10-K 1 fizz20140430_10k.htm FORM 10-K fizz20140430_10k.htm

 

United States Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 10-K

 

[✓] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended May 3, 2014

or

[    ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

    For the transition period from __________ to _________

 

Commission file number 1-14170

 

 

NATIONAL BEVERAGE CORP.

(Exact name of Registrant as specified in its charter)

Delaware

59-2605822

(State of incorporation)

(I.R.S. Employer Identification No.)

 

 8100 SW Tenth Street, Suite 4000, Fort Lauderdale, Florida 33324

(Address of principal executive offices including zip code)

 

Registrant’s telephone number, including area code: (954) 581-0922

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Name of each exchange on which registered

Common Stock, par value $.01 per share

The NASDAQ Stock Market LLC

 

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

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ( )  No (✓)

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ( )  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 and (2) has been subject to such filing requirements for the past 90 days. Yes (✓)   No ( )

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes (✓) No ( )

 

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

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:  Large accelerated filer ( )   Accelerated filer (✓)   Non-accelerated filer ( )   Smaller reporting company ( )

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ( )  No (✓)

 

The aggregate market value of the common stock held by non-affiliates of Registrant computed by reference to the closing sale price of $18.78 on October 25, 2013 was approximately $214.3 million.

 

The number of shares of Registrant’s common stock outstanding as of July 9, 2014 was 46,337,015.

 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for the 2014 Annual Meeting of Shareholders are incorporated by reference in Part III of this report.

 

 
 

 

  

 TABLE OF CONTENTS

 

  

  

PAGE

PART I

  

  

ITEM 1.

Business

2

ITEM 1A.

Risk Factors

9

ITEM 1B.

Unresolved Staff Comments

10

ITEM 2.

Properties

10

ITEM 3.

Legal Proceedings

10

ITEM 4.

Mine Safety Disclosures

10

  

  

  

PART II

  

  

ITEM 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

11

ITEM 6.

Selected Financial Data

13

ITEM 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

ITEM 7A.

Quantitative and Qualitative Disclosure About Market Risk

19

ITEM 8.

Financial Statements and Supplementary Data

20

ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

38

ITEM 9A.

Controls and Procedures

38

ITEM 9B.

Other Information

38

  

  

  

PART III

  

  

ITEM 10.

Directors, Executive Officers and Corporate Governance

39

ITEM 11.

Executive Compensation

39

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

40

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

40

ITEM 14.

Principal Accounting Fees and Services

40

  

  

  

PART IV

  

  

ITEM 15.

Exhibits, Financial Statement Schedules

40

SIGNATURES

43

 

 

 

 

 

 

PART I

 

ITEM 1.     BUSINESS

 

  

GENERAL

 

National Beverage Corp. is an acknowledged leader in the development, manufacturing, marketing and sale of a diverse portfolio of flavored beverage products. Our primary market focus is the United States, but our products are also distributed in Canada, Mexico, the Caribbean, Latin America, the Pacific Rim, Asia, Europe and the Middle East. A holding company for various operating subsidiaries, National Beverage Corp. was incorporated in Delaware in 1985 and began trading as a public company on the NASDAQ Stock Market in 1991. In this report, the terms “we,” “us,” “our,” “Company” and “National Beverage” mean National Beverage Corp. and its subsidiaries unless indicated otherwise.

 

Our brands consist of (i) beverages geared toward the active and health-conscious consumer (“Power+ Brands”), including energy drinks and shots, juices, sparkling waters and enhanced beverages, and (ii) Carbonated Soft Drinks in a variety of flavors as well as regular, diet and reduced-calorie options. In addition, we produce soft drinks for certain retailers (“Allied Brands”) that endorse the “Strategic Alliance” concept of having our brands and Allied Brands marketed to effectuate enhanced growth of both. We employ a philosophy that emphasizes vertical integration; our manufacturing model integrates the procurement of raw materials and production of concentrates with the manufacture of finished products in our twelve manufacturing facilities. To service a diverse customer base that includes numerous national retailers as well as thousands of smaller “up-and-down-the-street” accounts, we have developed a hybrid distribution system that promotes and utilizes customer warehouse distribution facilities and our own direct-store delivery fleet plus the direct-store delivery systems of independent distributors and wholesalers.

 

 

 
 2

 

 

 

We believe that the combination of our business strategies and philosophies is key to giving us a greater competitive advantage and differentiating us from our competitors. These include the following:

 

Lifestyle Focus – We focus on developing healthier and functional beverages in response to a global shift in consumer buying habits. As health and wellness awareness grows, consumers are turning to drinks with reduced calories, wholesome ingredients and efficacy to meet their specific lifestyle needs. We are committed to tailoring the variety and types of beverages in our portfolio to satisfy changing preferences of an increasingly diverse mix of ‘crossover consumers’ a growing group who desire a change from Carbonated Soft Drinks and other artificially flavored, artificially sweetened beverages.

 

Fantasy of Flavors – Throughout our product lines, we emphasize distinctly flavored beverages. Although cola drinks account for approximately 50% of the soft drink industry’s domestic grocery channel volume, colas account for less than 20% of our total volume. In the higher margin convenience store channel, flavors represent 54% of soft drink sales and are outpacing colas. Our flavor development spans 125 years and originated with our flagship brands, Shasta® and Faygo®, each of which offers more than 30 flavor varieties.

 

Regional Share Dynamics – This is our term for the philosophy we employ for the development and support of our brands that have significant regional presence. Because we tailor our marketing and promotion programs by locale, we believe many of our brands enjoy a regional identification that fosters long-term consumer loyalty and make them less vulnerable to competitive substitution. In addition, “home-town” products often generate more aggressive retailer sponsored promotional activities and receive media exposure through community activities rather than costly national advertising.

 

Quality-Value Ethic We believe that consumers demand value as the purchase default option in volatile economic times, and we are intent on producing and developing products of the highest quality that appeal to the value expectations of the family consumer. We believe we can leverage our cost-effective manufacturing and distribution systems, and our efficient regionally focused marketing programs, to profitably deliver products to the consumer at a lower price-point than our national competitors.

 

Creative Agility – In a beverage industry that is dominated by the “cola giants”, we pride ourselves on our ability to respond faster and more creatively to consumer trends than many of our competitors who are burdened by distribution complexity and legacy costs. We strive to build long-term brand value by developing creative marketing programs, propriety flavors and distinctive packaging. In recent years, we have introduced numerous new flavors or package sizes and have won many package design awards. We continue to develop products and package sizes designed to expand distribution. We believe that the most dynamic validation of our strategy is our competitors’ efforts to replicate our creative business model.

 

PRODUCTS

 

The National Beverage Corp. brand portfolio contains a wide variety of beverages to meet consumer needs in a multitude of market segments. National Beverage employs its flavor expertise with beverage offerings including, but not limited to, the following non-alcoholic beverage segments:

 

Carbonated Soda: Sugar Free, Regular, and Reduced Calorie

Sparkling Waters

Spring Water

Enhanced Water

Energy Drinks and Shots

Functional Beverages and Sports Drinks

Juice and Juice Drinks

Teas and Lemonades

 

 

 
 3

 

 

  

Power+ Brands –

 

LaCroix

100% all natural LaCroix® Sparkling Water is setting the pace in the Sparkling Water segment that is fast becoming the alternative to traditional carbonated soda. Calorie, Sweetener, Sodium Free LaCroix has the support of major national chains and is the top selling domestic Sparkling Water packaged in cans.

 

LaCroix’s dynamic new “theme” LaCroix Cúrate™ “Cure Yourself” celebrates French sophistication with Spanish zest with two bold flavors Cerise Limon (cherry lime) and Pomme Baya (apple berry) in tall 12 oz. consumer-favored cans. Brilliant graphics, robust aroma, naturally “Essenced” and premium priced, Cúrate is a trendsetting addition to a brand that is the healthy alternative for trend forward consumers.

 

Additional LaCroix themes are in development with unique packaging, ground breaking flavor concepts and a go-to-market strategy designed to provide additional placements within the retail environment outside the traditional grocery shelf.

 

Rip It

Rip It® energy fuel is the flavor innovator in the growing energy category with 14 unique flavors including six sugar free, bringing variety and value to the widening consumer base. Rip It “Tribute” themed energy is a successful military inspired addition to the lineup with the latest addition Tribute CYP-X Orange Crème. Building on the flavor tradition of original Rip It, a 2 oz. sugar free shot version with seven flavors is marketed through our distribution system in multiple displayable package configurations.

 

 

 
 4

 

 

 

Everfresh

Everfresh® 100% juice and juice drinks are available in over 30 flavors, from such classics as Orange, Cranberry and flavored lemonades to exotics that include Blueberry Pomegranate and Pineapple Mango. Originating in the Midwest, the Everfresh signature package is a hot-filled, 16 oz. glass bottle primarily for single-serve consumption. Additional consumer friendly packages range from 10 oz. to 64 oz.

 

Everfresh Premier Varietals™, a new theme from Everfresh positioned as a stand-alone brand to primarily be displayed in the produce section, is a premium line of 100% natural apple juice from a variety of apples specific to the taste of the varietal, such as Granny Smith, McIntosh, Honey Crisp, Golden Delicious, Fuji and the new Pink Lady. The Premier Varietals is packaged in an award-winning 12 oz. glass bottle with a decorative tamper evident neck seal.

 

 

 

 

 

Carbonated Soft Drinks –

 

Currently celebrating its 125th anniversary and distributed nationally, Shasta® is recognized to be a bottling industry pioneer and innovator. As our largest volume brand, Shasta features multiple flavors, including products targeted to the growing Hispanic and other ethnic markets, and continues to earn consumer loyalty by delivering value, convenience and such unique tastes as California Dreamin’, Very Cherry Twist and Fiesta Punch. Commemorating Shasta’s 125 years and origin as a Sparkling Water Company, a new theme is in development showcasing Shasta’s classic flavors in an unsweetened zero calorie refreshing Sparkling Water concept. More than 100 years old, Faygo® products are primarily distributed east of the Mississippi River and include numerous unique flavors including RedPop®, Moon Mist®, Rock’n’Rye® and newly introduced Cotton Candy. We also produce and market Ritz® soft drinks and seltzers, primarily in the southeastern U.S., distribute Big Shot® in New Orleans and surrounding areas, and offer St. Nick’s® soft drinks during the holiday season. During recent years, we reformulated many of our brands to reduce the caloric content while still preserving their time tested flavor profiles.

