Commonwealth Wine & Spirits, LLC in 2003, 2002 and 2001 respectively.

~~Summary~~For ~~financial~~purposes ~~information~~of ~~for~~the ~~eSkye~~Consolidated ~~Solutions~~Statement of Cash Flows, ~~Inc.~~the ~~and~~Company ~~Commonwealth~~considers ~~Wine~~all highly liquid debt instruments purchased &with ~~Spirits~~an original maturity of three months or less to be cash equivalents. The Company maintains its cash balances in bank deposit accounts which, ~~LLC~~at istimes, asmay ~~follows:~~exceed federally insured limits. The Company has experienced no such losses in these accounts.

	Years Ended March 31,
	2003			2002			2001
Sales	$	84,780,000		$	86,365,000		$	82,632,000
Operating loss		(2,444,000	)		(18,076,000	)		(14,742,000	)
Net loss		(134,000	)		(16,132,000	)		(15,043,000	)

Receivables and Credit Policies

	March 31,
	2003		2002
Current assets	$	20,520,000	$	25,056,000
Non-current assets		3,353,000		4,311,000
Current liabilities		8,069,000		8,545,000
Non-current liabilities		---		209,000
Minority interest		3,000		102,000
Redeemable stock		21,553,000		20,055,000

Trade accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payments generally within 15 to 30 days from the invoice date. Vendor accounts receivable are due based on specific terms as required by the related vendor allowance program.

The carrying amounts of trade and vendor accounts receivable are reduced by -an 38allowance -that reflects management’s best estimate of the amounts that will not be collected. Management individually reviews all accounts receivable balances and creates an allowance for doubtful accounts based on the credit worthiness of specific accounts and an estimate of other uncollectible accounts based on historical performance and current economic conditions.

~~National~~Inventory ~~Wine & Spirits, Inc. Notes to Consolidated Financial Statements (continued)~~

~~3. Sale~~Substantially all inventory is stated at the lower of ~~Bottled~~cost, ~~Water~~determined ~~Division~~by the last-in, first-out (LIFO) method, or market and primarily consists of packaged beer, wine, liquor, cigars and accessories.

~~Effective~~Advertising ~~June~~Costs 5, 2000, NWSC sold certain of its licensed brands, trademarks and trade names of its bottled water division for approximately $10,440,000. NWSC received $9,960,000 for the sale of the assets at the sale date, and the balance of $480,000 was received in September 2000. NWSC recognized a gain of $7,524,000 from the sales of the related assets and liabilities.

Advertising costs 4are charged to operations when incurred. ~~Inventory~~ Advertising expense was $6,063,000, $8,432,000 and $10,602,000 in 2005, 2004 and 2003, respectively.

~~Inventory~~Property atand ~~March 31~~Equipment ~~is comprised of the following:~~

	2003		2002
Inventory at FIFO	$	93,895,000	$	92,597,000
Less: LIFO reserve		10,913,000		10,657,000
	$	82,982,000	$	81,940,000

Property and equipment are recorded at cost and are depreciated using primarily the straight-line method over their expected useful lives as follows:

If the Company had used the first-in, first-out (FIFO) inventory method, net income would have been $256,000, $896,000 and $1,276,000 greater in 2003, 2002 and 2001, respectively.


Buildings and improvements		10-40 years
Furniture and equipment		3-10 years
Warehouse equipment		7-10 years
Automobiles and trucks		5-7 years

~~5. Property~~- ~~and~~40 ~~Equipment~~-

	2003		2002
Land and improvements	$	1,170,000	$	1,473,000
Buildings and improvements		31,965,000		31,474,000
Furniture and equipment		14,294,000		15,256,000
Warehouse equipment		28,295,000		28,076,000
Automobiles and trucks		6,383,000		6,327,000
		82,107,000		82,606,000
Less: Accumulated depreciation		45,609,000		41,166,000
	$	36,498,000	$	41,440,000

Intangible Assets

Intangible assets with definite lives are amortized by the straight-line method (which, for loan acquisition costs, also ~~6. Supplemental~~approximates ~~Cash~~the ~~Flow~~yield ~~Information~~method) over the terms of the agreements or their estimated useful lives, which range from two to ten years.

~~During~~Certain ~~the~~distribution ~~year~~rights ~~ended~~are ~~March~~classified ~~31,~~as ~~2003,~~indefinite-lived ~~the Company purchased~~ intangible assets~~, principally~~ ~~distribution~~which ~~rights,~~are ~~and~~not ~~incurred~~amortized ~~other~~but ~~liabilities~~tested ~~of $12,629,000~~for impairment annually.

~~Cash~~Goodwill ~~paid for interest was $11,657,000, $11,754,000 and $13,212,000 in 2003, 2002 and 2001, respectively.~~

Goodwill consists of costs in excess of the net assets acquired in -connection 39with an acquisition in April, 1999. Prior to April 2002, goodwill was amortized using the straight-line method over 15 years. Effective April 1, 2002, the Company adopted Statements of Financial Accounting Standards (“SFAS”) No. 142, Accounting for Goodwill and Other Intangible Assets. As such, the Company no longer amortizes goodwill and performs annual tests for impairment, which was performed as of March 31, 2005, and there was no indication of impairment. There was no change to goodwill during 2005 and 2004.

~~National~~Long-lived ~~Wine~~Assets ~~& Spirits, Inc. Notes to Consolidated Financial Statements (continued)~~

The carrying value 7of long-lived assets, including intangible assets subject to amortization, is reviewed by management when indicators of impairment are present. ~~Intangible~~ ~~Assets~~If this review indicates that the carrying value may be impaired then the impaired amount will be written off. Impairment is determined by comparison of the carrying amount of the asset to the net undiscounted cash flows expected to be generated by the related asset group. An impairment loss is measured by the amount which the carrying amount of the asset group exceeds its fair value.

~~Intangible~~Income ~~assets at March 31, is comprised of the following:~~Taxes

			2003				2002
Intangible AssetsSubject toAmortization	WeightedAverage Life		GrossCarryingAmount		AccumulatedAmortization		GrossCarryingAmount		AccumulatedAmortization
Distribution rights		7	$	15,676,000	$	1,683,000	$	5,975,000	$	2,000,000
Loan acquisition costs		10		4,716,000		1,890,000		5,752,000		2,013,000
Non-compete agreements		5		200,000		153,000		200,000		112,000
Total		7	$	20,592,000	$	3,726,000	$	11,927,000	$	4,125,000
Intangible AssetsSubject toAmortization			CarryingAmount				CarryingAmount
Distribution rights			$	1,462,000			$	289,000

There is no provision for federal or state income taxes reflected in the financial statements because the stockholders have consented to NWS’ election to be taxed as an S corporation under the applicable provisions of the Internal Revenue Code. NWS’ income is taxable directly to its stockholders.

~~Consolidated~~Revenue ~~amortization~~Recognition ~~expense related to intangible assets, excluding goodwill and other intangible assets with indefinite lives for 2003, 2002, and 2001 was $2,419,000, $1,374,000 and $1,492,000, respectively.~~

NWSC, NWS-LLC, NWSM-LLC, and USB purchase inventory items for resale to ~~The~~customers ~~estimated~~and ~~amortization~~are ~~expense~~liable for ~~each~~payment to the suppliers, as well as collecting payment from customers. NWSM receives a fixed fee per case of liquor distributed for the ~~next~~State ~~five~~of ~~years~~Michigan (distribution fees) which is asalso responsible for payments to ~~follows:~~suppliers. All revenue is recognized at the time of shipment. All Michigan spirits shipments are cash on delivery.

2004				$ 3,652,000
2005				2,836,000
2006				2,752,000
2007				2,665,000
2008				1,878,000
				$13,783,000

- 41 -

~~The~~Net ~~following~~sales isand adistribution ~~summary~~fees ofare recognized at the ~~changes~~time product is shipped which is when title passes. Shipping and handling charged to customers is included in ~~goodwill~~Net ~~during~~Product Sales. For the years ended March 31:, 2005, 2004, and 2003, the Company incurred delivery expenses of $15,394,000, $14,739,000 and $16,342,000, respectively, which are included in warehouse and delivery expenses in the accompanying Consolidated Statements of Income. The Company’s gross profit may not be comparable to other entities whose shipping and handling expenses are a component of cost of sales.

	2003		2002
Goodwill, beginning of year	$	1,251,000	$	1,355,000
Less: Amortization		---		104,000
Less: Write-off of goodwill		5,000		---
Goodwill, end of year	$	1,246,000	$	1,251,000

Payments to Customers

The Company records certain payments to customers as a reduction of revenue -in 40accordance with EITF 01-09: Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Product). The Company recorded $12,299,000, $14,075,000 and $8,925,000 of consideration paid to customers as a reduction of revenue in the Consolidated Statements of Operations for the years ended March 31, 2005, 2004 and 2003, respectively.

~~National~~Vendor ~~Wine~~Allowances &Received ~~Spirits, Inc. Notes to Consolidated Financial Statements (continued)~~

The Company records vendor allowances and discounts in the statement of operations in accordance with EITF 02-16: Accounting by a Customer (including a 8Reseller) for Certain Consideration Received from a Vendor. The Company receives allowances from vendors as a result of purchasing and promoting their products. Vendor allowances provided as a reimbursement of specific, incremental and ~~Goodwill(continued)~~identifiable costs incurred to promote a vendor’s products are recorded as an expense reduction when the cost is incurred. All other vendor allowances, including vendor allowances received in excess of the Company’s cost to promote a vendor’s product, or vendor allowances directly related to purchase of a vendor’s product are initially deferred. The deferred amounts are then recorded as a reduction of cost of good sold when the related product is sold.

