10-K 1 fizz20150430_10k.htm FORM 10-K

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 2, 2015

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 Global Select Market

 

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 $25.12 on October 31, 2014 was approximately $288.1 million.

 

The number of shares of Registrant’s common stock outstanding as of July 10, 2015 was 46,398,035.

 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for the 2015 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 11

ITEM 2.

Properties 11

ITEM 3.

Legal Proceedings 11

ITEM 4.

Mine Safety Disclosures 11
     

PART II

   

ITEM 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 12

ITEM 6.

Selected Financial Data 14

ITEM 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations 15

ITEM 7A.

Quantitative and Qualitative Disclosure About Market Risk 20

ITEM 8.

Financial Statements and Supplementary Data 21

ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 40

ITEM 9A.

Controls and Procedures 40

ITEM 9B.

Other Information 40
     

PART III

   

ITEM 10.

Directors, Executive Officers and Corporate Governance 41

ITEM 11.

Executive Compensation 42

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 42

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence 42

ITEM 14.

Principal Accounting Fees and Services 42
     

PART IV

   

ITEM 15.

Exhibits, Financial Statement Schedules 42

SIGNATURES

  45

 

 
1

 

 

PART I

 

ITEM 1.     BUSINESS

 

 

GENERAL

 

Currently celebrating its 30th anniversary, 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, and Europe. 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 sparkling waters, energy drinks and shots, juices, and enhanced beverages, and (ii) Carbonated Soft Drinks in a variety of flavors including regular, sugar-free 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.

 

 

 
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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 points of differentiation 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 49% 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 55% of soft drink sales and are outpacing colas. Our flavor development spans more than 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:

 

Sparkling Waters

Spring Water

Enhanced Water

 

 
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Energy Drinks and Shots

Functional Beverages and Sports Drinks

Juice and Juice Drinks

Teas and Lemonades

Carbonated Soda: Sugar Free, Regular, and Reduced Calorie

 

 

Power+ Brands –

 

LaCroix

100% all natural LaCroix® Sparkling Water is setting the pace in the Sparkling Water category that is fast becoming the alternative to traditional carbonated soda. With zero calories, zero sweeteners and zero sodium, the innocence of LaCroix has the support of major national chains and is the top-selling domestic Sparkling Water packaged in cans.

 

LaCroix’s dynamic ‘theme’ LaCroix Cúrate™ (cure yourself) celebrates French sophistication with Spanish zest with three bold flavors: Piña Fraíse (pineapple strawberry), Cerise Limon (cherry lime) and Pomme Baya (apple berry) naturally refresh 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.

 

NiCola™ by LaCroix, a new innovative sparkling water with the essence and flavor of cola, is ‘innocent’ of calories, sodium, sweetener or any ingredient that the health-conscious consumer avoids. Since its initial Chicago launch in October 2014, NiCola has received positive response from cola and diet cola drinkers looking to ‘crossover’ to a beverage that complements a healthier lifestyle.

 

 

 
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Additional LaCroix themes are in development and feature 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.

 

Everfresh

Everfresh® 100% juice and juice drinks are available in more than 35 flavors, from such classics as Orange, Cranberry and flavored lemonades to exotics that include Premium Papaya 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 unique theme from Everfresh, is positioned as a stand-alone brand for display in the produce section of supermarkets. Everfresh Premier Varietals 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 Pink Lady. Premier Varietals are packaged in award-winning 12 oz. glass bottles with decorative tamper-evident neck seals.

 

 

Carbonated Soft Drinks –

 

More than 125 years old and distributed nationally, Shasta® is recognized as 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. Honoring its origin as a sparkling water company, Shasta will soon introduce a new theme featuring Shasta’s classic flavors in an unsweetened, zero-calorie, refreshing sparkling water concept.

 

 

 
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More than 100 years old, Faygo® products are primarily distributed east of the Mississippi River and include numerous unique flavors including RedPop®, Moon Mist®, and Rock’n’Rye®. 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 all 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.