 

Our Brands, optically and content-wise, are always a work in process. As often as innovation develops, we endeavor to significantly improve them, striving for quality and authenticity over cost. 

 

MANUFACTURING

 

Our twelve manufacturing facilities are strategically located near major metropolitan markets across the continental United States. The locations of our plants enable us to efficiently manufacture and distribute beverages to substantially all geographic markets in the United States, including 22 of the top 25 metropolitan statistical areas. Each manufacturing facility is generally equipped to produce both canned and bottled beverage products in a variety of package sizes. We utilize numerous package types and sizes, including cans ranging from eight to sixteen ounces and bottles ranging from ten ounces to three liters.

 

We believe that the innovative and controlled vertical integration of our bottling facilities provides an advantage over certain of our competitors that rely upon independent third party bottlers to manufacture and market their products. Since we control the national production, distribution and marketing of our brands, we believe we can more effectively manage product quality and customer service and respond quickly to changing market conditions.

 

We produce a substantial portion of the flavor concentrates used in our branded products. By controlling our own formulas throughout our bottling network, we can manufacture our products in accordance with uniform quality standards while tailoring flavors to regional taste preferences. We believe that the combination of a Company-owned bottling network, together with uniform standards for packaging, formulations and customer service, provides us with a strategic advantage in servicing national retailers and mass-merchandisers. We also maintain research and development laboratories at multiple locations. These laboratories continually test products for compliance with our strict quality control standards as well as conduct research for new products and flavors.

 

 
5

 

 

 

DISTRIBUTION

 

We utilize a hybrid distribution system to deliver our products through three primary distribution channels: take-home, convenience and food-service.

 

The take-home distribution channel consists of national and regional grocery stores, warehouse clubs, mass-merchandisers, wholesalers and dollar stores. We distribute our products to this channel through the warehouse distribution system and the direct-store delivery system. Under the warehouse distribution system, products are shipped from our manufacturing facilities to the retailer’s centralized distribution centers and then distributed by the retailer to each of its outlet locations with other goods. Products sold through the direct-store delivery system are distributed directly to the customer’s retail outlets by our direct-store delivery fleet and by independent distributors.

 

We distribute our products to the convenience channel through our own direct-store delivery fleet and those of independent distributors. The convenience channel consists of convenience stores, gas stations and other smaller “up-and-down-the-street” accounts. Because of the higher retail prices and margins that typically prevail, we have undertaken several measures to expand convenience channel distribution. These include development of products, packaging and graphics specifically targeted to this market.

 

Our food-service division distributes products to independent, specialized distributors who sell to hospitals, schools, military bases, airlines, hotels and food-service wholesalers. Also, our Company-owned direct-store delivery fleet distributes products to certain schools and other food-service customers.

 

Our take-home, convenience and food-service operations use vending machines and glass-door coolers as marketing and promotional tools for our brands. We provide vending machines and coolers on a placement or purchase basis to our customers. We believe vending and cooler equipment increases beverage sales, enhances brand awareness and develops brand loyalty.

 

SALES AND MARKETING

 

We sell and market our products through an internal sales force as well as specialized broker networks. Our sales force is organized to serve a specific market, focusing on one or more geographic territories, distribution channels or product lines. We believe this focus allows our sales group to provide high level, responsive service and support to our customers and markets.

 

The emphasis of our sales and marketing programs is to maintain and enhance consumer brand recognition and loyalty, typically through a combination of regional advertising, special event marketing, endorsements, sponsorships and social media, along with consumer coupon distribution and product sampling. We retain advertising agencies to assist with media advertising programs for our brands. Additionally, we offer numerous promotional programs to retail customers, including cooperative advertising support, in-store advertising materials and other incentives. These elements allow us to tailor our marketing and advertising programs to meet local and regional economic conditions and demographics. Additionally, we sponsor special holiday promotions which feature St. Nick’s soft drink and special holiday flavors and packaging.

 

 
6

 

 

 

Raw Materials

 

Our centralized procurement group maintains relationships with numerous suppliers of raw materials and packaging goods. By consolidating the purchasing function for our manufacturing facilities, we believe we are able to procure more competitive arrangements with our suppliers, thereby enhancing our ability to compete as a low-cost producer of beverages.

 

The products we produce and sell are made from various materials including sweeteners, juice concentrates, carbon dioxide, water, glass and plastic bottles, aluminum cans and ends, paper, cartons and closures. Most of our low-calorie soft drink products use sucralose, aspartame, stevia or Acesulfame-K. We manufacture a substantial portion of our flavor concentrates and purchase remaining raw materials from multiple suppliers.

 

Substantially all of the materials and ingredients we purchase are presently available from several suppliers, although strikes, weather conditions, utility shortages, governmental control or regulations, national emergencies, quality, price or supply fluctuations or other events outside our control could adversely affect the supply of specific materials. A significant portion of our raw material purchases, including aluminum cans, plastic bottles, high fructose corn syrup, corrugated packaging and juice concentrates, are derived from commodities. Therefore, pricing and availability tend to fluctuate based upon worldwide commodity market conditions. Our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. In certain cases, we may elect to enter into multi-year agreements for the supply of these materials with one or more suppliers, the terms of which may include variable or fixed pricing, minimum purchase quantities and/or the requirement to purchase all supplies for specified locations. Additionally, we use derivative financial instruments to partially mitigate our exposure to changes in certain raw material costs.

 

Seasonality

 

The majority of our sales are seasonal with the highest volume typically realized during the summer months. We have sufficient production capacity to meet seasonal increases without maintaining significant quantities of inventory in anticipation of periods of peak demand. Additionally, our sales can be influenced by weather conditions.

 

Competition

 

The beverage industry is highly competitive and our competitive position varies in each of our market areas. Our products compete with many varieties of liquid refreshment, including soft drinks, water products, juices, fruit drinks, powdered drinks, coffees, teas, energy drinks, sports drinks, dairy-based drinks, functional beverages and various other nonalcoholic beverages. We compete with bottlers and distributors of national, regional and private label products. Several competitors, including the two that dominate the soft drink industry, PepsiCo and The Coca-Cola Company, have greater financial resources than we have and aggressive promotion of their products can adversely affect sales of our brands. Principal methods of competition in the beverage industry are price and promotional activity, advertising and marketing programs, point-of-sale merchandising, retail space management, customer service, product differentiation, packaging innovations and distribution methods. We believe our Company differentiates itself through a diversified product portfolio, strong regional brand recognition, innovative flavor variety, attractive packaging, efficient distribution methods, specialized advertising and, for some product lines, value pricing.

 

 
7

 

 

 

Trademarks

 

We own numerous trademarks for our brands that are significant to our business. We intend to continue to maintain all registrations of our significant trademarks and use the trademarks in the operation of our businesses.

 

Governmental Regulation

 

The production, distribution and sale of our products in the United States are subject to the Federal Food, Drug and Cosmetic Act; the Dietary Supplement Health and Education Act of 1994; the Occupational Safety and Health Act; the Lanham Act; various environmental statutes; and various other federal, state and local statutes regulating the production, transportation, sale, safety, advertising, labeling and ingredients of such products. We believe that we are in compliance, in all material respects, with such existing legislation.

 

Certain states and localities prohibit the sale of certain beverages unless a deposit or tax is charged for containers. These requirements vary by each jurisdiction. Similar legislation has been proposed in certain other states and localities, as well as by Congress. We are unable to predict whether such legislation will be enacted or what impact its enactment would have on our business, financial condition or results of operations.

 

All of our facilities in the United States are subject to federal, state and local environmental laws and regulations. Compliance with these provisions has not had any material adverse effect on our financial or competitive position. We believe that our current practices and procedures for the control and disposition of toxic or hazardous substances comply in all material respects with applicable law. Compliance with or violation of any current or future regulations and legislation could require material expenditures or have a material adverse effect on our financial results.

 

Employees

 

As of May 3, 2014, we employed approximately 1,200 people, of which approximately 300 are covered by collective bargaining agreements. We believe that relations with our employees are generally good.

 

AVAILABLE INFORMATION

 

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those reports are available free of charge on our website at www.nationalbeverage.com as soon as reasonably practicable after such reports are electronically filed with the Securities and Exchange Commission. In addition, our Code of Ethics is available on our website. The information on the Company’s website is not part of this Annual Report on Form 10-K or any other report that we file with, or furnish to, the Securities and Exchange Commission.

  

 
8

 

 

ITEM 1A.     RISK FACTORS

 

In addition to other information in this Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating the Company’s business. Our business, financial condition and results of operations could be materially and adversely affected by any of these risks. Additional risks and uncertainties, including risks and uncertainties not presently known to the Company, or that the Company currently deems immaterial, may also impair our business and results of operations.

 

Changes in consumer preferences and taste. There has been an increasing focus on health and wellness by beverage consumers, which may reduce demand for caloric carbonated soft drinks and increase the consumption of products perceived to deliver health, wellness and/or functionality. If we do not adequately anticipate and react to changing demographics, consumer trends, health concerns and product preferences, our financial results could be adversely affected.

 

Competition. The beverage industry is extremely competitive. Our products compete with a broad range of beverage products, most of which are manufactured and distributed by companies with substantially greater financial, marketing and distribution resources. In order to generate future revenues and profits, we must continue to sell products that appeal to our customers and consumers. Discounting and other actions by our competitors may make it more difficult to sustain revenues and profits.

 

Customer relationships. Our retail customer base has been consolidating over the last several years resulting in fewer customers with increased purchasing power. This increased purchasing power can limit our ability to increase pricing for our products with certain of our customers. Our inability to meet the demands of our larger customers could lead to a loss of business and adversely affect our financial results.