~~The~~Recently ~~following~~Issued ~~financial~~Accounting ~~data~~Pronouncements ~~illustrates pro forma earnings if goodwill and distribution rights with indefinite lives had not been amortized for 2003, 2002 and 2001:~~

	Year ending March 31
	2003		2002		2001
Net income, as reported	$	15,789,000	$	7,460,000	$	14,l25,000
Addback amortization from distribution
rights with indefinite lives		---		236,000		245,000
Addback goodwill amortization		---		104,000		107,000
Adjusted net income, excluding goodwill
amortization and amortization from
distribution rights with indefinite lives	$	15,789,000	$	7,800,000	$	14,477,000

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

~~9. Debt~~- 42 -

	2003		2002
Senior notes payable (A)	$	89,975,000	$	107,875,000
Bank revolving line of credit (B)		4,000,000		---
Notes payable to stockholders, net (see Note 13)		4,328,000		1,930,000
		98,303,000		109,805,000
Less: current maturities		---		---
	$	98,303,000	$	109,805,000

In November 2004, the Financial Accounting Standards Board issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). This statement is effective June 15, 2005. The Company is currently assessing, but has not yet determined the effect of SFAS No. 151 on its financial position, results of operations and cash flows

~~(A)~~Reclassifications On January 25, 1999, the Company issued $110,000,000 of unsecured senior notes with a maturity of January 15, 2009. Interest on the senior notes is 10.125% and is payable semiannually. These senior notes are guaranteed by the Company’s subsidiaries. The guarantors are either wholly owned or the Company owns 100% of the voting stock and there are no non-guarantor subsidiaries. The guarantees are full, unconditional and joint and several. NWS is a holding company and has no independent assets or operations.

~~The~~Certain ~~bond~~amounts ~~indenture~~from ~~restricts~~prior ~~the~~year’s ~~ability~~financial ofstatement ~~the~~have ~~Company~~been ~~and~~reclassified ~~its~~to ~~subsidiaries~~conform to ~~incur~~the ~~additional~~current ~~indebtedness,~~year ~~pay dividends, engage in mergers or consolidations, make capital expenditures and otherwise restricts corporate activities~~presentation.

~~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~~2. ~~Notwithstanding~~Investment ~~the~~in ~~foregoing,~~Unconsolidated ~~during~~Subsidiaries 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.

-eSkye 41Solutions, -Inc.

~~National~~The ~~Wine~~Company &accounts ~~Spirits~~for its investment in eSkye Solutions, Inc. (eSkye) on the equity method in accordance with Accounting Principles Board Opinion No. ~~Notes~~18 toThe ~~Consolidated~~Equity ~~Financial~~Method ~~Statements~~of Accounting for Investments in Common Stock (~~continued~~APB 18). Losses under the equity method for the year ended March 31, 2003 were in excess of the remaining book value of the investment in eSkye. The Company recorded $160,000 in losses for the year ended March 31, 2003, reducing its investment to $0. At March 31, 2005, the Company’s share of eSkye’s voting stock was 8.7%.

~~9. Debt(continued)~~Commonwealth Wine & Spirits, LLC

In December 1998, NWSC formed a new distributorship in Kentucky (Commonwealth Wine & Spirits, LLC) in partnership with two existing Kentucky-based distributors, The Vertner Smith Company ~~purchased~~(“Vertner”) and Kentucky Wine & Spirits (“Kentucky W&S”). NWSC has accounted for its investment in Commonwealth Wine & Spirits, LLC using the equity method. Under the terms, NWSC invested $27,~~125~~500,000 ofin ~~its~~exchange ~~senior~~for ~~notes~~a on25% interest in the ~~open~~new ~~market~~company. Vertner and Kentucky W&S equally own the remaining 75%. A portion of NWSC’s initial investment related to a franchise fee paid by NWSC on ~~September~~behalf ~~28,~~of ~~2001~~the new distributorship. ~~The~~As ~~notes~~part ~~were~~of ~~purchased~~the ~~for~~operating $2agreement,~~082,500~~ ~~plus~~NWSC’s ~~accrued~~initial ~~interest~~cash distributions from the new distributorship are treated as return of ~~$46,617~~NWSC’s original investment. ~~Related~~As ~~unamortized~~a ~~issuance~~result, ~~costs~~the amortization of ~~$74,391~~this ~~were~~franchise ~~written~~fee ~~off~~is ~~due~~allocated 100% to NWSC during the ~~purchase~~for the fiscal years 1999 through 2004, and is reflected in the Company’s recorded equity in income of Commonwealth Wine & Spirits, LLC in the ~~senior~~accompanying ~~notes~~consolidated statement of operations. The Company ~~initially~~received distributions ~~utilized~~of ~~its~~$847,000, ~~revolving~~$786,000 ~~credit~~and ~~facility~~$1,286,000 toand ~~fund~~recorded ~~the~~equity ~~purchase~~in earnings of ~~the~~$538,000, ~~senior~~$742,000 ~~notes.~~and ~~The~~$312,000 ~~net~~from ~~loss~~Commonwealth onWine ~~the~~& ~~purchase~~Spirits, ~~was~~LLC ~~insignificant~~in 2005, 2004 and 2003, respectively.

~~The~~- ~~Company~~43 ~~purchased~~- $17,900,000 of its senior notes on the open market in the fourth quarter of fiscal year 2003. The notes were purchased for $15,317,000 plus accrued interest of $275,000. Related unamortized issuance costs of $584,000 were written off due to the purchase of the senior notes. The net gain on the purchase of $1,999,000 is included in interest expense.

~~(B)~~Summary Onfinancial ~~March~~information ~~31, 2003, NWS entered into a credit agreement with LaSalle Bank National Association, as lender and agent, and National City Bank of Indiana, that provides a revolving line of credit~~ for ~~borrowings~~eSkye ~~of up to $40 million~~Solutions, ~~including standby or commercial letters of credit of up to $5 million, through April 1, 2008~~Inc. As of March 31, 2003 the applicable interest rate on the revolving line of credit was 4.5%. Commercial letters of credit of $4.5 million were issued for the self insured portion of NWS’ casualty insurance policies. Line of credit borrowings are collaterialized by and ~~based~~Commonwealth ~~upon~~Wine ~~eligible~~& ~~accounts receivable and inventories~~Spirits, asLLC ~~defined, and are guaranteed by NWS’ subsidiaries. Interest~~ is ~~payable~~as follows: monthly at the LIBOR rate or the higher of the prime lending rate or the federal funds rate, plus a margin percentage. As of March 31, 2003 the applicable interest rate on the revolving line of credit was 4.5%.

In addition, the agreement places restrictions on the Company and its subsidiaries regarding additional indebtedness, dividends, mergers or consolidations and capital expenditures. Further, the Company must maintain certain interest coverage and funded debt coverage ratios, with which the Company was in compliance at March 31, 2003.


	Years Ended March 31,
	2005		2004			2003
Sales	$	82,674,000	$	81,355,000		$	84,780,000
Operating income (loss)		2,426,000		(2,222,000	)		(2,444,000	)
Net income (loss)		1,138,000		(2,020,000	)		(134,000	)

Principal payments due on debt at March 31, 2003 are as follows:


	March 31,
	2005		2004
Current assets	$	17,576,000	$	19,529,000
Non-current assets		1,790,000		2,010,000
Current liabilities		7,744,000		6,698,000
Non-current liabilities		2,875,000		2,875,000
Minority interest		3,000		3,000
Redeemable stock		23,584,000		23,164,000

2004	$	---
2005		---
2006		---
2007		---
2008		---
Thereafter		98,303,000
	$	98,303,000

3. Inventory

~~10. Common~~Inventory ~~Stock~~at March 31 is comprised of the following:

The Company has two authorized classes of capital stock: voting $0.01 par value common shares and nonvoting $0.01 par value common shares. Both classes of stock have the same relative rights, performance limitations and restrictions, except that nonvoting shares are not entitled to vote on any matters submitted to a vote of the stockholders, except as provided by law.


	2005			2004
Inventory at FIFO	$	92,228,000		$	91,070,000
Less: LIFO reserve		(11,660,000	)		(10,874,000	)

	$	80,568,000		$	80,196,000

The Company utilizes -the 42LIFO -method of accounting for inventory for substantially all of its inventory. The amounts accounted for under LIFO as of March 31, 2005 and March 31, 2004 was $88,873,000 and $89,296,000, respectively.

During the fiscal years ended March 31, 2005, 2004 and 2003, certain ~~National~~inventory ~~Wine~~quantities &were ~~Spirits~~reduced, ~~Inc~~which resulted in a partial liquidation of LIFO inventory layers carried at a cost that prevailed in a prior year. For the fiscal year ended March 31, 2004, the effect of the liquidation of inventory was a decrease ~~Notes~~in tothe ~~Consolidated~~cost ~~Financial~~of ~~Statements~~products ~~(continued)~~sold and a decrease in the net loss by $1,145,000. For fiscal years ended March 31, 2005 and 2003, the effect of the liquidation of inventory was a decrease in the cost of products sold and an increase in the net income by $25,000 and $205,000, respectively.