 

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.

 

 

 
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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.

 

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 potassium. 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.

 

 

 
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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.

 

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.

 

 

 
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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 2, 2015, 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.

 

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.

 

 

 
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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, water 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.

 

We are dependent on key personnel. Our performance significantly depends upon the continued contributions of our executive officers and key employees, both individually and as a group, and our ability to retain and motivate them. Our officers and key personnel have many years of experience with us and in our industry and it may be difficult to replace them. If we lose key personnel or are unable to recruit qualified personnel, our operations and ability to manage our business may be adversely affected.

 

 

 
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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 and claims 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.

 

 

 
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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 2, 2015

   

May 3, 2014

 
   

High

   

Low

   

High

   

Low

 

First Quarter

  $ 19.97     $ 15.42     $ 18.66     $ 14.48  

Second Quarter

  $ 25.50     $ 17.58     $ 18.96     $ 15.63  

Third Quarter

  $ 27.32     $ 21.00     $ 21.71     $ 18.06  

Fourth Quarter

  $ 25.00     $ 21.00     $ 22.26     $ 18.58  

 

At July 6, 2015, there were approximately 8,000 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.

 

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 2, 2015, 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 since 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. On May 1, 2015, the Company and the holders of the Series D Preferred agreed to extend the 2.5% annual dividend rate on the outstanding Series D Preferred through April 30, 2016.

 

On August 1, 2014, the Company redeemed 120,000 shares of Series D Preferred, representing 50% of the amount outstanding, for an aggregate price of $6 million plus accrued dividends.

 

 
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Performance Graph

 

The following graph shows a comparison of the five-year cumulative returns of an investment of $100 cash on May 1, 2010, 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 1, 2010 provided a compounded annual return of approximately 21.5% as of May 2, 2015.

 

 

   

5/1/10

   

4/30/11

   

4/28/12

   

4/27/13

   

5/3/14

   

5/2/15

 

National Beverage Corp.

  $ 100.00     $ 140.51     $ 148.18     $ 172.25     $ 227.11     $ 265.06  

NASDAQ Composite

    100.00       117.84       127.17       137.74       175.48       215.51  

Peer Group

    100.00       116.43       95.35       128.54       125.48       155.57  

 

 
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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 2,

   

May 3,

   

April 27,

   

April 28,

   

April 30,

 
   

2015

      2014 (3)       2013       2012       2011  

SUMMARY OF OPERATIONS:

                                       

Net sales

  $ 645,825     $ 641,135     $ 662,007     $ 628,886     $ 600,193  

Cost of sales

    426,685       423,480       444,757       415,629       381,539  

Gross profit

    219,140       217,655       217,250       213,257       218,654  

Selling, general and administrative expenses

    145,157       153,220       146,223       146,169       155,885  

Interest expense

    371       660       403       107       99  

Other (income) expense - net

    (1,101 )     666       173       85       20  

Income before income taxes

    74,713       63,109       70,451       66,896       62,650  

Provision for income taxes

    25,402       19,474       23,531       22,903       21,896  

Net income

  $ 49,311     $ 43,635     $ 46,920     $ 43,993     $ 40,754  
                                         

PER SHARE DATA:

                                       

Basic earnings per common share (1)

  $ 1.06     $ .93     $ 1.01     $ .95     $ .88  

Diluted earnings per common share (1)

    1.05       .92       1.01       .95       .88  

Closing stock price

    22.42       19.21       14.57       14.68       13.92  

Dividends paid on common stock (2)

    -       -       2.55       -       2.30  
                                         

BALANCE SHEET DATA:

                                       

Cash and equivalents (2)

  $ 52,456     $ 29,932     $ 18,267     $ 35,626     $ 7,372  

Working capital (2)

    101,478       78,618       67,504       69,818       30,930  

Property, plant and equipment - net

    60,182       59,494       57,307       56,729       55,337  

Total assets (2)

    247,750       222,841       208,642       222,988       182,810  

Long-term debt

    10,000       30,000       50,000       -       -  

Deferred income tax liability

    15,245       13,873       14,327       14,214       14,548  

Shareholders' equity (2)

    147,782       106,201       70,316       121,636       80,336  

Dividends paid on common stock (2)

    -       -       118,139       -       106,314  

 

(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 and $106.3 million ($2.30 per share) on February 14, 2011.