 

Raw materials and energy. The production of our products is dependent on certain raw materials, including aluminum, resin, corn, linerboard and fruit juice. In addition, the production and distribution of our products is dependent on energy sources, including natural gas, fuel and electricity. These items are subject to price volatility caused by numerous factors. Commodity price increases ultimately result in a corresponding increase in the cost of raw materials and energy. We may be limited in our ability to pass these increases on to our customers or may incur a loss in sales volume to the extent price increases are taken. In addition, strikes, weather conditions, governmental controls, national emergencies, natural disasters, supply shortages or other events could affect our continued supply of raw materials and energy. If raw materials or energy costs increase, or the availability is limited, our financial results could be adversely affected.

 

Governmental regulation. Our business and properties are subject to various federal, state and local laws and regulations, including those governing the production, packaging, quality, labeling and distribution of beverage products. In addition, various governmental agencies have considered limiting the consumption of and imposing additional taxes on soft drinks and other sweetened beverages, including those sweetened with high fructose corn syrup. Changes in existing laws or regulations could negatively affect our financial results through lower sales or higher costs.

 

Sustained increases in the cost of employee benefits. Our profitability is affected by the cost of medical and retirement benefits provided to employees. In recent years, we have experienced significant increases in these costs as a result of certain factors beyond our control. Although we seek to limit these cost increases, continued upward pressure in these costs could reduce our profitability.

 

Unfavorable weather conditions. Unfavorable weather conditions could have an adverse impact on our revenue and profitability. Unusually cold or rainy weather may temporarily reduce demand for our products and contribute to lower sales, which could adversely affect our profitability for such periods. Prolonged drought conditions in the geographic regions in which we do business could lead to restrictions on the use of water, which could adversely affect our ability to manufacture and distribute products.

 

 
9

 

 

 

ITEM 1B.     UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2.     PROPERTIES

 

Our principal properties include twelve manufacturing facilities located in ten states, which aggregate approximately two million square feet. We own ten manufacturing facilities in the following states: California (2), Georgia, Kansas, Michigan (2), Ohio, Texas, Utah and Washington. Two manufacturing facilities, located in Maryland and Florida, are leased subject to agreements that expire through 2020. We believe our facilities are generally in good condition and sufficient to meet our present needs.

 

The production of beverages is capital intensive but is not characterized by rapid technological change. The technological advances that have occurred have generally been of an incremental cost-saving nature, such as the industry’s conversion to lighter weight containers or improved blending processes that enhance ingredient yields. We are not aware of any anticipated industry-wide changes in technology that would adversely impact our current physical production capacity or cost of production.

 

We own and lease trucks, vans and automobiles used in the sale, delivery and distribution of our products. In addition, we lease office and warehouse space, transportation equipment, office equipment and certain manufacturing equipment.

 

ITEM 3.     LEGAL PROCEEDINGS

 

From time to time, we are a party to various litigation matters arising in the ordinary course of business. We do not expect the ultimate disposition of such matters to have a material adverse effect on our consolidated financial position or results of operations.

 

ITEM 4.     MINE SAFETY DISCLOSURES

 

Not applicable.

 

 
10

 

 

 

PART II

 

ITEM 5.     MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

The common stock of National Beverage Corp., par value $.01 per share, (“Common Stock”) is listed on The NASDAQ Global Select Market under the symbol “FIZZ”. The following table shows the range of high and low prices per share of the Common Stock for the fiscal quarters indicated: 

 

   

Fiscal Year Ended

 
   

May 3, 2014

   

April 27, 2013

 
   

High

   

Low

   

High

   

Low

 

First Quarter

  $ 18.66     $ 14.48     $ 15.85     $ 13.57  

Second Quarter

  $ 18.96     $ 15.63     $ 15.83     $ 14.05  

Third Quarter

  $ 21.71     $ 18.06     $ 17.75     $ 13.62  

Fourth Quarter

  $ 22.26     $ 18.58     $ 14.72     $ 13.21  

 

At July 8, 2014, there were approximately 6,200 holders of our Common Stock, the majority of which hold their shares in the names of various dealers and/or clearing agencies.

 

The Company paid special cash dividends on Common Stock of $118.1 million ($2.55 per share) on December 27, 2012, $106.3 million ($2.30 per share) on February 14, 2011 and $62.3 million ($1.35 per share) on January 22, 2010.

 

In April 2012, the Board of Directors authorized an increase in the Company’s Stock Buyback Program from 800,000 to 1.6 million shares of Common Stock. As of May 3, 2014, 502,060 shares were purchased under the program and 1,097,940 shares were available for purchase. There were no shares of Common Stock purchased during the last three fiscal years.

 

On January 25, 2013, the Company sold 400,000 shares of Special Series D Preferred Stock, par value $1 per share (“Series D Preferred”) for an aggregate purchase price of $20 million. Series D Preferred has a liquidation preference of $50 per share and accrues dividends on this amount at an annual rate of 3% through April 30, 2014 and, thereafter, at an annual rate equal to 370 basis points above the 3-Month LIBOR. Dividends are cumulative and payable quarterly. The Series D Preferred is nonvoting and redeemable at the option of the Company beginning May 1, 2014 at $50 per share. Upon a change of control, as such term is defined in the Certificate of Designation of the Special Series D Preferred Stock, the holder shall have the right to convert the Series D Preferred into shares of Common Stock at a conversion price equal to the tender price per share offered to the holders of the Common Stock. The net proceeds of $19.7 million were used to repay borrowings under the Credit Facilities. The Series D Preferred was issued by the Company pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933.

 

On May 2, 2014, the Company redeemed 160,000 shares of Series D Preferred, representing 40% of the amount outstanding, for an aggregate price of $8 million plus accrued dividends. In conjunction with the partial redemption, the annual dividend rate on the outstanding Series D Preferred was reduced to 2.5% for the twelve month period beginning May 1, 2014.

 

 
11

 

 

  

Performance Graph

 

The following graph shows a comparison of the five-year cumulative returns of an investment of $100 cash on May 2, 2009, assuming reinvestment of dividends, in (i) Common Stock, (ii) the NASDAQ Composite Index and (iii) a Company-constructed peer group consisting of Coca-Cola Bottling Company Consolidated and Cott Corporation. Based on the cumulative total return below, an investment in our Common Stock on May 2, 2009 provided a compounded annual return of approximately 24.1% as of May 3, 2014.

  

  

      5/2/09       5/1/10       4/30/11       4/28/12       4/27/13       5/3/14  

National Beverage Corp.

  $ 100.00     $ 122.56     $ 172.20     $ 181.61     $ 211.11     $ 278.34  

NASDAQ Composite

    100.00       144.47       170.25       183.72       199.01       253.53  

Peer Group

    100.00       155.94       181.56       148.70       200.44       195.68  

 

 

 
12

 

 

 

ITEM 6. SELECTED FINANCIAL DATA

 

The following selected financial data should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and consolidated financial statements and notes thereto contained in "Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.

 

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

(In thousands, except per share and footnote amounts)

 

   

Fiscal Year Ended

 
   

May 3,

   

April 27,

   

April 28,

   

April 30,

   

May 1,

 
      2014 (3)       2013       2012       2011       2010  

SUMMARY OF OPERATIONS:

                                       

Net sales

  $ 641,135     $ 662,007     $ 628,886     $ 600,193     $ 593,465  

Cost of sales

    423,480       444,757       415,629       381,539       396,450  

Gross profit

    217,655       217,250       213,257       218,654       197,015  

Selling, general and administrative expenses

    153,220       146,223       146,169       155,885       145,159  

Interest expense

    660       403       107       99       120  

Other expense - net

    666       173       85       20       351  

Income before income taxes

    63,109       70,451       66,896       62,650       51,385  

Provision for income taxes

    19,474       23,531       22,903       21,896       18,532  

Net income

  $ 43,635     $ 46,920     $ 43,993     $ 40,754     $ 32,853  
                                         

PER SHARE DATA:

                                       

Basic earnings per common share (1)

  $ .93     $ 1.01     $ .95     $ .88     $ .71  

Diluted earnings per common share (1)

    .92       1.01       .95       .88       .71  

Closing stock price

    19.21       14.57       14.68       13.92       11.60  

Dividends paid on common stock (2)

    -       2.55       -       2.30       1.35  
                                         

BALANCE SHEET DATA:

                                       

Cash and equivalents (2)

  $ 29,932     $ 18,267     $ 35,626     $ 7,372     $ 68,566  

Working capital (2)

    78,618       67,504       69,818       30,930       92,898  

Property, plant and equipment - net

    59,494       57,307       56,729       55,337       53,401  

Total assets (2)

    222,841       208,642       222,988       182,810       240,359  

Long-term debt

    30,000       50,000       -       -       -  

Deferred income tax liability

    13,873       14,327       14,214       14,548       15,597  

Shareholders' equity (2)

    106,201       70,316       121,636       80,336       141,572  

Dividends paid on common stock (2)

    -       118,139       -       106,314       62,295  

 

(1)

Basic earnings per common share is computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per common share includes the dilutive effect of stock options.

(2)

The Company paid special cash dividends on Common Stock of $118.1 million ($2.55 per share) on December 27, 2012, $106.3 million ($2.30 per share) on February 14, 2011 and $62.3 million ($1.35 per share) on January 22, 2010.

(3)

Fiscal 2014 consisted of 53 weeks.

  

 
13

 

 

 

ITEM 7.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

OVERVIEW

 

National Beverage Corp. is an acknowledged leader in the development, manufacturing, marketing and sale of a diverse portfolio of flavored beverage products. Our primary market focus is the United States, but our products are also distributed in Canada, Mexico, the Caribbean, Latin America, the Pacific Rim, Asia, Europe and the Middle East. A holding company for various operating subsidiaries, National Beverage Corp. was incorporated in Delaware in 1985 and began trading as a public company on the NASDAQ Stock Market in 1991. In this report, the terms “we,” “us,” “our,” “Company” and “National Beverage” mean National Beverage Corp. and its subsidiaries unless indicated otherwise.