~~11. Commitments~~- 44 -

2004	$	3,635,000
2005		3,136,000
2006		2,747,000
2007		2,426,000
2008		431,000
Thereafter		684,000
	$	13,059,000

4. Property and Equipment

~~Rent~~Property ~~expense~~and ~~was~~equipment ~~$4,747,000,~~at ~~$4,800,000~~March ~~and~~31 ~~$4,738,000~~is incomprised ~~2003,~~of ~~2002~~the ~~and~~following: ~~2001, respectively.~~

The Company has future obligations for guaranteed minimum royalty payments related to certain distribution contracts. Existing agreements require minimum royalty payments of approximately $2,700,000 for fiscal year 2004. Because the Company believes that actual royalty payments will exceed the guaranteed minimum, royalty payments are recorded in cost of sales as royalties become payable. As of March 31, 2003, the minimum royalty payment of $3,100,000 for fiscal year 2003 had been satisfied.


	2005		2004
Land and improvements	$	1,173,000	$	1,173,000
Buildings and improvements		31,687,000		31,977,000
Furniture and equipment		14,174,000		14,815,000
Warehouse equipment		28,304,000		28,334,000
Automobiles and trucks		5,295,000		5,956,000

		80,633,000		82,255,000

Less: Accumulated depreciation		52,942,000		50,771,000

	$	27,691,000	$	31,484,000

125. ~~Employee~~ ~~Benefit~~Supplemental Cash ~~Plans~~Flow Information

During the years ended March 31, ~~The~~2005, ~~Company~~2004 ~~sponsors~~and a2003, ~~defined~~the ~~benefit~~Company ~~pension~~purchased ~~plan~~intangible ~~covering~~assets, ~~substantially~~principally ~~all~~ distribution rights of ~~its~~$11,146,000, ~~warehousemen~~$15,797,000 and ~~drivers.~~$13,605,000, ~~The~~respectively, ~~Company~~by ~~makes~~incurring ~~contributions~~other toliabilities ~~the~~of ~~plan based~~$7,626,000, on$15,587,000 ~~amounts~~and ~~permitted~~$11,435,000, ~~by law~~respectively.

~~The~~Cash ~~components~~paid offor ~~net~~interest ~~periodic~~was ~~pension~~$9,683,000, ~~cost~~$9,935,000 ofand $11,657,000 ~~the~~in ~~defined~~2005, ~~benefit~~2004 ~~plan~~and ~~are~~2003, ~~as follows~~respectively. ~~for the years ended March 31:~~

	2003			2002			2001
Service cost-benefits earned during the year	$	347,000		$	263,000		$	231,000
Interest on projected benefit obligation		340,000			288,000			255,000
Expected return on plan assets		(314,000	)		(305,000	)		(337,000	)
Amortization of unrecognized net transition asset		20,000			20,000			20,000
Amortization of loss (gain)		34,000			---			(40,000	)
Amortization of prior service cost		53,000			53,000			35,000
Net periodic pension cost	$	480,000		$	319,000		$	164,000

6. Intangible Assets

Intangible assets at March 31 are -comprised 43of -the following:

National Wine & Spirits, Inc. Notes to Consolidated Financial Statements (continued)


		2005				2004
Intangible Assets Subject to Amortization	Weighted Average Life	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Distribution rights	7	$	40,859,000	$	10,486,000	$	30,820,000	$	6,170,000
Loan acquisition costs	10		4,065,000		2,427,000		4,076,000		2,011,000
Non-compete agreements	5		—		—		200,000		193,000

Total	7	$	44,924,000	$	12,913,000	$	35,096,000	$	8,374,000

12. Employee Benefit Plans(continued)

~~The~~- ~~change~~45 in- the projected benefit obligation, plan assets, funded status and amounts recognized in the accompanying consolidated balance sheets at March 31, 2003 and 2002 for the defined benefit pension plan are as follows:

	2003			2002
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	4,962,000		$	3,802,000
Service cost		347,000			263,000
Interest cost		340,000			288,000
Actuarial changes		577,000			807,000
Benefits paid		(214,000	)		(198,000	)
Benefit obligation at end of year	$	6,012,000		$	4,962,000

Change in plan assets:
Fair value of plan assets at beginning of year	$	3,587,000		$	3,552,000
Actual loss on plan assets		(347,000	)		(345,000	)
Company contributions		747,000			578,000
Benefits paid		(214,000	)		(198,000	)
Fair value of plan assets at end of year	$	3,773,000		$	3,587,000

Consolidated amortization expense related to intangible assets subject to amortization for 2005, 2004, and 2003 was $5,731,000, $5,513,000, and $2,419,000, respectively.

Funded status of the plan (under-funded)	$	(2,239,000	)	$	(1,375,000	)
Unrecognized net actuarial gain		2,291,000			1,086,000
Unrecognized prior service cost		647,000			700,000
Unrecognized transition obligation		67,000			87,000
Prepaid benefit cost	$	766,000		$	498,000
Weighted-average assumptions:
Discount rate		6.50	%		7.00	%
Expected return on plan assets		8.50	%		8.50	%
Balance Sheet Classification:
Prepaid benefit cost	$	(766,000	)	$	(498,000	)
Noncurrent deferred additional liability	$	3,005,000		$	1,873,000
Minimum liability	$	2,239,000		$	1,375,000
	$	715,000		$	1,198,000
Deferred pension costs (intangible asset)
Accumulated other comprehensive income -
unrecognized net pension loss	$	2,290,000		$	675,000

As a result of the declining demand and lower than expected sales performance for a product line in the Company’s product sales segment, management performed impairment analyses of the related distribution rights. Management determined that the related distribution rights were impaired and recorded a charge of $267,000 and $846,000 to amortization expense during the twelve month period ended March 31, 2005 and 2004, respectively, to write the intangible asset down to fair value. Fair value was calculated based on the discounted future cash flows of the product line’s expected contribution margin.

-The 44estimated -amortization expense for each of the next five years is as follows:

National Wine & Spirits, Inc. Notes to Consolidated Financial Statements (continued)


2006	$	7,244,000
2007		7,136,000
2008		6,067,000
2009		5,587,000
2010		4,965,000

	$	30,999,000

~~12. Employee~~- ~~Benefit~~46 ~~Plans(continued)~~-

It7. isDebt ~~the Company’s policy to make contributions to the plan sufficient to meet the funding requirements of applicable laws and regulations, plus such additional amounts as deemed appropriate.~~

~~The~~Long-term ~~Company~~debt ~~also sponsors a defined contribution benefit plan for substantially all employees not covered by the defined benefit plan. Contributions to the plan are made~~ at ~~the~~March ~~discretion~~31 ofis ~~the~~comprised ~~Company and may not exceed 5%~~ of ~~a participant’s compensation. The Company recorded $1,598,000, $1,411,000 and $1,215,000 of expense for~~ the ~~defined~~following: ~~contribution plan in 2003, 2002 and 2001, respectively.~~

NWS-LLC contributes to union-sponsored multi-employer pension plans, which provide for contributions based on a specified rate per labor hour. Union employees constitute approximately 53% of NWS-LLC’s workforce and 53% of NWSM’s workforce. Contributions charged to expense were $757,000, $665,000 and $588,000 in 2003, 2002 and 2001, respectively. Information as to NWS-LLC’s portion of accumulated plan benefits and plan net assets is not currently available. Under the Employee Retirement Income Security Act of 1974 as amended, an employer upon withdrawal from a multi-employer plan is required to continue funding its proportionate share of the plan’s unfunded vested benefits. NWS-LLC has no intention of withdrawing from the plans.


	2005		2004
Senior notes payable (A)	$	77,079,000	$	79,029,000
Bank revolving line of credit (B)		1,750,000		3,000,000
Notes payable to stockholders, net (see Note 12)		4,328,000		4,328,000

		83,157,000		86,357,000
Less: current maturities		—		—

	$	83,157,000	$	86,357,000

13(A) On January 25, 1999, the Company issued $110,000,000 of unsecured senior notes with a maturity of January 15, 2009. ~~Related~~ ~~Party~~Interest ~~Transactions~~on the senior notes is 10.125% and is payable semiannually. These senior notes are guaranteed by the Company’s subsidiaries. The guarantors are either wholly owned or the Company owns 100% of the voting stock and there are no non-guarantor subsidiaries. The guarantees are full, unconditional and joint and several. NWS is a holding company and has no independent assets or operations.

~~NWSC had notes receivable from its two stockholders totaling $2,628,000 at March 31, 2002.~~ The ~~notes~~bond ~~earned~~indenture ~~interest~~restricts at the ~~prime~~ability ~~lending~~of ~~rate~~the Company and ~~were paid~~its insubsidiaries ~~full~~to ~~during~~incur ~~September~~additional ~~2002. Interest income earned was $62~~indebtedness,~~000,~~ ~~$222,000 and~~pay ~~$635~~dividends,~~000~~ engage in mergers ~~2003,~~or ~~2002~~consolidations, ~~and~~make ~~2001, respectively. Proceeds of the notes were used by the stockholders to purchase additional~~ capital ~~stock~~expenditures ~~of NWSC~~ and ~~to make~~otherwise ~~loans~~restrict tocorporate ~~NWS-LLC~~activities.