(3)

Fiscal 2014 consisted of 53 weeks.

 

 
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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 and Europe. 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 sparkling waters, energy drinks and shots, juices, and enhanced beverages, and (ii) Carbonated Soft Drinks in a variety of flavors including regular, sugar-free 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 market segments. Our portfolio of Power+ Brands is targeted to consumers seeking healthier and functional alternatives to complement their active lifestyles, and includes LaCroix®, LaCroix Cúrate™ and LaCroix NiCola™ 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 more than 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.

 

 

 
15

 

   

RESULTS OF OPERATIONS

 

Net Sales

Net sales for the fiscal year ended May 2, 2015 (“Fiscal 2015”) increased .7% to $645.8 million as compared to $641.1 million for the fiscal year ended May 3, 2014 (“Fiscal 2014”). The higher sales resulted from a 1.1% increase in case volume partially offset by a .4% decline in average selling price per unit. The increase in case volume reflects a 2.9% increase in branded volume, including a 15.3% case volume growth for our Power+ Brands, partially offset by a decline in Allied Brands. The decline in selling price per unit is related to changes in product mix.

 

Net sales for the fiscal year ended May 3, 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.

 

Gross Profit

Gross profit approximated 33.9% of net sales for Fiscal 2015 and Fiscal 2014. Cost of sales per unit declined .3% primarily due to product mix changes.

 

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.

 

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 $145.2 million or 22.5% of net sales for Fiscal 2015 compared to $153.2 million or 23.9% of net sales for Fiscal 2014. Fiscal 2015 expenses reflect lower selling and marketing costs.

 

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.

 

Interest Expense and Other (Income) 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 repayments on borrowings, interest expense decreased to $371,000 in Fiscal 2015 from $660,000 in Fiscal 2014 and $403,000 in Fiscal 2013. Other expense is net of interest income of $30,000 for Fiscal 2015, $15,000 for Fiscal 2014 and $37,000 for Fiscal 2013. The change in interest income for Fiscal 2015, Fiscal 2014 and Fiscal 2013 is due to changes in average invested balances. Other income for Fiscal 2015 includes a $1.3 million gain on sale of property.

 

 
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Income Taxes

Our effective tax rate was approximately 34% for Fiscal 2015, 30.9% for Fiscal 2014 and 33.4% for Fiscal 2013. 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. 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 2, 2015, we maintained $100 million unsecured revolving credit facilities, of which $10 million of borrowings were outstanding and $2.2 million were reserved 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 $11.6 million for Fiscal 2015. There were no material capital expenditure commitments at May 2, 2015.

 

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. On August 1, 2014, The Company redeemed 120,000 shares of Series D Preferred, representing 50% of the amount outstanding, for an aggregate price of $6 million. 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.

 

Pursuant to a management agreement, we incurred a fee to Corporate Management Advisors, Inc. (“CMA”) of $6.5 million for Fiscal 2015, $6.4 million for Fiscal 2014 and $6.6 million for Fiscal 2013. At May 2, 2015, management fees payable to CMA were $1.6 million. See Note 5 of Notes to Consolidated Financial Statements.

 

Cash Flows

During Fiscal 2015, $58.0 million was provided by operating activities, $9.7 million was used in investing activities and $25.8 million was used in financing activities. Cash provided by operating activities increased $5.6 million primarily due to increased earnings. Cash used in investing activities decreased $2.3 million reflecting lower capital expenditures and proceeds of $1.9 from the sale of property. Cash used in financing activities was $25.8 million which included a $6 million redemption of preferred stock and $20 million in principal repayments under credit facilities.