 

Our brands consist of (i) beverages geared toward the active and health-conscious consumer (“Power+ Brands”), including energy drinks and shots, juices, sparkling waters and enhanced beverages, and (ii) Carbonated Soft Drinks in a variety of flavors as well as regular, diet and reduced-calorie options. In addition, we produce soft drinks for certain retailers (“Allied Brands”) that endorse the “Strategic Alliance” concept of having our brands and Allied Brands marketed to effectuate enhanced growth of both. We employ a philosophy that emphasizes vertical integration; our manufacturing model integrates the procurement of raw materials and production of concentrates with the manufacture of finished products in our twelve manufacturing facilities. To service a diverse customer base that includes numerous national retailers as well as thousands of smaller “up-and-down-the-street” accounts, we have developed a hybrid distribution system that promotes and utilizes customer warehouse distribution facilities and our own direct-store delivery fleet plus the direct-store delivery systems of independent distributors and wholesalers.

 

We consider ourselves to be a leader in the development and sale of flavored beverage products. The National Beverage Corp. brand portfolio contains a wide variety of beverages to meet consumer needs in a multitude of markets segments. Our portfolio of Power+ Brands is targeted to consumers seeking healthier and functional alternatives to complement their active lifestyles, and includes LaCroix® and LaCroix Cúrate™ sparkling water products; Rip It® energy drinks and shots; and Everfresh®  and Everfresh Premier Varietals™, 100% juice and juice-based products. Our carbonated soft drink flavor development spans 125 years originating with our flagship brands, Shasta® and Faygo®.

 

Our strategy emphasizes the growth of our products by (i) expanding our focus on healthier and functional beverages tailored toward healthy, active lifestyles, (ii) offering a beverage portfolio of proprietary flavors with distinctive packaging and broad demographic appeal, (iii) supporting the franchise value of regional brands, (iv) appealing to the “quality-value” expectations of the family consumer, and (v) responding to demographic trends by developing innovative products designed to expand distribution.

 

The majority of our sales are seasonal with the highest volume typically realized during the summer months. As a result, our operating results from one fiscal quarter to the next may not be comparable. Additionally, our operating results are affected by numerous factors, including fluctuations in the costs of raw materials, changes in consumer preference for beverage products, competitive pricing in the marketplace and weather conditions.

 

 
14

 

 

  

RESULTS OF OPERATIONS

 

Net Sales

Net sales for the fiscal year ended May 3, 2014 (“Fiscal 2014”) decreased 3.2% to $641.1 million as compared to $662.0 million for the fiscal year ended April 27, 2013 (“Fiscal 2013”). The lower sales resulted from a 7.5% volume decline in Carbonated Soft Drinks, principally due to extended periods of unfavorable weather conditions and industry-wide consumption decline. This volume decline was partially offset by case volume growth of 8.2% for our Power+ Brands. Average net selling price per case was approximately the same for both years.

 

Net sales for the fiscal year ended April 27, 2013 increased 5.3% to $662.0 million as compared to $628.9 million for the fiscal year ended April 28, 2012 (“Fiscal 2012”). This sales improvement is due to case volume growth of our Power+ Brands of 5.4% and growth of Carbonated Soft Drinks, which includes Allied Brands, of 6.4%. Average net selling price per case decreased .8% primarily due to changes in product mix.

 

Gross Profit

Gross profit was 33.9% of net sales for Fiscal 2014, which represents a 1.1% margin improvement compared to Fiscal 2013. The gross margin improvement is primarily due to favorable product mix changes and lower raw material costs. Cost of sales decreased 1.7% on a per case basis.

 

Gross profit was 32.8% of net sales for Fiscal 2013, which represents a 1.1% margin decline compared to Fiscal 2012. The gross margin decline is primarily due to product mix changes. Cost of sales increased .8% on a per case basis.

 

Shipping and handling costs are included in selling, general and administrative expenses, the classification of which is consistent with many beverage companies. However, our gross margin may not be comparable to companies that include shipping and handling costs in cost of sales. See Note 1 of Notes to Consolidated Financial Statements.

 

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $153.2 million or 23.9% of net sales for Fiscal 2014 compared to $146.2 million or 22.1% of net sales for Fiscal 2013. Fiscal 2014 expenses reflect higher selling and marketing costs, primarily due to increased advertising expenses.

 

Selling, general and administrative expenses were $146.2 million or 22.1% of net sales for Fiscal 2013 compared to $146.2 million or 23.2% of net sales for Fiscal 2012. Fiscal 2013 expenses reflect higher shipping and handling costs due to increased case volume, offset by reduced marketing and administrative expenses.

 

Interest Expense and Other Expense - Net

Interest expense is comprised of interest on borrowings and fees related to maintaining lines of credit. The Company paid a special cash dividend of $118.1 million ($2.55 per common share) on December 27, 2012 from available cash and borrowings under our credit facilities. Due to increased borrowings, interest expense increased to $660,000 in Fiscal 2014 from $403,000 in Fiscal 2013 and $107,000 in Fiscal 2012. Other expense is net of interest income of $15,000 for Fiscal 2014, $37,000 for Fiscal 2013 and $69,000 for Fiscal 2012. The decline in interest income for Fiscal 2014 and Fiscal 2013 is due to lower average invested balances.

 

 
15

 

 

 

Income Taxes

Our effective tax rate would have been approximately 34%* for Fiscal 2014, compared with 33.4% for Fiscal 2013 and 34.2% for Fiscal 2012. The difference between the effective rate and the federal statutory rate of 35% was primarily due to the effects of state income taxes, the manufacturing deduction; and for Fiscal 2014, adjustment of unrecognized tax benefits related to the resolution of certain open tax years, which resulted in a 30.9% tax rate. *See Note 7 of Notes to Consolidated Financial Statements.

 

LIQUIDITY AND FINANCIAL CONDITION

 

Liquidity and Capital Resources

Our principal source of funds is cash generated from operations and borrowings available under our credit facilities. At May 3, 2014, we maintained $100 million unsecured revolving credit facilities, of which $30 million of borrowings were outstanding and $2.2 million was used for standby letters of credit. We believe that existing capital resources will be sufficient to meet our liquidity and capital requirements for the next twelve months. See Note 4 of Notes to Consolidated Financial Statements.

 

We continually evaluate capital projects to expand our production capacity, enhance packaging capabilities or improve efficiencies at our manufacturing facilities. Expenditures for property, plant and equipment amounted to $12.1 million for Fiscal 2014. There were no material capital expenditure commitments at May 3, 2014.

 

On January 25, 2013, the Company sold 400,000 shares of Special Series D Preferred Stock (“Series D Preferred”), par value $1 per share for an aggregate purchase price of $20 million. On May 2, 2014, the Company redeemed 160,000 shares of Series D Preferred, representing 40% of the amount outstanding, for an aggregate price of $8 million. In conjunction with the partial redemption, the annual dividend rate on the outstanding Series D Preferred was reduced to 2.5% for the twelve month period beginning May 1, 2014. See Note 5 of Notes to Consolidated Financial Statements.

 

The Company paid special cash dividends on common stock of $118.1 million ($2.55 per share) on December 27, 2012, $106.3 million ($2.30 per share) on February 14, 2011 and $62.3 million ($1.35 per share) on January 22, 2010.

 

Pursuant to a management agreement, we incurred a fee to Corporate Management Advisors, Inc. (“CMA”) of approximately $6.4 million for Fiscal 2014, $6.6 million for Fiscal 2013 and $6.3 million for Fiscal 2012. At May 3, 2014, management fees payable to CMA were $1.6 million. See Note 5 of Notes to Consolidated Financial Statements.

 

Cash Flows

During Fiscal 2014, $52.4 million was provided by operating activities, $12.1 million was used in investing activities and $28.7 million was used in financing activities. Cash provided by operating activities increased $12.1 million primarily due to changes in working capital. Cash used in investing activities increased to $12.1 million reflecting higher capital expenditures in Fiscal 2014. Cash used in financing activities was $28.7 million reflecting $8 million redemption of preferred stock and $20 million repayment of debt.

 

During Fiscal 2013, $40.3 million was provided by operating activities, which was offset by $9.6 million used in investing activities and $48.0 million used in financing activities. Cash provided by operating activities increased $2.6 million primarily due to increased earnings. Cash used in financing activities increased $48.4 million due to the special dividend payment of $118.1 million in Fiscal 2013, partially offset by $19.7 million in proceeds from the issuance of the Series D Preferred and $50.0 million in net borrowings under credit facilities.

 

 
16

 

 

 

Financial Position

During Fiscal 2014, our working capital increased $11.1 million to $78.6 million primarily due to cash generated from operating activities. Trade receivables decreased $5.9 million due to lower sales activity as days sales outstanding remain unchanged at 34.7 days. Inventories increased $4.7 million primarily due to higher quantities related to new products and to support more frequent customer promotions. At May 3, 2014, the current ratio was 2.2 to 1 as compared to 2.1 to 1 at April 27, 2013.

 

During Fiscal 2013, our working capital decreased $2.3 million to $67.5 million due to a decline in cash resulting from the payment of the special cash dividend. Trade receivables increased $2.5 million, which represents an increase in days sales outstanding from approximately 33.9 days to 34.7 days, and inventories decreased $1.6 million, which represents an improvement in annual inventory turns from 11.0 to 11.2 times. Accounts payable decreased $10.6 million due to the timing of payments to vendors at the end of the fiscal year. At April 27, 2013, the current ratio was 2.1 to 1 as compared to 1.9 to 1 at April 28, 2012.

 

CONTRACTUAL OBLIGATIONS

 

Contractual obligations at May 3, 2014 are payable as follows:

 

   

(In thousands)

 
   

Total

   

Less Than

1 Year

   

1 to 3 Years

   

3 to 5 Years

   

More Than 5 Years

 

Long-term debt

  $ 30,000     $ -     $ 30,000     $ -     $ -  

Operating leases

    19,548       4,768       7,248       5,055       2,477  

Purchase commitments

    32,847       32,847       -       -       -  

Total

  $ 82,395     $ 37,615     $ 37,248     $ 5,055     $ 2,477  

 

As of May 3, 2014, we guaranteed the residual value of certain leased equipment in the amount of $5.3 million. If the proceeds from the sale of such equipment are less than the balance required by the lease when the lease terminates July 31, 2014, the Company shall be required to pay the difference up to such guaranteed amount. The Company expects to have no loss on such guarantee.

 

We contribute to certain pension plans under collective bargaining agreements and to a discretionary profit sharing plan. Total contributions were $2.7 million for Fiscal 2014, $2.6 million for Fiscal 2013 and $2.5 million for Fiscal 2012. See Note 9 of Notes to Consolidated Financial Statements.