~~Effective~~On ~~July~~or 31after January 15, ~~1998~~2004, the Company ~~and~~may ~~its~~redeem ~~stockholders~~some ~~executed~~or ~~new~~all ~~notes payable to stockholders to provide for a legal right~~ of ~~offset against~~ the ~~notes receivable~~senior ~~from stockholders. The~~ notes ~~payable~~at ~~outstanding~~any astime of March 31, 2002 were offset with corresponding notes receivable and reflected in long-term-debt in the accompanying Consolidated Balance Sheet. The total of the subordinated notes payable was $4,328,000 and $4,558,000 at ~~March 31,~~stated ~~2003~~redemption ~~and~~prices ~~2002, respectively~~plus ~~with~~accrued ~~the principal balance due in 2009. These notes bear~~ interest at ~~the prime lending rate. Interest expense on these notes was $197,000, $258,000~~ and ~~$405,000~~liquidated ~~in 2003, 2002, and 2001, respectively~~damages. ~~The Company pays eSkye fees for computer services. NWS paid $150,000, $49,000, and $42,000 during the years ended March 31, 2003, 2002, and 2001, respectively.~~

The Company ~~paid~~purchased $~~117~~17,~~000~~900,000 of its senior notes on the open market during fiscal year 2003. The notes were purchased for $~~218~~15,317,000 ~~and~~plus accrued interest of $~~230~~275,000. inRelated ~~2003,~~unamortized ~~2002,~~issuance ~~and~~costs ~~2001 respectively~~of ~~for~~$584,000 ~~consulting~~were ~~fees~~written off due to athe ~~minority~~purchase ~~stockholder~~of the senior notes. The net gain on the purchase of ~~NWS-LLC~~$1,999,000 is included in interest expense.

AThe ~~Director~~Company ofpurchased ~~the~~$10,946,000 ~~Company~~of isits ~~the~~senior ~~Chairman~~notes ~~and~~on ~~Chief~~the ~~Executive~~open ~~Officer~~market ofduring ~~eSkye~~fiscal 2004. The ~~Company~~notes ~~received~~were 6purchased for $9,~~000~~935,000 ~~shares~~plus ofaccrued ~~common~~interest ~~stock~~of in$333,000. ~~eSkye~~Related ~~upon~~unamortized ~~inception, representing~~issuance ~~founders~~costs ~~stock.~~of ~~The~~$294,000 ~~Company~~were ~~accounts~~written ~~for~~off ~~its~~due ~~investment~~to the inpurchases ~~eSkye using~~of the ~~equity~~senior ~~method~~notes. The ~~Company's~~net ~~investment~~gain inon ~~convertible~~the ~~preferred~~purchases ~~stock~~ of ~~eSkye totaled~~ $2716,~~513,~~000 of the senior notes is included in interest expense.

~~NWS~~The ~~leases~~Company ~~facilities~~purchased ~~and~~$1,950,000 ~~certain~~of ~~office~~its ~~equipment~~senior tonotes ~~eSkye~~on ~~under~~ the ~~terms~~open ofmarket ~~a three-year~~during ~~operating~~fiscal ~~lease~~2005. ~~NWS~~The ~~received~~notes ~~rent~~were ~~from~~purchased ~~eSkye~~for of $~~137~~1,~~000~~799, ~~$270,~~000 plus ~~and~~accrued interest of $~~262~~96,000. ~~during~~Related ~~the~~unamortized ~~years~~issuance ~~ended~~costs ~~March~~of 31$43,000 ~~2003,~~were ~~2002~~written ~~and~~off ~~2001,~~due ~~respectively. The~~to ~~Company~~the ~~pays~~purchases ~~eSkye~~of ~~fees~~the ~~for~~senior ~~computer services~~notes. ~~NWS~~The ~~paid~~net ~~$150,000,~~gain ~~$49,000, and,~~on the purchases of $42108,000 ~~during~~of the ~~years~~senior ~~ended~~notes ~~March~~is ~~31,~~included ~~2003,~~in ~~2002~~interest ~~and 2001, respectively~~expense.

-(B) 45On -March 31, 2003, NWS entered into a credit agreement with LaSalle Bank National Association, as lender and agent, and National City Bank of Indiana that provides a revolving line of credit for borrowings of up to $40 million, including standby or

~~National~~- ~~Wine~~47 &- ~~Spirits, Inc. Notes to Consolidated Financial Statements (continued)~~

~~The~~commercial ~~Company’s~~letters ~~reportable~~of ~~segments~~credit ~~are~~of ~~business~~up ~~units~~to ~~that~~$5 ~~engage~~million, inthrough ~~product~~April 1, 2008. Commercial ~~sales~~letters ~~and~~of ~~all~~credit ~~other~~of ~~activities~~$4.0 ~~The~~million ~~majority~~were ofoutstanding at March 31, 2005 for the ~~all~~self-insured ~~other~~portion ~~activities~~of ~~relate to~~NWS’ ~~distribution~~casualty ~~fee~~insurance ~~operations~~policies. ~~The~~Line ~~Company~~of ~~evaluates~~credit ~~performance~~borrowings are collateralized by and ~~allocates~~based upon eligible accounts receivable and inventories, ~~resources~~as ~~based~~defined, onand ~~these~~are ~~segments~~guaranteed by all NWS’ subsidiaries. ~~The~~Interest ~~accounting~~is ~~policies~~payable monthly at the LIBOR rate or the higher of the ~~reportable segments~~prime ~~are~~lending rate or the ~~same~~federal asfunds ~~those~~rate, ~~described~~plus ina margin percentage. In addition, the ~~summary~~agreement ofplaces ~~significant~~restrictions ~~accounting~~on ~~policies~~the inCompany ~~Note~~and 1its subsidiaries regarding additional indebtedness, dividends, mergers or consolidations and capital expenditures. As of March 31, 2005, the applicable interest rate on the revolving line of credit was 6.00%.

	2003			2002			2001
Revenue from external customers
Product sales	$	689,859,000		$	659,594,000		$	636,879,000
All other		22,999,000			21,963,000			21,573,000
Interest expense
Product sales		7,654,000			10,309,000			11,599,000
All other		1,654,000			1,625,000			1,615,000
Depreciation expense
Product sales		5,212,000			4,505,000			4,941,000
All other		1,976,000			2,056,000			2,105,000
Amortization expense
Product sales		2,245,000			1,170,000			1,300,000
All other		174,000			544,000			544,000
Equity in earnings of Commonwealth Wine & Spirits, LLC
Product sales		312,000			407,000			315,000
All other		---			---			---
Equity in losses of eSkye Solutions, Inc.
Product sales		(160,000	)		(1,311,000	)		(787,000	)
All other		---			---			---
Segment income (loss)
Product sales		17,111,000			9,155,000			16,111,000
All other		(1,322,000	)		(1,695,000	)		(1,986,000	)
Segment assets
Product sales		193,757,000			190,585,000			180,383,000
All other		9,951,000			10,820,000			11,907,000
Investments in equity method investees
Product sales		5,637,000			6,771,000			8,080,000
All other		---			---			---
Expenditures on long-lived assets
Product sales		4,449,000			5,142,000			7,117,000
All other		58,000			1,031,000			122,000

The Company amended its $40 million revolving credit facility as of March 31, 2004. The amendment (i) decreased the minimum interest coverage ratio (ii) increased the maximum funded debt ratio (iii) reduced the permitted annual capital expenditures (iv) restricted the repurchases of the Company’s senior notes and (v) adjusted certain interest pricing terms and other financial covenants.

~~15. Concentration~~The Company was in compliance at March 31, 2005 with the restrictive covenants, as amended, of ~~Risk~~the revolving credit facility.

~~Products~~Principal ~~purchased~~payments ~~from~~due ~~four~~on ~~suppliers~~debt ~~amounted~~at toMarch ~~approximately 59%~~31, ~~62%~~2005 ~~and 66%~~are ofas ~~all~~follows: ~~purchases in 2003, 2002 and 2001, respectively.~~

16. Litigation


2006		—
2007		—
2008		—
2009	$	78,829,000
2010	$	4,328,000
Thereafter		—

	$	83,157,000

~~The Company is a party to various lawsuits and claims arising in the normal course of business~~8. ~~While~~Common ~~the ultimate resolution of lawsuits or claims against~~Stock 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.

The Company has two authorized classes of capital stock: voting $0.01 par value common shares and non-voting 46$0.01 par value common shares. Both classes of stock have the same relative rights, performance limitations and restrictions, except that non-voting shares are not entitled to vote on any matters submitted to a vote of the stockholders, except as provided by law.

~~National~~- ~~Wine~~48 &- ~~Spirits, Inc. Notes to Consolidated Financial Statements (continued)~~

~~During the year ended March 31, 2003, NWSC entered into distribution contracts with two vendors, both on an exclusive basis for their respective products distributed in Indiana~~9. ~~Total~~Commitments ~~payments of $11,625,000 are required for these agreements,~~ and ~~$11,375,000~~Contingencies is unpaid as of March 31, 2003. Payments are required on a quarterly basis through June 30, 2010. NWSC has imputed interest the obligations at 4.5% and recorded a discount on the obligation which reduced the related intangible asset by $1,624,000. These assets will be amortized over the life of their respective contracts.

~~Future~~The ~~cash~~Company ~~payments~~leases ~~for~~office ~~all~~and warehouse space under noncancellable operating leases ranging from two to ten years, some of which ~~the~~include renewal and purchase options and escalation clauses, expiring on various dates through 2015. The Company’s ~~distribution~~also ~~rights obligations~~leases ~~for~~certain ~~the~~trucks and equipment pursuant to noncancellable operating leases with terms ranging from three to seven years. Future ~~ended~~minimum rent payments as of March 31, 2005 are as follows:

2004		$	2,079,000
2006	$	3,992,000
2005			2,079,000
2007		3,598,000
2006			1,829,000
2008		1,553,000
2007			1,829,000
2009		962,000
2008			1,500,000
2010		496,000
Thereafter		537,000	~~3,374,000~~
Total distribution rights obligations			12,690,000
	$	11,138,000
Imputed interest			(1,624,000	)
Present value of minimum distribution rights payments			11,066,000
Current portion			(1,697,000	)
Long-term distribution rights obligation		$	9,369,000

~~During~~Rent ~~the~~expense ~~year ended March 31, 2003 the Company~~ was ~~notified by three major~~ ~~vendors that brand distribution rights for NWS-LLC were terminated. Revenue for the affected brands for the year ended March 31~~$4,941,000, ~~2003 was approximately~~ $~~188 million. For the same annual period~~4,797,000, ~~these three vendors contributed approximately~~ $364,747,000 ~~million~~in to2005, ~~the~~2004 ~~gross~~and ~~profit~~2003, ~~of the Company~~respectively.