 

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 $2.4 million reflecting higher capital expenditures in Fiscal 2014. Cash used in financing activities was $28.7 million reflecting an $8 million redemption of preferred stock and $20 million in principal repayments under credit facilities.

 

 

 
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Financial Position

During Fiscal 2015, our working capital increased $22.9 million to $101.5 million primarily due to cash generated from operating activities. Trade receivables increased $1.7 million due to higher sales activity and days sales outstanding improved from 34.7 days to 33.1 days. Inventories decreased $1.0 million and annual inventory turns improved from 9.4 to 10.2 times. At May 2, 2015, the current ratio was 2.5 to 1 as compared to 2.2 to 1 at May 3, 2014.

 

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 and 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.

 

CONTRACTUAL OBLIGATIONS

 

Contractual obligations at May 2, 2015 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

  $ 10,000     $ -     $ 10,000     $ -     $ -  

Operating leases

    22,194       5,399       8,409       5,980       2,406  

Purchase commitments

    53,990       53,990       -       -       -  

Total

  $ 86,184     $ 59,389     $ 18,409     $ 5,980     $ 2,406  

 

As of May 2, 2015, we guaranteed the residual value of certain leased equipment in the amount of $4.9 million. If the proceeds from the sale of such equipment are less than the balance required by the lease when the lease terminates on August 1, 2017, 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 2015, $2.7 million for Fiscal 2014 and $2.6 million for Fiscal 2013. 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 specific periods and therefore have not been included 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 March 2016 and are expected to be renewed.

 

 

 
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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.

 

 

 
19

 

 

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 ,wet weather conditions or droughts 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 2, 2015, the Company had $10 million in borrowings outstanding under its credit facilities with a weighted average interest rate of 1.0%. 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 2015 would have changed by approximately $200,000. 

 

 
20

 

     

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

   

May 2,

   

May 3,

 
   

2015

   

2014

 
Assets                
Current assets:                

Cash and equivalents

  $ 52,456     $ 29,932  

Trade receivables - net

    59,951       58,205  

Inventories

    42,924       43,914  

Deferred income taxes - net

    4,348       2,685  

Prepaid and other assets

    8,050       8,405  

Total current assets

    167,729       143,141  
Property, plant and equipment - net     60,182       59,494  
Goodwill     13,145       13,145  
Intangible assets     1,615       1,615  
Other assets     5,079       5,446  
Total assets   $ 247,750     $ 222,841  
                 
Liabilities and Shareholders' Equity                
Current liabilities:                

Accounts payable

  $ 44,896     $ 45,606  

Accrued liabilities

    21,257       18,873  

Income taxes payable

    98       44  

Total current liabilities

    66,251       64,523  
Long-term debt     10,000       30,000  
Deferred income taxes - net     15,245       13,873  
Other liabilities     8,472       8,244  
Shareholders' equity:                
Preferred stock, $1 par value - 1,000,000 shares authorized                

Series C - 150,000 shares issued

    150       150  

Series D - 120,000 shares (2015) and 240,000 shares (2014) issued, aggregate liquidation preference of $6,000 (2015) and $12,000 (2014)

    120       240  

Common stock, $.01 par value - 75,000,000 shares authorized; 50,418,019 shares (2015) and 50,367,799 shares (2014) issued

    504       504  
Additional paid-in capital     37,759       42,775  
Retained earnings     129,773       80,737  
Accumulated other comprehensive loss     (2,524 )     (205 )
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     147,782       106,201  
Total liabilities and shareholders' equity   $ 247,750     $ 222,841  

 

See accompanying Notes to Consolidated Financial Statements.