 

We maintain self-insured and deductible programs for certain liability, medical and workers’ compensation exposures. Other long-term liabilities include known claims and estimated incurred but not reported claims not otherwise covered by insurance, based on actuarial assumptions and historical claims experience. Since the timing and amount of claim payments vary significantly, we are not able to reasonably estimate future payments for the specific periods indicated in the table above. Standby letters of credit aggregating $2.2 million have been issued in connection with our self-insurance programs. These standby letters of credit expire through June 2015 and are expected to be renewed.

 

 
17

 

 

  

OFF-BALANCE SHEET ARRANGEMENTS

 

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition.

 

CRITICAL ACCOUNTING POLICIES

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. We believe that the critical accounting policies described in the following paragraphs comprise the most significant estimates and assumptions used in the preparation of our consolidated financial statements. For these policies, we caution that future events rarely develop exactly as estimated and the best estimates routinely require adjustment.

 

Credit Risk

We sell products to a variety of customers and extend credit based on an evaluation of each customer’s financial condition, generally without requiring collateral. Exposure to credit losses varies by customer principally due to the financial condition of each customer. We monitor our exposure to credit losses and maintain allowances for anticipated losses based on specific customer circumstances, credit conditions and historical write-offs.

 

Impairment of Long-Lived Assets

All long-lived assets, excluding goodwill and intangible assets not subject to amortization, are evaluated for impairment on the basis of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impaired asset is written down to its estimated fair market value based on the best information available. Estimated fair market value is generally measured by discounting future cash flows. Goodwill and intangible assets not subject to amortization are evaluated for impairment annually or sooner if we believe such assets may be impaired. An impairment loss is recognized if the carrying amount or, for goodwill, the carrying amount of its reporting unit, is greater than its fair value.

 

Income Taxes

Our effective income tax rate is based on estimates of taxes which will ultimately be payable. Deferred taxes are recorded to give recognition to temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements. Valuation allowances are established to reduce the carrying amounts of deferred tax assets when it is deemed, more likely than not, that the benefit of deferred tax assets will not be realized.

 

Insurance Programs

We maintain self-insured and deductible programs for certain liability, medical and workers’ compensation exposures. Accordingly, we accrue for known claims and estimated incurred but not reported claims not otherwise covered by insurance based on actuarial assumptions and historical claims experience.

 

Sales Incentives

We offer various sales incentive arrangements to our customers that require customer performance or achievement of certain sales volume targets. When the incentive is paid in advance, we amortize the amount paid over the period of benefit or contractual sales volume; otherwise, we accrue the expected amount to be paid over the period of benefit or expected sales volume. The recognition of these incentives involves the use of judgment related to performance and sales volume estimates that are made based on historical experience and other factors. Sales incentives are accounted for as a reduction of sales and actual amounts ultimately realized may vary from accrued amounts.

 

 
18

 

 

 

FORWARD-LOOKING STATEMENTS

 

National Beverage and its representatives may make written or oral statements relating to future events or results relative to our financial, operational and business performance, achievements, objectives and strategies. These statements are "forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995 and include statements contained in this report and other filings with the Securities and Exchange Commission and in reports to our stockholders. Certain statements including, without limitation, statements containing the words "believes," "anticipates," "intends," "plans," "expects," and "estimates" constitute "forward-looking statements" and involve known and unknown risk, uncertainties and other factors that may cause the actual results, performance or achievements of our Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following: general economic and business conditions, pricing of competitive products, success in acquiring other beverage businesses, success of new product and flavor introductions, fluctuations in the costs of raw materials and packaging supplies, ability to pass along cost increases to our customers, labor strikes or work stoppages or other interruptions in the employment of labor, continued retailer support for our products, changes in consumer preferences and our success in creating products geared toward consumers’ tastes, success in implementing business strategies, changes in business strategy or development plans, government regulations, taxes or fees imposed on the sale of our products, unseasonably cold or wet weather conditions and other factors referenced in this report, filings with the Securities and Exchange Commission and other reports to our stockholders. We disclaim an obligation to update any such factors or to publicly announce the results of any revisions to any forward-looking statements contained herein to reflect future events or developments.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Commodities

We purchase various raw materials, including aluminum cans, plastic bottles, high fructose corn syrup, corrugated packaging and juice concentrates, the prices of which fluctuate based on commodity market conditions. Our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. At times, we manage our exposure to this risk through the use of supplier pricing agreements that enable us to establish the purchase prices for certain commodities. Additionally, we use derivative financial instruments to partially mitigate our exposure to changes in certain raw material costs.

 

Interest Rates

At May 3, 2014, the Company had $30 million in borrowings outstanding under its credit facilities with a weighted average interest rate of 1.1%. Interest rate hedging products are not currently used to mitigate risk from interest fluctuations. If the interest rate on our debt changed by 100 basis points (1%), our interest expense for Fiscal 2014 would have changed by approximately $400,000. 

 

 
19

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


 

   

May 3,

   

April 27,

 
   

2014

   

2013

 

Assets

               

Current assets:

               
Cash and equivalents   $ 29,932     $ 18,267  
Trade receivables - net     58,205       64,069  
Inventories     43,914       39,234  
Deferred income taxes - net     2,685       3,665  
Prepaid and other assets     8,405       5,706  
Total current assets     143,141       130,941  

Property, plant and equipment - net

    59,494       57,307  

Goodwill

    13,145       13,145  

Intangible assets

    1,615       1,615  

Other assets

    5,446       5,634  

Total assets

  $ 222,841     $ 208,642  
                 

Liabilities and Shareholders' Equity

               

Current liabilities:

               
Accounts payable   $ 45,606     $ 44,261  
Accrued liabilities     18,873       19,142  
Income taxes payable     44       34  
Total current liabilities     64,523       63,437  

Long-term debt

    30,000       50,000  

Deferred income taxes - net

    13,873       14,327  

Other liabilities

    8,244       10,562  

Shareholders' equity:

               
Preferred stock, $1 par value - 1,000,000 shares authorized                
Series C - 150,000 shares issued     150       150  
Series D - 240,000 shares (2014) and 400,000 shares (2013) issued, aggregate liquidation preference of $12,000 (2014) and $20,000 (2013)     240       400  
Common stock, $.01 par value - 75,000,000 shares authorized; 50,367,799 shares (2014) and 50,361,799 shares (2013) issued     504       504  

Additional paid-in capital

    42,775       50,398  

Retained earnings

    80,737       37,828  

Accumulated other comprehensive loss

    (205 )     (964 )

Treasury stock - at cost:

               
Series C preferred stock - 150,000 shares     (5,100 )     (5,100 )
Common stock - 4,032,784 shares     (12,900 )     (12,900 )

Total shareholders' equity

    106,201       70,316  

Total liabilities and shareholders' equity

  $ 222,841     $ 208,642  

 

See accompanying Notes to Consolidated Financial Statements.

 

 
 20

 

 

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)


 

 

 

Fiscal Year Ended

 

 

 

May 3,

 

 

April 27,

 

 

April 28,

 

 

 

2014

 

 

2013

 

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

641,135

 

 

$

662,007

 

 

$

628,886

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

423,480

 

 

 

444,757

 

 

 

415,629

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

217,655

 

 

 

217,250

 

 

 

213,257

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

153,220

 

 

 

146,223

 

 

 

146,169

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

660

 

 

 

403

 

 

 

107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense - net

 

 

666

 

 

 

173

 

 

 

85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

63,109

 

 

 

70,451

 

 

 

66,896

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

19,474

 

 

 

23,531

 

 

 

22,903

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

43,635

 

 

 

46,920

 

 

 

43,993

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less preferred dividends and accretion

 

 

(726

)

 

 

(153

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings available to common shareholders

 

$

42,909

 

 

$

46,767

 

 

$

43,993

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

.93

 

 

$

1.01

 

 

$

.95

 

Diluted

 

$

.92

 

 

$

1.01

 

 

$

.95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

46,331

 

 

 

46,310

 

 

 

46,267

 

Diluted

 

 

46,519

 

 

 

46,482

 

 

 

46,448

 

 

See accompanying Notes to Consolidated Financial Statements.

 

 
 21

 

 

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)


 

   

Fiscal Year Ended

 
   

May 3,

   

April 27,

   

April 28,

 
   

2014

   

2013

   

2012

 
                         

Net income

  $ 43,635     $ 46,920     $ 43,993  
                         

Other comprehensive income (loss), net of tax:

                       
                         

Cash flow hedges

    610       (295

)

    (3,063

)

                         

Other

    149       (27

)

    (330

)

                         

Total

    759       (322

)

    (3,393

)

                         

Comprehensive income

  $ 44,394     $ 46,598     $ 40,600  

 

See accompanying Notes to Consolidated Financial Statements.

 

 
 22

 

 

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)

 

   

Fiscal Year Ended

 
   

May 3, 2014

   

April 27, 2013

   

April 28, 2012

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

 
                                                 

Series C Preferred Stock

                                               

Beginning and end of year

    150     $ 150       150     $ 150       150     $ 150  

Series D Preferred Stock

                                               

Beginning of year

    400       400       -       -       -       -  

Series D preferred (redeemed) issued

    (160 )     (160 )     400       400       -       -  

End of year

    240       240       400       400       -       -  

Common Stock

                                               

Beginning of year

    50,362       504       50,322       503       50,262       503  

Stock options exercised

    6       -       40       1       60       -  

End of year

    50,368       504       50,362       504       50,322       503  

Additional Paid-In Capital

                                               

Beginning of year

            50,398               30,425               29,725  

Series D preferred (redeemed) issued

            (7,722 )             19,304               -  

Stock options exercised

            47               238               115  

Stock-based compensation

            95               230               290  

Other

            (43 )             201               295  

End of year

            42,775               50,398               30,425  

Retained Earnings

                                               

Beginning of year

            37,828               109,200               65,207  

Net income

            43,635               46,920               43,993  

Common stock dividends

            -               (118,139 )             -  

Preferred stock dividends & accretion

            (726 )             (153 )             -  

End of year

            80,737               37,828               109,200  

Accumulated Other Comprehensive Loss

                                               

Beginning of year

            (964 )             (642 )             2,751  

Cash flow hedges

            610               (295 )             (3,063 )

Other

            149               (27 )             (330 )

End of year

            (205 )             (964 )             (642 )

Treasury Stock - Series C Preferred

                                               

Beginning and end of year

    150       (5,100 )     150       (5,100 )     150       (5,100 )

Treasury Stock - Common

                                               

Beginning and end of year

    4,033       (12,900 )     4,033       (12,900 )     4,033       (12,900 )
                                                 

Total Shareholders' Equity

          $ 106,201             $ 70,316             $ 121,636  

 

See accompanying Notes to Consolidated Financial Statements.