The Company, asis ~~part~~a ofparty ato ~~vendor~~various ~~settlement~~lawsuits atand ~~NWS-LLC,~~claims ~~entered~~arising ~~into~~in ~~a settlement~~the ~~agreement~~normal incourse ~~February~~of ~~2003~~business. ~~whereby~~While the ~~vendor~~ultimate ~~paid~~resolution ~~$9.2~~of ~~million~~lawsuits to or claims against the Company ~~for~~cannot ~~termination~~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 ~~distribution~~operations ~~rights~~of the Company.

The Company engages in brand promotional activities with certain suppliers and has committed to continue these efforts while 18representing the suppliers’ brands. ~~Management~~ ~~Services~~Future ~~Agreement~~minimum promotional commitments as of March 31, 2005 are as follows:

During the quarter ended March 31, 2003, NWS-LLC entered into a Management Services Agreement with a nationwide wholesaler of wine and spirits. Both parties would cooperate in the business of distributing wine and spirits in the state of Illinois (the Business). As part of that relationship, NWS-LLC and the other wholesaler would share equally in the profits and losses of the Business. In addition, the parties entered into a separate Contribution Agreement in which the parties would agree that, at any time after January 31, 2004, the other wholesaler would have the right to require the formation of a new company to be owned fifty percent by NWS-LLC and fifty percent by the other wholesaler. At that time, the other wholesaler would contribute cash to the new entity in an amount equal to fifty percent of the net book value.


2006	$	3,083,000
2007		1,225,000
2008		1,100,000
2009		1,100,000
2010		1,100,000
Thereafter		92,000

	$	7,700,000

- 4749 -

1910. ~~Quarterly~~ ~~Data~~Employee ~~(Unaudited)~~ Benefit Plans

The ~~following~~Company ~~table~~funds ~~sets~~a ~~forth~~noncontributory ~~certain~~defined ~~quarterly~~benefit ~~income~~pension ~~statement~~plan ~~information~~covering substantially all of its warehousemen and drivers. Eligible employees can participate after one year of service and the attainment of age 21 with entry on January 1 and July 1. Benefits are based on length of eligible service, form of payment, and vest after five years of employment. The Company makes ~~for~~quarterly contributions to the ~~fiscal~~plan ~~years~~based ~~ended~~on ~~March~~amounts permitted by law as well as voluntary contributions to maintain or increase the funded percentage of the plan. The Company uses a December 31, ~~2003,~~measurement ~~2002~~date. The following table is a reconciliation of the projected benefit obligation and ~~2001:~~the fair value of the deferred benefit pension plan assets.

		2003
	2005			2004
(Dollars in thousands)		Q1		Q2			Q3		Q4			Total
Change in projected benefit obligation:
Total revenue			182,732		175,536			214,872		139,718			712,858
Benefit obligation at beginning of year	$	7,255,000		$	6,012,000
Gross profit			43,163		39,444			44,917		32,501			160,025
Service cost		489,000			398,000
Selling, general and administrative expenses			36,130		36,099			36,710		35,611			144,550
Interest cost		428,000			384,000
Income from operations			7,033		3,345			8,207		(3,110	)		15,475
Actuarial changes		261,000			668,000
Interest expense			2,819		2,828			2,845		816			9,308
Benefits paid		(223,000	)		(207,000	)
Other income (expense)			180		114			200		9,128			9,622
Benefit obligation at end of year	$	8,210,000		$	7,255,000
Net income			4,394		631			5,562		5,202			15,789
Change in plan assets:
Fair value of plan assets at beginning of year	$	4,872,000		$	3,773,000
Actual gain on plan assets		460,000			759,000
Employer contributions		901,000			547,000
Benefits paid		(223,000	)		(207,000	)
Fair value of plan assets at measurement date	$	6,010,000		$	4,872,000
Reconciliation of funded status:
Funded (Unfunded) status	$	(2,200,000	)	$	(2,383,000	)
Unrecognized actuarial loss		2,503,000			2,420,000
Unrecognized prior service cost		541,000			594,000
Unrecognized transition obligation		28,000			48,000
Prepaid benefit cost at measurement date		872,000			679,000
Contributions made after measurement date		200,000			200,000
Prepaid benefit cost at end of year	$	1,072,000		$	879,000
Amounts recognized in the consolidated balance sheet:
Prepaid benefit cost	$	1,072,000		$	879,000
Non-current deferred additional liability		(3,073,000	)		(3,061,000	)
Deferred pension costs - intangible asset		569,000			642,000
Accumulated other comprehensive loss	$	2,503,000		$	2,419,000
Increase in minimum liability included in other comprehensive income	$	84,000		$	129,000

	2002
(Dollars in thousands)	Q1			Q2			Q3			Q4			Total
Total revenue		166,639			157,457			209,030			148,431			681,557
Gross profit		37,467			35,115			44,941			33,124			150,647
Selling, general and administrative expenses		32,075			31,484			33,128			34,338			131,025
Income from operations		5,392			3,631			11,813			(1,214	)		19,622
Interest expense		3,004			3,047			2,957			2,926			11,934
Other income (expense)		(15	)		(85	)		(32	)		(96	)		(228	)
Net income		2,373			499			8,824			(4,236	)		7,460

- 50 -

	2001
(Dollars in thousands)	Q1		Q2			Q3		Q4			Total
Total revenue		162,187		156,618			201,732		137,915			658,452
Gross profit		37,059		34,468			43,986		29,011			144,524
Selling, general and administrative expenses		31,108		31,495			32,445		29,986			125,034
Income from operations		5,951		2,973			11,541		(975	)		19,490
Interest expense		3,248		3,364			3,468		3,134			13,214
Other income (expense)		7,524		173			310		(158	)		7,849
Net income		10,227		(218	)		8,383		(4,267	)		14,125

As of March 31, 2005 and 2004, the Company has recorded an additional minimum pension liability of -$3,073,000 48and -$3,061,000, respectively. As the additional liability exceeds the intangible asset, the excess is recorded in Accumulated Other Comprehensive Loss in the amounts of $2,503,000 and $2,419,000 as of March 31, 2005 and 2004, respectively. An intangible asset of $569,000 and $642,000 was reflected in the Company’s consolidated balance sheet at March 31, 2005 and 2004, respectively. The change in the pension liability at March 31, 2005 as compared to the liability at March 31, 2004 was primarily caused by the 0.25% decrease in the discount rate assumption.

~~Item~~The ~~9. Changes~~projected inbenefit obligation and ~~Disagreements~~ ~~with~~accumulated ~~Accountants~~benefit onobligation ~~Accounting~~exceeded the fair value of plan assets as of the Company’s fiscal 2005 and ~~Financial~~2004 ~~Disclosure~~measurement dates, as illustrated in the following table:

On December 10, 2001, the Audit Committee of the Board of Directors of NWS dismissed Ernst & Young LLP (“Ernst & Young”), the independent accountant who was previously engaged to audit NWS’ financial statements for fiscal 2001. On June 11, 2002, the Board of Directors of NWS dismissed Arthur Andersen LLP (“Andersen”), the independent accountant who was engaged to audit the Company’s financial statements for fiscal 2002. None of the reports of Ernst & Young or Andersen for the years ended March 31, 2001 and 2002 contained an adverse opinion or a disclaimer of opinion, and they were not qualified or modified as to uncertainty, audit scope or accounting principles. During those periods, there were no disagreements with either of Ernst & Young or Andersen on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.


	2005		2004
Projected benefit obligation	$	8,210,000	$	7,255,000
Accumulated benefit obligation	$	8,210,000	$	7,255,000
Plan assets at fair value	$	6,010,000	$	4,872,000

Estimated benefit ~~Part~~payments ~~III~~from the plan for each of the next five plan years ending June 30, and thereafter, are as follows:

Item 10. Directors & Executive Officers of the Registrant


Plan Year	Benefit Payments
2006	$	238,519
2007		257,877
2008		285,390
2009		296,174
2010		297,718
Years 2011 to 2015		1,971,236

It is the ~~Directors~~Company’s policy to make quarterly contributions to the plan sufficient to meet the funding requirements of applicable laws and ~~Executive~~regulations, ~~Officers~~plus such additional voluntary amounts as deemed appropriate. The components of net periodic pension cost of the defined benefit plan are as follows for the years ended March 31:

The following table sets forth information concerning the directors and executive officers of NWS as of June 30, 2003:


	2005			2004			2003
Service cost-benefits earned during the year	$	489,000		$	398,000		$	347,000
Interest on projected benefit obligation		428,000			384,000			340,000
Expected return on plan assets		(385,000	)		(323,000	)		(314,000	)
Amortization of unrecognized net transition asset		20,000			20,000			20,000
Amortization of loss		103,000			101,000			34,000
Amortization of prior service cost		53,000			53,000			53,000