  

 

 
21

 

   

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

 

   

Fiscal Year Ended

 
   

May 2,

   

May 3,

   

April 27,

 
   

2015

   

2014

   

2013

 
                         

Net sales

  $ 645,825     $ 641,135     $ 662,007  
                         

Cost of sales

    426,685       423,480       444,757  
                         

Gross profit

    219,140       217,655       217,250  
                         

Selling, general and administrative expenses

    145,157       153,220       146,223  
                         

Interest expense

    371       660       403  
                         

Other (income) expense - net

    (1,101 )     666       173  
                         

Income before income taxes

    74,713       63,109       70,451  
                         

Provision for income taxes

    25,402       19,474       23,531  
                         

Net income

    49,311       43,635       46,920  
                         

Less preferred dividends and accretion

    (275 )     (726 )     (153 )
                         

Earnings available to common shareholders

  $ 49,036     $ 42,909     $ 46,767  
                         

Earnings per common share:

                       

Basic

  $ 1.06     $ .93     $ 1.01  

Diluted

  $ 1.05     $ .92     $ 1.01  
                         

Weighted average common shares outstanding:

                       

Basic

    46,353       46,331       46,310  

Diluted

    46,559       46,519       46,482  

 

See accompanying Notes to Consolidated Financial Statements.

  

 

 
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NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

 

   

Fiscal Year Ended

 
   

May 2,

   

May 3,

   

April 27,

 
   

2015

   

2014

   

2013

 
                         

Net income

  $ 49,311     $ 43,635     $ 46,920  
                         

Other comprehensive income (loss), net of tax:

                       
                         
Cash flow hedges     (2,350 )     610       (295 )
                         
Other     31       149       (27 )
                         
Total     (2,319 )     759       (322 )
                         

Comprehensive income

  $ 46,992     $ 44,394     $ 46,598  

 

See accompanying Notes to Consolidated Financial Statements.

  

 

 
23

 

   

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)

 

    Fiscal Year Ended  
    May 2, 2015     May 3, 2014     April 27, 2013  
   

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

    240       240       400       400       -       -  

Series D preferred (redeemed) issued

    (120 )     (120 )     (160 )     (160 )     400       400  

End of year

    120       120       240       240       400       400  

Common Stock

                                               

Beginning of year

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

Stock options exercised

    50       -       6       -       40       1  

End of year

    50,418       504       50,368       504       50,362       504  

Additional Paid-In Capital

                                               

Beginning of year

            42,775               50,398               30,425  

Series D preferred (redeemed) issued

            (5,791 )             (7,722 )             19,304  

Stock options exercised

            228               47               238  

Stock-based compensation

            307               95               230  

Other

            240               (43 )             201  

End of year

            37,759               42,775               50,398  

Retained Earnings

                                               

Beginning of year

            80,737               37,828               109,200  

Net income

            49,311               43,635               46,920  

Common stock dividends

            -               -               (118,139 )

Preferred stock dividends & accretion

            (275 )             (726 )             (153 )

End of year

            129,773               80,737               37,828  

Accumulated Other Comprehensive Loss

                                               

Beginning of year

            (205 )             (964 )             (642 )

Cash flow hedges

            (2,350 )             610               (295 )

Other

            31               149               (27 )

End of year

            (2,524 )             (205 )             (964 )

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

          $ 147,782             $ 106,201             $ 70,316  

 

See accompanying Notes to Consolidated Financial Statements.