  

 
23

 

   

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

   

Fiscal Year Ended

 
   

May 3,

   

April 27,

   

April 28,

 
   

2014

   

2013

   

2012

 

Operating Activities:

                       

Net income

  $ 43,635     $ 46,920     $ 43,993  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

                       
Depreciation and amortization     11,708       11,002       10,651  
Deferred income tax provision (benefit)     79       172       (477 )
Loss on disposal of property, net     51       63       7  
Stock-based compensation     95       230       290  
Changes in assets and liabilities:                        
Trade receivables     5,864       (2,478 )     (5,679 )
Inventories     (4,680 )     1,628       (7,509 )
Prepaid and other assets     (2,548 )     (2,466 )     (2,239 )
Accounts payable     1,345       (10,614 )     5,618  
Accrued and other liabilities     (3,167 )     (4,193 )     (6,959 )

Net cash provided by operating activities

    52,382       40,264       37,696  
                         

Investing Activities:

                       

Additions to property, plant and equipment

    (12,124 )     (9,693 )     (9,905 )

Proceeds from sale of property, plant and equipment

    62       77       53  

Net cash used in investing activities

    (12,062 )     (9,616 )     (9,852 )
                         

Financing Activities:

                       

Dividends paid on common stock

    -       (118,139 )     -  

Dividends paid on preferred stock

    (659 )     (12 )     -  

(Repayments) borrowings under credit facilities

    (20,000 )     50,000       -  

(Redemption) issuance of preferred stock

    (8,000 )     19,704       -  

Proceeds from stock options exercised

    47       239       115  

Other

    (43 )     201       295  

Net cash (used in) provided by financing activities

    (28,655 )     (48,007 )     410  
                         

Net Increase (Decrease) in Cash and Equivalents

    11,665       (17,359 )     28,254  
                         

Cash and Equivalents - Beginning of Year

    18,267       35,626       7,372  
                         

Cash and Equivalents - End of Year

  $ 29,932     $ 18,267     $ 35,626  
                         

Other Cash Flow Information:

                       

Interest paid

  $ 723     $ 341     $ 95  

Income taxes paid

    23,079       24,327       23,127  

 

See accompanying Notes to Consolidated Financial Statements.

 

 
 24

 

 

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

National Beverage Corp. develops, manufactures, markets and sells a diverse portfolio of flavored beverage products primarily in North America. Incorporated in Delaware in 1985, National Beverage Corp. is a holding company for various operating subsidiaries. When used in this report, the terms “we,” “us,” “our,” “Company” and “National Beverage” mean National Beverage Corp. and its subsidiaries.

 

1. significant accounting policies

 

Basis of Presentation

The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and rules and regulations of the Securities and Exchange Commission. The consolidated financial statements include the accounts of National Beverage Corp. and all subsidiaries. All significant intercompany transactions and accounts have been eliminated. Our fiscal year ends the Saturday closest to April 30 and, as a result, an additional week is added every five or six years. Fiscal 2014 consisted of 53 weeks while Fiscal 2013 and Fiscal 2012 consisted of 52 weeks.

 

Cash and Equivalents

Cash and equivalents are comprised of cash and highly liquid securities (consisting primarily of short-term money-market investments) with an original maturity of three months or less.

 

Derivative Financial Instruments

We use derivative financial instruments to partially mitigate our exposure to changes in raw material costs. All derivative financial instruments are recorded at fair value in our Consolidated Balance Sheets. We do not use derivative financial instruments for trading or speculative purposes. Credit risk related to derivative financial instruments is managed by requiring high credit standards for counterparties and frequent cash settlements. See Note 6.

 

Earnings Per Common Share

Basic earnings per common share is computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated in a similar manner, but includes the dilutive effect of stock options amounting to 188,000 shares in Fiscal 2014, 172,000 shares in Fiscal 2013 and 181,000 shares in Fiscal 2012.

 

Fair Value

The fair value of long-term debt approximates its carrying value due to its variable interest rate and lack of prepayment penalty. The estimated fair values of derivative financial instruments are calculated based on market rates to settle the instruments. These values represent the estimated amounts we would receive upon sale, taking into consideration current market prices and credit worthiness. See Note 6.

 

Impairment of Long-Lived Assets

All long-lived assets, excluding goodwill and intangible assets not subject to amortization, are evaluated for impairment on the basis of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impaired asset is written down to its estimated fair value based on the best information available. Estimated fair value is generally measured by discounting future cash flows. Goodwill and intangible assets not subject to amortization are evaluated for impairment annually or sooner if we believe such assets may be impaired. An impairment loss is recognized if the carrying amount or, for goodwill, the carrying amount of its reporting unit, is greater than its fair value.

 

 
25

 

 

Income Taxes

Our effective income tax rate is based on estimates of taxes which will ultimately be payable. Deferred taxes are recorded to give recognition to temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements. Valuation allowances are established to reduce the carrying amounts of deferred tax assets when it is deemed, more likely than not, that the benefit of deferred tax assets will not be realized.

 

Insurance Programs

We maintain self-insured and deductible programs for certain liability, medical and workers’ compensation exposures. Accordingly, we accrue for known claims and estimated incurred but not reported claims not otherwise covered by insurance based on actuarial assumptions and historical claims experience.

 

Intangible Assets

Intangible assets as of May 3, 2014 and April 27, 2013 consisted of non-amortizable trademarks.

 

Inventories

Inventories are stated at the lower of first-in, first-out cost or market. Inventories at May 3, 2014 were comprised of finished goods of $27.2 million and raw materials of $16.7 million. Inventories at April 27, 2013 were comprised of finished goods of $23.2 million and raw materials of $16.0 million.

 

Marketing Costs

We are involved in a variety of marketing programs, including cooperative advertising programs with customers, to advertise and promote our products to consumers. Marketing costs are expensed when incurred, except for prepaid advertising and production costs which are expensed when the advertising takes place. Marketing costs, which are included in selling, general and administrative expenses, totaled $50.2 million in Fiscal 2014, $44.6 million in Fiscal 2013 and $45.8 million in Fiscal 2012.

 

New Accounting Pronouncement

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”).  ASU 2014-09 requires an entity to recognize revenue in an amount that reflects the consideration to which the entity expects to receive in exchange for goods or services.  ASU 2014-09 is effective for our fiscal year beginning April 30, 2017.  We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

 

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Additions, replacements and betterments are capitalized, while maintenance and repairs that do not extend the useful life of an asset are expensed as incurred. Depreciation is recorded using the straight-line method over estimated useful lives of 7 to 30 years for buildings and improvements and 3 to 15 years for machinery and equipment. Leasehold improvements are amortized using the straight-line method over the shorter of the remaining lease term or the estimated useful life of the improvement. When assets are retired or otherwise disposed, the cost and accumulated depreciation are removed from the respective accounts and any related gain or loss is recognized.

 

 
26

 

 

Revenue Recognition

Revenue from product sales is recognized when title and risk of loss pass to the customer, which generally occurs upon delivery. Our policy is not to allow the return of products once they have been accepted by the customer. However, on occasion, we have accepted returns or issued credit to customers, primarily for damaged goods. The amounts have been immaterial and, accordingly, we do not provide a specific valuation allowance for sales returns.

 

Sales Incentives

We offer various sales incentive arrangements to our customers that require customer performance or achievement of certain sales volume targets. When the incentive is paid in advance, we amortize the amount paid over the period of benefit or contractual sales volume; otherwise, we accrue the expected amount to be paid over the period of benefit or expected sales volume. The recognition of these incentives involves the use of judgment related to performance and sales volume estimates that are made based on historical experience and other factors. Sales incentives are accounted for as a reduction of sales and actual amounts ultimately realized may vary from accrued amounts.

 

Segment Reporting

We operate as a single operating segment for purposes of presenting financial information and evaluating performance. As such, the accompanying consolidated financial statements present financial information in a format that is consistent with the internal financial information used by management. We do not accumulate revenues by product classification and, therefore, it is impractical to present such information.

 

Shipping and Handling Costs

Shipping and handling costs are reported in selling, general and administrative expenses in the accompanying consolidated statements of income. Such costs aggregated $44.4 million in Fiscal 2014, $44.2 million in Fiscal 2013 and $41.8 million in Fiscal 2012. Although our classification is consistent with many beverage companies, our gross margin may not be comparable to companies that include shipping and handling costs in cost of sales.

 

Stock-Based Compensation

Compensation expense for stock-based compensation awards is recognized over the vesting period based on the grant-date fair value estimated using the Black-Scholes model. See Note 8.

 

Trade Receivables

We record trade receivables at net realizable value, which includes an appropriate allowance for doubtful accounts. We extend credit based on an evaluation of each customer’s financial condition, generally without requiring collateral. Exposure to credit losses varies by customer principally due to the financial condition of each customer. We monitor our exposure to credit losses and maintain allowances for anticipated losses based on specific customer circumstances, credit conditions and historical write-offs. Activity in the allowance for doubtful accounts was as follows:  

              

   

(In thousands)

 
   

Fiscal 2014

   

Fiscal 2013

   

Fiscal 2012

 

Balance at beginning of year

  $ 454     $ 399     $ 452  

Net charge to expense

    95       96       4  

Net charge-off

    (150 )     (41 )     (57 )

Balance at end of year

  $ 399     $ 454     $ 399  

 

As of May 3, 2014 and April 27, 2013, we did not have any customer that comprised more than 10% of trade receivables. No one customer accounted for more than 10% of net sales during any of the last three fiscal years.