Net periodic pension cost	$	708,000		$	633,000		$	480,000

Name		Position
James E. LaCrosse	70	Chairman, President, Chief Executive Officer, ChiefFinancial Officer and Director
Catherine M. LaCrosse	36	Vice President of Sales-Indiana Fine Wine Division and Director
John J. Baker	33	Chief Operating Officer and Secretary
Gregory J. Mauloff	51	Corporate Executive Vice President, Sales & Marketing
J. Smoke Wallin	36	Executive Vice President and Director
James R. Beck	59	Director
Patrick J. Hurrle	53	Vice President and General Manager, NWS-Indiana
Joseph J. Fisch	54	President, U.S. Beverage
Mitchell T. Stoltz	49	Director
Norma M. Johnston	74	Director
William M. Cockrum	65	Director
Vaughn D. Bryson	64	Director
Patrick A. Trefun	43	Corporate Controller and Treasurer

- 51 -

~~James~~The E.Company’s ~~LaCrosse~~discount ~~has~~rate ~~served~~assumption asis ~~Chairman,~~based ~~President,~~upon ~~Chief~~the ~~Executive~~preceding ~~Officer~~year’s ~~and~~Moody’s AA aCorporate ~~Director~~Bond Index rounded down to the nearest 1/4 of ~~NWS~~a ~~since~~percentage ~~December~~point, ~~1998.~~and Heis assumed ~~the~~to ~~responsibilities~~be ofthe ~~Chief~~rate at ~~Financial~~which ~~Officer~~the inbenefit ~~May,~~obligations ~~2000.~~could ~~Previously,~~be Mrsettled. ~~LaCrosse~~The ~~served~~return ason ~~Chairman~~plan ~~and Director~~assets ~~NWS~~reflects the weighted-~~Indiana~~average ~~since~~of ~~its~~the ~~formation~~long interm ~~1973,~~rates ~~and~~of ~~prior~~return tofor ~~1973~~the ~~was~~broad ~~employed by~~categories ~~various~~of ~~companies~~investments held in athe ~~financial~~Company’s ~~capacity.~~defined Mrbenefit pension plan. ~~LaCrosse~~The ~~received~~expected rate anof ~~MBA~~return ~~from Harvard~~is ~~Business~~adjusted ~~School~~when there are fundamental changes in ~~1961~~expected ~~and~~returns aon BAthe Company’s defined benefit pension plan’s assets. The actuarial assumptions used in ~~economics~~accounting ~~from~~for ~~Wesleyan~~the ~~University~~Company’s defined benefit retirement plan inwere ~~1957.~~as follows:

Catherine M. LaCrosse has served as Director of NWS since December 1998 and is currently Vice President of Sales of the Indiana Fine Wine Division. Ms. LaCrosse joined NWS in 1991 and has served in various sales and marketing positions in NWS-Indiana, NWS-Illinois and NWS-Michigan. Ms. LaCrosse received a BA in history from Indiana University in 1990. She is Mr. LaCrosse’s daughter.


	2005		2004
Discount rate	5.75	%	6.00	%
Expected return on plan assets	7.50	%	7.50	%
Benefit increases	0.00	%	0.00	%

~~John~~The ~~J. Baker has served~~Company’s asinvestment ~~Chief~~strategy ~~Operating~~for ~~Officer~~its ~~and~~defined ~~Treasurer~~benefit ~~since~~pension ~~2001.~~plan ~~Mr.~~is ~~Baker~~to ~~joined~~maximize the ~~Company~~ inlong-term ~~1993~~rate ~~and~~of ~~has~~return ~~also~~on ~~held~~plan ~~positions~~assets aswithin ~~Executive~~reasonable ~~Vice~~and ~~President, Director~~prudent levels of ~~Corporate Logistics~~risk, ~~Director~~control ~~of Purchasing~~costs, and ~~Operations Specialist.~~maintain ~~Prior~~a tohigh ~~that,~~level heof ~~served~~funding aswith aregard ~~Financial~~to ~~Analyst~~the ~~for Comdata~~projected ~~Corporation~~benefit ~~and~~obligation. ~~Freight~~Investment ~~Forwarding~~results ~~Assistant~~are ~~for~~the ~~A.W.~~critical ~~Fenton~~element ~~Company.~~in ~~Mr.~~achieving ~~Baker received~~the aninvestment ~~MBA~~objectives, inwhile ~~operations~~reliance ~~from~~on ~~Vanderbilt~~contributions ~~University-Owen~~is ~~School~~a secondary element. The Company’s range of ~~Management~~ inasset ~~1994~~holdings ~~and~~as a BSpercentage inof ~~economics~~market ~~and~~value, ~~international~~with ~~business~~a strategic ~~from~~allocation ~~Miami University~~for ineach, ~~1992.~~is as follows:

Gregory J. Mauloff has been Corporate Executive Vice President of Sales and Marketing since April 2003. Prior to that he was President of the Illinois operations and Executive Vice President of the Beer Division. He joined the company in 1991. Other experience includes Vice President of Sales, Heublein Spirits, and Division Manager, E.J. Gallo Wines. He received a BS in business administration from Norbert College in 1973.


	Lower Limit		Strategic Allocation		Upper Limit
Domestic large cap equities	20	%	25	%	30	%
Domestic mid cap equities	10	%	15	%	20	%
Domestic small cap equities	5	%	10	%	15	%
International equities	5	%	10	%	15	%
Domestic fixed income	30	%	38	%	46	%
Cash equivalents	0	%	2	%	10	%

J.This ~~Smoke~~asset ~~Wallin has~~allocation ~~served~~range aswas ~~Executive~~used ~~Vice~~for ~~President~~the ~~and~~year aended ~~Director~~March of31, ~~NWS~~2005 ~~since~~and ~~December,~~is ~~1998. He~~the ~~served~~allocation asto ~~Chief~~be ~~Financial~~used ~~Officer~~for ~~from~~the ~~December~~year ~~1998~~ended ~~until~~March ~~April~~31, ~~2000~~2006. ~~Mr. Wallin~~As ~~joined~~of ~~NWS~~the inCompany’s ~~1988~~2005 and ~~served~~2004 asmeasurement ~~Executive Vice President~~dates, ~~Corporate Group,~~the ~~from~~percentage ~~1993~~of tofair ~~1998.~~value ~~He received an MBA in finance, marketing and operations from Vanderbilt University-Owen School~~ of ~~Management~~total inassets ~~1993~~by ~~and~~asset acategory ~~BS in~~was ~~economics from Cornell University in 1989. Mr. Wallin is Mr. LaCrosse’s~~as ~~son-in-law.~~follows:

James R. Beck has served as Director of NWS since December 1998 and as President of NWS-Indiana from 1992 to July 2002 when he retired. Mr. Beck joined NWS in 1972 and has served in various positions, including Executive Vice President of Sales for 14 years prior to being named President of NWS-Indiana. He has been a Director of NWS since December, 1998. Mr. Beck received a BS in education from Ball State University in 1968.


	2005		2004
Asset category:
Equity securities	61.36	%	61.50	%
Debt securities	21.71	%	37.40	%
Cash and cash equivalents	16.93	%	1.10	%

~~Patrick~~The J.Company ~~Hurrle~~expects ~~is currently Vice President and General Manager of NWS-Indiana~~to ~~and~~contribute ~~joined~~approximately ~~the~~$1,100,000 ~~company~~to inits ~~1972.~~defined ~~Other~~benefit ~~positions~~pension heplan ~~has~~during ~~held in~~ the ~~Indiana operation~~fiscal ~~include~~year ~~Vice~~ending ~~President~~March ~~of Wine Sales~~31, ~~Wines Sales Manager and Merchandiser~~2006. ~~Mr. Hurrle graduated in 1972 from Indiana University with a BS in marketing.~~

~~Joseph~~The J.Company ~~Fisch~~also ~~has~~sponsors ~~served as President and CEO of U.S. Beverage,~~ a ~~premium import/craft~~defined ~~and~~contribution ~~specialty~~benefit ~~beer~~plan ~~marketer~~for ~~and~~substantially ~~sales~~all ~~company,~~employees ~~based~~not incovered ~~Stamford, Connecticut,~~by ~~since~~the ~~its~~defined ~~inception~~benefit ~~in 1997~~plan. ~~His~~Contributions ~~previous~~to the ~~experience~~plan ~~with~~are ~~Joseph~~made ~~E. Seagram~~at ~~Corporation~~the ~~from~~discretion ~~1971~~of ~~through~~the ~~1996~~Company ~~includes~~and ~~Market~~may ~~Research~~not ~~Analyst; Vice~~exceed ~~President~~5% ~~and~~of ~~Division~~a ~~Manager,~~participant’s ~~General~~compensation. ~~Wine~~The ~~& Spirits~~ Company; ~~Vice President/General~~recorded ~~Manager~~$1,823,000, ~~eastern region~~$1,588,000 ~~House~~and ~~of Seagram; Vice President/General Manager~~$1,598,000 ~~House~~ of ~~Seagram;~~expense ~~President,~~for ~~Seagram~~the ~~Beverage~~defined ~~Company He~~contribution ~~received~~plan ~~a BS~~ in ~~business~~2005, ~~administration~~2004 and ~~marketing from Bowling Green University~~2003, ~~Ohio, in 1971~~ respectively.

~~Mitchell T. Stoltz has served as Director of NWS since December 1998. Mr. Stoltz served as President of NWS~~-~~Illinois~~ ~~from~~52 ~~1995 to April 2001, at which time he resigned from that position but continues as a Director of NWS. Prior to becoming President, he served as Executive Vice President of Sales and Marketing for NWS~~-~~Illinois.~~ Before joining NWS in 1992, Mr. Stoltz served as Vice President and General Manager for Magnolia Marketing Company and as President for Admiral Wine Company. Mr. Stoltz received an M.M. from Northwestern University Kellogg Graduate School of Management in 1985 and a BA in business from Notre Dame University in 1976.