  

 

 
24

 

  

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

   

Fiscal Year Ended

 
   

May 2,

   

May 3,

   

April 27,

 
   

2015

   

2014

   

2013

 

Operating Activities:

                       

Net income

  $ 49,311     $ 43,635     $ 46,920  

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

                       
Depreciation and amortization     11,580       11,708       11,002  
Deferred income tax provision     1,076       79       172  
(Gain) loss on disposal of property, net     (1,188 )     51       63  
Stock-based compensation     307       95       230  
Changes in assets and liabilities:                        
Trade receivables     (1,746 )     5,864       (2,478 )
Inventories     990       (4,680 )     1,628  
Prepaid and other assets     (605 )     (2,548 )     (2,466 )
Accounts payable     (710 )     1,345       (10,614 )
Accrued and other liabilities     (995 )     (3,167 )     (4,193 )

Net cash provided by operating activities

    58,020       52,382       40,264  
                         

Investing Activities:

                       

Additions to property, plant and equipment

    (11,630 )     (12,124 )     (9,693 )

Proceeds from sale of property, plant and equipment

    1,905       62       77  

Net cash used in investing activities

    (9,725 )     (12,062 )     (9,616 )
                         

Financing Activities:

                       

Dividends paid on common stock

    -       -       (118,139 )

Dividends paid on preferred stock

    (239 )     (659 )     (12 )

(Repayments) borrowings under credit facilities, net

    (20,000 )     (20,000 )     50,000  

(Redemption) issuance of preferred stock

    (6,000 )     (8,000 )     19,704  

Proceeds from stock options exercised

    228       47       239  

Other

    240       (43 )     201  

Net cash used in financing activities

    (25,771 )     (28,655 )     (48,007 )
                         

Net Increase (Decrease) in Cash and Equivalents

    22,524       11,665       (17,359 )
                         

Cash and Equivalents - Beginning of Year

    29,932       18,267       35,626  
                         

Cash and Equivalents - End of Year

  $ 52,456     $ 29,932     $ 18,267  
                         

Other Cash Flow Information:

                       

Interest paid

  $ 380     $ 723     $ 341  

Income taxes paid

  $ 24,745     $ 23,079     $ 24,327  

 

See accompanying Notes to Consolidated Financial Statements.

  

 

 
25

 

  

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 2015 and Fiscal 2013 consisted of 52 weeks while Fiscal 2014 consisted of 53 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 206,000 shares in Fiscal 2015, 188,000 shares in Fiscal 2014 and 172,000 shares in Fiscal 2013.

 

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.

 

 

 
26

 

 

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. At May 2, 2015 and May 3, 2014, other liabilities included accruals of $5.9 million and $6.1 million, respectively, for estimated non-current risk retention exposures, of which $4.7 million and $5.1 million were covered by insurance.

 

Intangible Assets

Intangible assets as of May 2, 2015 and May 3, 2014 consisted of non-amortizable trademarks.

 

Inventories

Inventories are stated at the lower of first-in, first-out cost or market. Inventories at May 2, 2015 were comprised of finished goods of $24.9 million and raw materials of $18.0 million. Inventories at May 3, 2014 were comprised of finished goods of $27.2 million and raw materials of $16.7 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 $42.4 million in Fiscal 2015, $50.2 million in Fiscal 2014 and $44.6 million in Fiscal 2013.

 

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.

 

 

 
27

 

 

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 2015 and Fiscal 2014 and $44.2 million in Fiscal 2013. 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.

 

 

 
28

 

 

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 2015

   

Fiscal 2014

   

Fiscal 2013

 

Balance at beginning of year

  $ 399     $ 454     $ 399  

Net charge to expense

    117       95       96  

Net charge-off

    (186 )     (150 )     (41 )

Balance at end of year

  $ 330     $ 399     $ 454  

 

As of May 2, 2015 and May 3, 2014, 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.

 

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 2, 2015 and May 3, 2014 consisted of the following:

 

   

(In thousands)

 
   

2015

   

2014

 

Land

  $ 9,500     $ 9,779  

Buildings and improvements

    50,405       51,494  

Machinery and equipment

    156,702       148,699  

Total

    216,607       209,972  

Less accumulated depreciation

    (156,425 )     (150,478 )

Property, plant and equipment – net

  $ 60,182     $ 59,494  

 

Depreciation expense was $10.2 million for Fiscal 2015, $9.8 million for Fiscal 2014 and $9.0 million for Fiscal 2013.