 

 
27

 

 

 

Use of Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and anticipated future actions, actual results may vary from reported amounts.

 

2. PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment as of May 3, 2014 and April 27, 2013 consisted of the following:

 

   

(In thousands)

 
   

2014

   

2013

 

Land

  $ 9,779     $ 9,779  

Buildings and improvements

    51,494       49,391  

Machinery and equipment

    148,699       141,314  

Total

    209,972       200,484  

Less accumulated depreciation

    (150,478 )     (143,177 )

Property, plant and equipment – net

  $ 59,494     $ 57,307  

 

Depreciation expense was $9.8 million for Fiscal 2014, $9.0 million for Fiscal 2013 and $8.5 million for Fiscal 2012.

 

3. ACCRUED LIABILITIES

 

Accrued liabilities as of May 3, 2014 and April 27, 2013 consisted of the following:

 

   

(In thousands)

 
   

2014

   

2013

 

Accrued compensation

  $ 7,049     $ 8,051  

Accrued promotions

    3,812       3,912  

Accrued insurance

    2,238       1,451  

Other

    5,774       5,728  

Total

  $ 18,873     $ 19,142  

 

4. DEBT

 

At May 3, 2014, a subsidiary of the Company maintained unsecured revolving credit facilities with banks aggregating $100 million (the “Credit Facilities”). The Credit Facilities expire from November 22, 2015 to April 30, 2016 and current borrowings bear interest at .9% above one-month LIBOR (1.1% at May 3, 2014). Borrowings outstanding under the Credit Facilities were $30 million at May 3, 2014 and $50 million at April 27, 2013. At May 3, 2014, $2.2 million of the Credit Facilities were used for standby letters of credit and $67.8 million were available for borrowings.

 

 
28

 

 

 

The Credit Facilities require the subsidiary to maintain certain financial ratios, principally debt to net worth and debt to EBITDA (as defined in the Credit Facilities), and contain other restrictions, none of which are expected to have a material effect on our operations or financial position. At May 3, 2014, we were in compliance with all loan covenants.

 

5. CAPITAL STOCK AND TRANSACTIONS WITH RELATED PARTIES

 

The Company paid special cash dividends on common stock of $118.1 million ($2.55 per share) on December 27, 2012, $106.3 million ($2.30 per share) on February 14, 2011 and $62.3 million ($1.35 per share) on January 22, 2010.

 

On January 25, 2013, the Company sold 400,000 shares of Special Series D Preferred Stock, par value $1 per share (“Series D Preferred”) for an aggregate purchase price of $20 million. Series D Preferred has a liquidation preference of $50 per share and accrues dividends on this amount at an annual rate of 3% through April 30, 2014 and, thereafter, at an annual rate equal to 370 basis points above the 3-Month LIBOR. Dividends are cumulative and payable quarterly. Accrued dividends at May 3, 2014 and April 27, 2013 were $90,000 and $141,000, respectively. The Series D Preferred is nonvoting and redeemable at the option of the Company beginning May 1, 2014 at $50 per share. The net proceeds of $19.7 million were used to repay borrowings under the Credit Facilities. In addition, the Company has 150,000 shares of Series C Preferred Stock, par value $1 per share, which are held as treasury stock and, therefore, such shares have no liquidation value.

 

On May 2, 2014, the Company redeemed 160,000 shares of Series D Preferred, representing 40% of the amount outstanding, for an aggregate price of $8 million plus accrued dividends. In connection therewith, the Company accreted and charged to retained earnings $118,000 of original issuance costs, which was deducted from income available to common shareholders for earnings per share calculation. In conjunction with the partial redemption, the annual dividend rate on the outstanding Series D Preferred was reduced to 2.5% for the twelve month period beginning May 1, 2014. In evaluating the impact of the rate change, the Company determined that the related fair value change was immaterial and that no adjustment was required.

 

In April 2012, the Board of Directors authorized an increase in the Company’s Stock Buyback Program from 800,000 to 1.6 million shares of common stock. As of May 3, 2014, 502,060 shares were purchased under the program and 1,097,940 shares were available for purchase. There were no shares purchased during the last three fiscal years.

 

The Company is a party to a management agreement with Corporate Management Advisors, Inc. (“CMA”), a corporation owned by our Chairman and Chief Executive Officer. This agreement was originated in 1991 for the efficient use of management of two public companies at the time. In 1994, one of those public entities, through a merger, no longer was managed in this manner. Under the terms of the agreement, CMA provides, subject to the direction and supervision of the Board of Directors of the Company, (i) senior corporate functions (including supervision of the Company’s financial, legal, executive recruitment, internal audit and management information systems departments) as well as the services of a Chief Executive Officer and Chief Financial Officer, and (ii) services in connection with acquisitions, dispositions and financings by the Company, including identifying and profiling acquisition candidates, negotiating and structuring potential transactions and arranging financing for any such transaction. CMA, through its personnel, also provides, to the extent possible, the stimulus and creativity to develop an innovative and dynamic persona for the Company, its products and corporate image. In order to fulfill its obligations under the management agreement, CMA employs numerous individuals, whom, acting as a unit, provide management, administrative and creative functions for the Company. The management agreement provides that the Company will pay CMA an annual base fee equal to one percent of the consolidated net sales of the Company, and further provides that the Compensation and Stock Option Committee and the Board of Directors may from time to time award additional incentive compensation to CMA. The Board of Directors on numerous occasions contemplated incentive compensation and, while shareholder value has increased over 2,000% since the inception of this agreement, no incentive compensation has been paid. We incurred management fees to CMA of $6.4 million for Fiscal 2014, $6.6 million for Fiscal 2013 and $6.3 million for Fiscal 2012. Included in accounts payable were amounts due CMA of $1.6 million at May 3, 2014 and $3.1 million at April 27, 2013.

 

 
29

 

 

 

6. DERIVATIVE FINANCIAL INSTRUMENTS

 

From time to time, we enter into aluminum swap contracts to partially mitigate our exposure to changes in the cost of aluminum cans. Such financial instruments are designated and accounted for as a cash flow hedge. Accordingly, gains or losses attributable to the effective portion of the cash flow hedge are reported in Accumulated Other Comprehensive Income (Loss) (“AOCI”) and reclassified into earnings through cost of sales in the period in which the hedged transaction affects earnings. The ineffective portion of the change in fair value of our cash flow hedge was immaterial. The following summarizes the gains (losses) recognized in the Consolidated Statements of Income and AOCI relative to the cash flow hedge for Fiscal 2014, Fiscal 2013 and Fiscal 2012:

 

   

(In thousands)

 
   

Fiscal

   

Fiscal

   

Fiscal

 
   

2014

   

2013

   

2012

 

Recognized in AOCI-

                       

Loss before income taxes

  $ (1,059 )   $ (2,521 )   $ (4,484 )

Less income tax benefit

    (393 )     (935 )     (1,642 )

Net

    (666 )     (1,586 )     (2,842 )

Reclassified from AOCI to cost of sales-

                       

(Loss) gain before income taxes

    (2,028 )     (2,060 )     290  

Less income tax (benefit) provision

    (752 )     (769 )     69  

Net

    (1,276 )     (1,291 )     221  

Net change to AOCI

  $ 610     $ (295 )   $ (3,063 )

 

As of May 3, 2014, the notional amount of our outstanding aluminum swap contracts was $2.3 million and, assuming no change in the commodity prices, $5,000 of unrealized gain before tax will be reclassified from AOCI and recognized in earnings over the next month. See Note 1.

 

As of May 3, 2014, the fair value of the derivative asset was $5,000, which was included in prepaid and other assets. As of April 27, 2013, the fair value of the derivative liability was $964,000, which was included in accrued liabilities. Such valuation does not entail a significant amount of judgment and the inputs that are significant to the fair value measurement are Level 2 as defined by the fair value hierarchy as they are observable market based inputs or unobservable inputs that are corroborated by market data.

 

 
30

 

 

  

7. INCOME TAXES

 

The provision (benefit) for income taxes consisted of the following:

 

   

(In thousands)

 
   

Fiscal

   

Fiscal

   

Fiscal

 
   

2014

   

2013

   

2012

 

Current

  $ 19,395     $ 23,359     $ 23,380  

Deferred

    79       172       (477 )

Total

  $ 19,474     $ 23,531     $ 22,903  

 

Deferred taxes are recorded to give recognition to temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements. Valuation allowances are established to reduce the carrying amounts of deferred tax assets when it is deemed more likely than not that the benefit of deferred tax assets will not be realized. Deferred tax assets and liabilities as of May 3, 2014 and April 27, 2013 consisted of the following:

 

   

(In thousands)

 
   

2014

   

2013

 

Deferred tax assets:

               

Accrued expenses and other

  $ 4,126     $ 5,241  

Inventory and amortizable assets

    400       355  

Total deferred tax assets

    4,526       5,596  

Deferred tax liabilities:

               

Property

    15,616       16,159  

Intangibles and other

    98       99  

Total deferred tax liabilities

    15,714       16,258  

Net deferred tax liabilities

  $ 11,188     $ 10,662  

Current deferred tax assets – net

  $ 2,685     $ 3,665  

Noncurrent deferred tax liabilities – net

  $ 13,873     $ 14,327  

 

The reconciliation of the statutory federal income tax rate to our effective tax rate is as follows:

 

   

Fiscal

   

Fiscal

   

Fiscal

 
   

2014*

   

2013

   

2012

 

Statutory federal income tax rate

    35.0%       35.0%       35.0%  

State income taxes, net of federal benefit

    2.3       1.6       2.7  

Manufacturing deduction benefit

    (3.0)       (3.1)       (3.1)  
Adjustment of unrecognized tax benefit     (3.3)       (.2)       (.1)  

Other differences

    (.1)       .1       (.3)  

Effective income tax rate

    30.9%       33.4%       34.2%  

 

*  During April 2014, the Company reached an agreement with the Internal Revenue Service with respect to its review of the Company’s federal income tax returns for the three years ended April 2013. No material adjustments were proposed and, accordingly, the Company adjusted the related unrecognized tax benefits during the fourth quarter of Fiscal 2014.  