NWS-LLC contributes to union-sponsored multi-employer pension plans, which provide for contributions ~~Norma~~based Mon a specified rate per labor hour. ~~Johnston~~Union ~~has~~employees ~~been~~constitute aapproximately ~~Director~~64% of NWS-~~Indiana~~LLC’s ~~since~~workforce ~~1976~~and 52% of NWSM’s workforce. Contributions charged to expense were $621,000, $575,000 and a$757,000 ~~Director~~in 2005, 2004 and 2003, ofrespectively. Information as to NWS-LLC’s ~~since~~portion ~~December,~~of ~~1998.~~accumulated ~~Mrs~~plan benefits and plan net assets is not available. ~~Johnston~~Under ~~served~~the Employee Retirement Income Security Act of 1974 as ~~Secretary~~amended, an employer upon withdrawal from a multi-employer plan is required to continue funding its proportionate share of the plan’s unfunded vested benefits. NWS-~~Indiana from~~LLC ~~1976~~has tono ~~1998~~intention of withdrawing from the plans.

~~William~~During M.the ~~Cockrum~~twelve ~~has served~~months asended ~~Director~~March of31, ~~NWS~~2005, ~~since~~the ~~July~~Company ~~1999.~~established Hea ~~has~~nonqualified ~~been~~deferred ancompensation ~~Adjunct~~plan ~~Professor~~for ~~of Finance~~certain inselected ~~the~~employees ~~UCLA~~who ~~Anderson~~may elect ~~School~~to ofdefer ~~Business~~up ~~since~~to ~~1985,~~50% ~~teaching entrepreneurial~~of ~~finance,~~their ~~business~~annual ~~ethics~~compensation ~~and~~upon ~~investment~~maximization ~~management.~~of ~~Mr.~~their ~~Cockrum was~~deferrals ~~recognized~~to asthe ~~top~~Company’s ~~entrepreneurial~~established ~~professor~~qualified in401k ~~the~~plan. ~~nation~~The byCompany ~~Business~~does ~~Week magazine~~not inmatch ~~1996.~~employee ~~Prior~~contributions to ~~joining~~the ~~UCLA,~~nonqualified heplan. ~~spent~~At 25March ~~years~~31, in2005 ~~investment~~the ~~banking,~~Company’s ~~serving~~accrued asobligation aunder ~~corporate~~this ~~officer~~supplemental atplan ~~Becker~~was ~~Paribas~~$250, ~~Inc~~000. ~~until~~The itCompany ~~was acquired~~has byset ~~Merrill~~aside ~~Lynch~~investment inassets, ~~1984.~~which ~~Mr.~~are ~~Cockrum~~carried ~~received~~at anfair ~~MBA~~value and reported in ~~finance~~prepaid expenses and ~~marketing~~ ~~from~~other ~~Harvard~~current ~~Business~~assets, ~~School~~which init ~~1961~~intends ~~and~~to ause BAto fund these obligations in ~~economics~~the ~~from~~amount ~~DePauw University~~of in$250,000 ~~1959~~at March 31, 2005.

~~Vaughn D~~11. ~~Bryson~~Related ~~has served~~Party asTransactions Director of NWS since July 1999. He serves on the boards of several public companies, particularly in the biotech industry. Mr. Bryson retired as Vice Chairman in 1996 from Vector Securities International (now Prudent Vector). Prior to that, he worked for Eli Lilly and Company from 1961 to 1993 serving as President and CEO from 1991 to 1993, Executive Vice President from 1986 to 1990, and Board Member from 1984 to 1993. Mr. Bryson is a member of the board of directors of Atherogenics Inc., Amylin Pharmaceuticals Inc., Chiron Corp. and Quintiles Transnational Corporation. Mr. Bryson is a graduate of the Stanford Sloan Program, Stanford Graduate School of Business in 1967 and received a BS in pharmacy from the University of North Carolina in 1960.

~~Patrick~~In ~~A. Trefun~~1998, ~~CPA,~~the Company ~~has~~and ~~served~~its asstockholders ~~Corporate~~executed ~~Controller~~subordinated ~~and~~notes ~~Treasurer~~payable ~~since 2001.~~to ~~Mr.~~stockholders ~~Trefun~~and ~~previously~~the ~~served~~total ~~as controller~~ of ~~NWS-Indiana.~~subordinated Henotes ~~began working~~payable inwas ~~the~~$4,328,000 ~~industry~~at inMarch ~~1982~~31, as2005 ~~an accountant~~ and ~~later~~2004, ~~controller~~with ~~for General~~the ~~Liquors,~~principal ~~Inc.,~~balance ~~which~~due ~~was~~in ~~purchased~~December by2009. ~~NWS~~These innotes ~~1987~~bear interest at ~~which time he~~the ~~joined~~prime ~~the~~lending ~~Company~~rate. ~~Mr.~~Interest ~~Trefun~~expense ~~received~~on athese BSnotes inwas ~~business~~$203,000, ~~administration~~$176,000 ~~with~~and ~~a concentration~~$197,000 in ~~accounting~~2005, ~~from~~2004, ~~Indiana~~and ~~University~~2003, ~~in 1982~~respectively.

NWSC had notes receivable from its two stockholders totaling $2,628,000 at March 31, 2002. The ~~eight~~notes ~~individuals~~earned ~~who~~interest ~~comprise~~at ~~NWS’~~the ~~senior~~prime ~~management~~lending ~~team~~rate ~~have~~and anwere ~~average~~paid ofin ~~over~~full 22during ~~years~~September of2002. ~~experience~~Interest income earned was $62,000 in 2003. Proceeds of the ~~alcohol-based~~notes ~~beverage~~were ~~industry and~~used ~~16.5~~by ~~years~~the stockholders to purchase additional capital stock of ~~experience~~NWSC ~~with~~and to make loans to NWS-LLC.

The Company did not pay consulting fees to a minority stockholder of NWS-LLC ~~Audit~~during ~~Committee~~the years ended March 31, 2005 and 2004, but paid $117,000 during 2003.

The ~~audit~~Chairman ~~committee~~ of NWS ~~is comprised~~individually purchased $1,700,000 of ~~Mr.~~the ~~William~~Company’s ~~Cockrum~~senior ~~and~~notes ~~Mr.~~from ~~Vaughn~~the ~~Bryson,~~open ~~each~~market ofduring ~~whom~~the ~~is independent~~fourth quarter of ~~NWS~~fiscal year 2004.

A former Director of the Company is the Chairman and Chief Executive Officer ~~Item~~of 11eSkye. ~~Executive~~ ~~Compensation~~The Company received 6,000,000 shares of common stock in eSkye upon inception, representing founders stock. The Company accounts for its investment in eSkye using the equity method. The Company’s investments in 1999 and 2000 in convertible preferred stock of eSkye totaled $2,513,000.

~~Compensation~~- of53 ~~Directors~~-

-NWS 51leased facilities and certain office equipment to eSkye under the terms of a three-year operating lease that expired September, 2004. NWS did not charge or receive any rent from eSkye during the year ended March 31, 2005 and 2004 but received $137,000 during the year ended March 31, 2003. The Company paid eSkye fees for computer services of $35,000, $50,000 and $150,000 during the years ended March 31, 2005, 2004 and 2003, respectively.

~~Executive~~- ~~Compensation~~54 -

~~Summary~~12. ~~Compensation~~Segment ~~Table~~Reporting

~~Annual~~The ~~Compensation~~Company’s reportable segments are business units that engage in product sales and all other activities. The majority of the all other activities relate to distribution fee operations conducted by NWSM. The Company evaluates performance and allocates resources based on these segments. Non operating gains or losses not directly related to the operating segment are reported in the product sales segment. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in Note 1.

Name and Principal Position Year Salary Bonus Other AnnualCompensation(3) All OtherCompensation(3)


	2005		2004			2003
Revenue from external customers
Product sales	$	524,399,000	$	513,615,000		$	689,859,000
All other		29,268,000		27,045,000			22,999,000
Interest expense
Product sales		7,968,000		7,110,000			7,654,000
All other		1,472,000		1,716,000			1,654,000
Depreciation expense
Product sales		3,412,000		4,041,000			5,212,000
All other		1,178,000		1,906,000			1,976,000
Amortization expense
Product sales		5,954,000		6,088,000			2,245,000
All other		7,000		41,000			174,000
Equity in earnings of Commonwealth Wine & Spirits, LLC
Product sales		538,000		742,000			312,000
All other		—		—			—
Equity in losses of eSkye Solutions, Inc.
Product sales		—		—			(160,000	)
All other		—		—			—
Segment income (loss)
Product sales		4,215,000		(9,439,000	)		17,111,000
All other		1,224,000		315,000			(1,322,000	)
Segment assets
Product sales		185,087,000		177,042,000			193,757,000
All other		8,702,000		10,058,000			9,951,000
Investments in equity method investees
Product sales		5,284,000		5,593,000			5,637,000
All other		—		—			—
Goodwill
Product sales		—		—			—
All other		1,246,000		1,246,000			1,246,000
Expenditures on long-lived assets
Product sales		4,548,000		979,000			4,449,000
All other		182,000		216,000			58,000