 

 
31

 

 

 

As of May 3, 2014, the gross amount of unrecognized tax benefits was $2.1 million and $2.1 million was recognized as a tax benefit in Fiscal 2014. If we were to prevail on all uncertain tax positions, the net effect would be to reduce our tax expense by approximately $1.4 million. A reconciliation of the changes in the gross amount of unrecognized tax benefits, which amounts are included in other liabilities in the accompanying consolidated balance sheets, is as follows:

 

   

(In thousands)

 
   

Fiscal

   

Fiscal

   

Fiscal

 
   

2014

   

2013

   

2012

 

Beginning balance

  $ 4,349     $ 4,548     $ 4,687  

Increases due to current period tax positions

    268       415       408  

Decreases due to lapse of statute of limitations and audit resolutions

    (2,494 )*     (614 )     (547 )

Ending balance

  $ 2,123     $ 4,349     $ 4,548  

 


*

Includes $1,907 related to the Internal Revenue Service review of the Company's federal income tax returns for the three years ended April 2013 noted above.

 

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of May 3, 2014, unrecognized tax benefits included accrued interest of $351,000, of which approximately $163,000 was recognized as a tax benefit in Fiscal 2014.

 

We file annual income tax returns in the United States and in various state and local jurisdictions. A number of years may elapse before an uncertain tax position, for which we have unrecognized tax benefits, is resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our unrecognized tax benefits reflect the most probable outcome. We adjust these unrecognized tax benefits, as well as the related interest, in light of changing facts and circumstances. The resolution of any particular uncertain tax position could require the use of cash and an adjustment to our provision for income taxes in the period of resolution. Federal income tax returns for fiscal years subsequent to 2013 are subject to examination. Generally, the income tax returns for the various state jurisdictions are subject to examination for fiscal years ending after fiscal 2009.

 

8. STOCK-BASED COMPENSATION

 

Our stock-based compensation program is a broad-based program designed to attract and retain employees while also aligning employees’ interests with the interests of the stockholders.

 

The 1991 Omnibus Incentive Plan (the “Omnibus Plan”) provides for compensatory awards consisting of (i) stock options or stock awards for up to 4,800,000 shares of common stock, (ii) stock appreciation rights, dividend equivalents, other stock-based awards in amounts up to 4,800,000 shares of common stock and (iii) performance awards consisting of any combination of the above. The Omnibus Plan is designed to provide an incentive to officers and certain other key employees and consultants by making available to them an opportunity to acquire a proprietary interest or to increase such interest in National Beverage. The number of shares or options which may be issued under stock-based awards to an individual is limited to 1,680,000 during any year. Awards may be granted for no cash consideration or such minimal cash consideration as may be required by law. Options generally have an exercise price equal to the fair market value of our common stock on the date of grant, vest over a five-year period and expire after ten years.

 

The Special Stock Option Plan provides for the issuance of stock options to purchase up to an aggregate of 1,800,000 shares of common stock. Options may be granted for such consideration as determined by the Board of Directors. The vesting schedule and exercise price of these options are tied to the recipient’s ownership level of common stock and the terms generally allow for the reduction in exercise price upon each vesting period. Also, the Board of Directors authorized the issuance of options to purchase up to 50,000 shares of common stock to be issued at the direction of the Chairman.

 

 
32

 

 

 

The Key Employee Equity Partnership Program (“KEEP Program”) provides for the granting of stock options to purchase up to 240,000 shares of common stock to key employees, consultants, directors and officers. Participants who purchase shares of stock in the open market receive grants of stock options equal to 50% of the number of shares purchased, up to a maximum of 6,000 shares in any two-year period. Options under the KEEP Program are forfeited in the event of the sale of shares used to acquire such options. Options are granted at an initial exercise price of 60% of the purchase price paid for the shares acquired and the exercise price reduces to the stock par value at the end of the six-year vesting period.

 

We account for stock options under the fair value method of accounting using a Black-Scholes valuation model to estimate the stock option fair value at date of grant. The fair value of stock options is amortized to expense over the vesting period. Stock options granted were 5,245 KEEP shares in Fiscal 2014, 2,000 KEEP shares in Fiscal 2013 and 3,000 KEEP shares in Fiscal 2012. The weighted average Black-Scholes fair value assumptions for stock options granted are as follows: weighted average expected life of 8 years for Fiscal 2014, 8 years for Fiscal 2013 and 8 years for Fiscal 2012; weighted average expected volatility of 35.8% for Fiscal 2014, 38.1% for Fiscal 2013 and 42.9% for Fiscal 2012; weighted average risk free interest rates of 1.9% for Fiscal 2014, 1.6% for Fiscal 2013 and 2.5% for Fiscal 2012; and expected dividend yield of 4.6% for Fiscal 2014, 5.0% for Fiscal 2013 and 5.3% for Fiscal 2012.  The expected life of stock options was estimated based on historical experience.  The expected volatility was estimated based on historical stock prices for a period consistent with the expected life of stock options.  The risk free interest rate was based on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of stock options. Forfeitures were estimated based on historical experience.

 

The following is a summary of stock option activity for Fiscal 2014:

 

   

Number of Shares

   

Price (a)

 

Options outstanding, beginning of year

    441,810       $6.86  

Granted

    5,245       7.42  

Exercised

    (6,000 )     7.87  

Cancelled

    (36,700 )     7.74  

Options outstanding, end of year

    404,355       6.67  

Options exercisable, end of year

    269,169       5.69  

_______________________________

(a) Weighted average exercise price.

 

Stock-based compensation expense was $95,000 for Fiscal 2014, $230,000 for Fiscal 2013 and $290,000 for Fiscal 2012. The total fair value of shares vested was $90,000 for Fiscal 2014, $453,000 for Fiscal 2013 and $513,000 for Fiscal 2012. The total intrinsic value for stock options exercised was $76,000 for Fiscal 2014, $406,000 for Fiscal 2013 and $758,000 for Fiscal 2012. Net cash proceeds from the exercise of stock options were $47,000 for Fiscal 2014, $239,000 for Fiscal 2013 and $115,000 for Fiscal 2012. Stock based income tax benefits aggregated $17,000 for Fiscal 2014, $201,000 for Fiscal 2013 and $295,000 for Fiscal 2012. The weighted average fair value for stock options granted was $12.50 for Fiscal 2014, $8.76 for Fiscal 2013 and $8.16 for Fiscal 2012.

 

 
33

 

 

 

As of May 3, 2014, unrecognized compensation expense related to the unvested portion of our stock options was $262,000, which is expected to be recognized over a weighted average period of 2.7 years. The weighted average remaining contractual term and the aggregate intrinsic value for options outstanding as of May 3, 2014 was 3.9 years and $5.1 million, respectively. The weighted average remaining contractual term and the aggregate intrinsic value for options exercisable as of May 3, 2014 was 3.0 years and $3.6 million, respectively.

 

We have a stock purchase plan which provides for the purchase of up to 1,536,000 shares of common stock by employees who (i) have been employed for at least two years, (ii) are not part-time employees and (iii) are not owners of five percent or more of our common stock. As of May 3, 2014, no shares have been issued under the plan.

 

9. PENSION PLANS

 

The Company contributes to certain pension plans under collective bargaining agreements and to a discretionary profit sharing plan. Total contributions (including contributions to multi-employer plans reflected below) were $2.7 million for Fiscal 2014, $2.6 million for Fiscal 2013 and $2.5 million for Fiscal 2012.

 

The Company participates in various multi-employer defined benefit pension plans covering certain employees whose employment is covered under collective bargaining agreements. Under the Pension Protection Act (“PPA”), if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. If the Company chooses to stop participating in the multi-employer plan, the Company could be required to pay the plan a withdrawal liability based on the underfunded status of the plan.

 

Summarized below is certain information regarding the Company’s participation in significant multi-employer pension plans including the financial improvement plan or rehabilitation plan status (“FIP/RP Status”). The most recent PPA zone status available in Fiscal 2014 and Fiscal 2013 is for the plans’ years ending December 31, 2012 and 2011, respectively.

            

    PPA Zone Status                  
    Fiscal    

Fiscal

           

Surcharge

 

Pension Fund

 

2014 

   

2013 

   

FIP/RP Status

    Imposed  

Central States, Southeast and Southwest Areas Pension Plan (EIN no. 36-6044243) (the “CSSS Fund”)

    Red       Red       Implemented        Yes  

Western Conference of Teamsters Pension Trust Fund (EIN no. 91-6145047) (the “WCT Fund”)

    Green       Green       Not applicable       No  

 

For the plan years ended December 31, 2012 and December 31, 2011, respectively, the Company was not listed in the pension trust fund forms 5500 as providing more than 5% of the total contributions for the plans. The collective bargaining agreements covering the above pension trust funds expire on October 18, 2016 for the CSSS Fund and May 14, 2016 for the WCT Fund.

 

 
34

 

 

 

The Company’s contributions for all multi-employer pension plans for the last three fiscal years are as follow:

 

   

(In thousands)

 
   

Fiscal

   

Fiscal

   

Fiscal

 

Pension Fund

 

2014

   

2013

   

2012

 

CSSS Fund

  $ 1,079     $ 1,051     $ 944  

WCT Fund

    476       471       455  

Other multi-employer pension funds

    295       262       244  

Total

  $ 1,850     $ 1,784     $ 1,643  

 

10. COMMITMENTS AND CONTINGENCIES

 

We lease buildings, machinery and equipment under various non-cancelable operating lease agreements expiring at various dates through 2023. Certain of these leases contain scheduled rent increases and/or renewal options. Contractual rent increases are taken into account when calculating the minimum lease payment and recognized on a straight-line basis over the lease term. Rent expense under operating lease agreements totaled approximately $7.9 million for Fiscal 2014, $8.9 million for Fiscal 2013 and $9.3 million for Fiscal 2012.

 

Our minimum lease payments under non-cancelable operating leases as of May 3, 2014 were as follows:

 

   

(In thousands)

 

Fiscal 2015

  $ 4,768  

Fiscal 2016

    3,829  

Fiscal 2017

    3,419  

Fiscal 2018

    2,700  

Fiscal 2019

    2,355  

Thereafter

    2,477  

Total minimum lease payments

  $