James E. LaCrosse	2003	$	407,000	$	-0-	$	6,465	$	276,073	(2)
Chairman, President, Chief	2002		407,000		249,000		6,772		219,864	(2)
Financial Officer, and CEO	2001		407,000		249,000		2,168		233,114	(2)
Joseph J. Fisch	2003		275,000		117,500		-0-		5,481
President/CEO, U.S. Beverage	2002		225,000		60,000		-0-		4,500
	2001		250,000		35,000		-0-		5,000
Gregory Mauloff	2003		234,615		75,000		1,371		31,356	(5)
Corporate Executive Vice-President of	2002		173,327		50,000		738		8,567
Sales & Marketing	2001		166,922		20,000		-0-		8,346
Patrick J. Hurrle	2003		169,550		150,000		1,122		8,497
President, NWS-Indiana	2002		128,750		40,000		997		7,065
	2001		125,000		30,000		959		7,142
James R. Beck	2003		233,801		-0-		2,332		44,969	(4)
Director & Consultant	2002		194,212		275,000		2,407		9,039
(Formerly President, NWS Indiana)	2001		157,627		200,000		1,114		6,940

13. Concentration of Risk

~~(1)~~Products ~~Includes~~purchased ~~2003~~from ~~employer~~four ~~401(k)~~suppliers ~~Plan~~amounted to ~~contributions~~approximately ~~in the following amounts: Mr. LaCrosse~~46%, ~~$10,000,~~46% Mr. Beck, $4,456, Mr. Mauloff, $11,181; Mr. Hurrle, $8,497; Mr. Fisch, $5,481. Includes 2002 employer 401(k) Plan contributions in the following amounts: Mr. LaCrosse, $8,500; Mr. Beck, $9,039; Mr. Mauloff, $8,567; Mr. Hurrle, $7,065; and ~~Mr.~~59% ~~Fisch,~~of ~~$4,500.~~all ~~Includes~~purchases ~~2001 employer 401(k) Plan contributions~~ in ~~the following amounts: Mr. LaCrosse~~2005, ~~$8,000;~~2004 ~~Mr. Beck, $6,940; Mr. Mauloff, $8,346; Mr. Hurrle, $7,142;~~ and ~~Mr. Fisch~~2003, ~~$5,000~~respectively.

~~(2)~~- ~~Includes~~55 ~~$266,073,~~- $211,364 and $225,114 for fiscal 2003, 2002 and 2001, respectively, of life insurance premiums paid by NWS on behalf of Mr. LaCrosse and for the benefit of the LaCrosse family trust for estate planning purposes. NWS expects the premiums paid on behalf of Mr. LaCrosse in the future will remain at their current annual rate. Upon the death of Mr. LaCrosse or termination of the life insurance policies, NWS is entitled to repayment out of the proceeds of the policies of all premiums paid on behalf of Mr. LaCrosse for the benefit of the LaCrosse family trust since the inception of the policy in 1994.

~~(4) Includes $40,000 for fiscal 2003 outside director’s fees, and $513 for life insurance premiums paid by NWS on the behalf of Mr~~14. ~~Beck.~~Vendor ~~Mr.~~Distribution ~~Beck~~Agreements ~~retired from active employment on July 15, 2002, and has remained with the company as a director and consultant.~~

~~(5)~~During ~~Includes~~the ~~items~~year ~~having~~ended aMarch ~~value~~31, 2004, NWSC entered into distribution contracts with two vendors, both on an exclusive basis for their respective products distributed in Indiana. Total payments of $2017,~~175~~500,000 ~~received~~are required for these agreements, and $14,077,000 is unpaid as of March 31, 2005. Payments are required on a quarterly basis through June 30, 2010. NWSC has imputed interest for the obligations at 4.0% and recorded a discount on the obligation which reduced the related intangible asset by Mr$1,913,000. ~~Mauloff~~These asassets ~~sales~~will ~~incentive~~be ~~pay~~amortized over the life of their respective contracts.

In July 2004, realignment of certain Company represented brands caused the ~~Compensation~~revision ~~Committee~~of ~~Interlocks~~the distribution periods of the brands. Because of these revisions, the Company revalued those contracts using the current discount rate and ~~Insider~~recorded ~~Participation~~an addition to intangibles and distribution right obligations of $1,080,000.

~~The~~Future ~~compensation~~cash ~~committee~~payments ~~is comprised~~for all of ~~Mr.~~the ~~Vaughn~~Company’s distribution ~~Bryson,~~rights ~~Mr.~~obligations ~~William~~for ~~Cockrum,~~the ~~Ms.~~years ~~Catherine~~ended ~~LaCrosse~~March ~~and Mr.~~31 ~~Jim LaCrosse. There~~ are noas ~~interlocking~~follows: ~~compensation committee relationships between NWS and any other entity.~~

- 52 -


2006	$	5,854,000
2007		6,229,000
2008		5,900,000
2009		5,501,000
2010		5,301,000
Thereafter		1,325,000

Total distribution rights obligations		30,110,000
Imputed interest		(3,349,000	)

Present value of minimum distribution rights payments		26,761,000
Current portion		(5,136,000	)

Long-term distribution rights obligation	$	21,625,000

~~Item 12~~15. ~~Security~~ ~~Ownership of Certain Beneficial Owners and~~ Management Fees

NWS ~~has~~-LLC ~~two~~entered ~~authorized~~into ~~classes~~a management services agreement with a nationwide wholesaler of ~~capital~~wine ~~stock~~and spirits during the year ended March 31, ~~voting~~2003 ~~common~~and, ~~stock~~effective December 1, 2003, NWS modified certain terms of the agreement related to NWS’s operations in the State of Illinois. NWS formerly shared profits and losses ~~non~~of NWS-~~voting~~LLC ~~common stock~~equally with the other wholesaler. ~~The~~Under ~~following~~the ~~table~~new ~~sets~~terms ~~forth~~of the ~~beneficial~~agreement, ~~ownership~~effective December 1, 2003, the other wholesaler committed to fund 80% of operating losses and receive 80% of operating profits. NWS’ ~~voting~~funds ~~common~~20% of any such ~~stock:~~losses and receives 20% of any such profits.

~~(1)~~Effective ByAugust 28, ~~each~~2004, ~~person~~the ~~known~~parties bymodified ~~NWS~~the terms of the management services agreement, whereas, the other wholesaler committed to ~~beneficially~~fund ~~own~~100% 5of operating losses and receive 100% orof ~~more~~operating profits until the cumulative incremental difference between funding 80% and 100% of operating losses is recouped in operating profits. The agreement will then revert back to the 80% terms. Ownership of NWS-LLC or the NWS-LLC’s ~~voting~~operating ~~common~~assets ~~stock~~has not changed. However, if certain conditions are met, the other wholesaler may purchase NWS-LLC’s assets for a purchase price based upon 80% of the then current net assets of NWS-LLC and a 20% equity interest in the successor Illinois organization, as defined in the agreement.

~~(2)~~- By56 ~~all~~- ~~executive officers and directors of NWS as a group.~~

Name and Address	Number of Shares	Percent
James E. LaCrosse
700 West Morris Street
Indianapolis, Indiana 46225	86,520	83	%
Norma M. Johnston
700 West Morris Street
Indianapolis, Indiana 46225	18,000	17	%
All executive officers and directors as a group
(11 persons)	104,520	100	%

Pursuant to the agreement, NWS-LLC recorded approximately $18,743,000 and $12,634,000 as a reduction of operating expenses during the twelve months ended March 31, 2005 and 2004, respectively. At March 31, 2005, a receivable from the wholesaler in the amount of approximately $1.5 million was recorded in Prepaid expenses and other current assets.

~~The~~- ~~stockholders~~57 of- NWS have entered into stockholder agreements with each other and NWS. Such agreements contain restrictions relating to transfers of stock and provide for rights to purchase and sell stock of each corporation, among other matters. In particular, the stockholder agreement with NWS governs the transferability of Mrs. Johnston’s stock in NWS. The LaCrosse family is obligated to purchase Mrs. Johnston’s stock at her death or during her lifetime should she decide to sell. NWS becomes obligated to purchase only if the LaCrosse family refuses or fails to purchase. The LaCrosse family and NWS also have the right to purchase Mrs. Johnston’s stock at the death of Mr. LaCrosse. Any obligation of NWS to purchase the stock owned by Mrs. Johnston is subject to the terms of the indenture and the new credit facility. No right to purchase stock owned by Mr. LaCrosse or a trust for the benefit of his family exists in favor of Mrs. Johnston.

Intangible Assets Not Subject to Amortization

Carrying
Amount

Carrying
Amount

Distribution rights

~~The LaCrosse family and NWS own life insurance policies on behalf of Mrs~~16. ~~Johnston~~Quarterly inData ~~face amount~~(Unaudited) ~~of $4.0 million and $0.5 million, respectively.~~

The following table sets forth certain quarterly income statement information of the Company for the fiscal years ended ~~Item~~March 1331, 2005 and 2004. ~~Certain~~ ~~Relationships~~The Company’s fiscal year begins on April 1 and ~~Related~~ends ~~Transactions~~on March 31 of the year stated. The Company reports results using a fiscal quarter method whereby each quarter is reported as of the last Friday of the thirteen week period.

J. Smoke Wallin, a Director of the Company, is the Chairman and Chief Executive Officer of eSkye Solutions, Inc. The Company received 1,500,000 shares of common stock in eSkye Solutions Inc. upon inception, representing founders stock. eSkye Solutions, Inc. subsequently issued a 4 to 1 split, thus 6,000,000 shares are currently held by NWS. The Company accounts for its investment in eSkye Solutions, Inc. using the equity method. In October, 1999, the Company invested $500,000 in convertible preferred stock of eSkye Solutions, Inc. The Company invested an additional $2,012,500 in convertible preferred stock in May 2000.

Filing Compare · NATIONAL WINE & SPIRITS INC