 

3.

ACCRUED LIABILITIES

 

Accrued liabilities as of May 2, 2015 and May 3, 2014 consisted of the following:

 

   

(In thousands)

 
   

2015

   

2014

 

Accrued compensation

  $ 7,473     $ 7,049  

Accrued promotions

    3,801       3,812  

Accrued insurance

    1,651       2,238  

Other

    8,332       5,774  

Total

  $ 21,257     $ 18,873  

 

 

 
29

 

  

4.

DEBT

 

At May 2, 2015, a subsidiary of the Company maintained unsecured revolving credit facilities with banks aggregating $100 million (the “Credit Facilities”). The Credit Facilities expire from October 10, 2017 to June 18, 2018 and current borrowings bear interest at .9% above one-month LIBOR (1.0% at May 2, 2015). Borrowings outstanding under the Credit Facilities were $10 million at May 2, 2015 and $30 million at May 3, 2014. At May 2, 2015, $2.2 million of the Credit Facilities were reserved for standby letters of credit and $87.8 million were available for borrowings.

 

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 2, 2015, 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.

 

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 2, 2015 and May 3, 2014 were $37,000 and $90,000, 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.

 

On August 1, 2014, the Company redeemed 120,000 shares of Series D Preferred, representing 50% of the amount outstanding, for an aggregate price of $6 million plus accrued dividends. In connection therewith, the Company accreted and charged to retained earnings $89,000 of original issuance costs, which was deducted from income available to common shareholders for earnings per share calculation.

 

On May 1, 2015, the Company and the holders of the Series D Preferred agreed to extend the 2.5% annual dividend rate on the outstanding Series D Preferred through April 30, 2016. 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.

 

 

 
30

 

 

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 2, 2015, 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 $6.5 million for Fiscal 2015, $6.4 million for Fiscal 2014 and $6.6 million for Fiscal 2013. Included in accounts payable were amounts due CMA of $1.6 million at May 2, 2015 and at May 3, 2014.

 

 

 
31

 

 

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 2015, Fiscal 2014 and Fiscal 2013:

                              

   

(In thousands)

 
   

Fiscal

   

Fiscal

   

Fiscal

 
   

2015

   

2014

   

2013

 

Recognized in AOCI-

                       

Loss before income taxes

  $ (3,488 )   $ (1,059 )   $ (2,521 )

Less income tax benefit

    (1,294 )     (393 )     (935 )

Net

    (2,194 )     (666 )     (1,586 )

Reclassified from AOCI to cost of sales-

                       

Gain (loss) before income taxes

    248       (2,028 )     (2,060 )

Less income tax provision (benefit)

    92       (752 )     (769 )

Net

    156       (1,276 )     (1,291 )

Net change to AOCI

  $ (2,350 )   $ 610     $ (295 )

 

As of May 2, 2015, the notional amount of our outstanding aluminum swap contracts was $38.0 million and, assuming no change in the commodity prices, $3.0 million of unrealized loss before tax will be reclassified from AOCI and recognized in earnings over the next 12 months. See Note 1.

 

As of May 2, 2015, the fair value of the derivative liability and derivative long-term liability was $3.0 million and $751,000, which was included in accrued liabilities and other liabilities, respectively. As of May 3, 2014, the fair value of the derivative asset was $5,000, which was included in prepaid and other assets. 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.

 

7.

INCOME TAXES

 

The provision for income taxes consisted of the following:

 

   

(In thousands)

 
   

Fiscal

   

Fiscal

   

Fiscal

 
   

2015

   

2014

   

2013

 

Current

  $ 24,326     $ 19,395     $ 23,359  

Deferred

    1,076       79       172  

Total

  $ 25,402     $ 19,474     $ 23,531  

 

 

 
32

 

 

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 2, 2015 and May 3, 2014 consisted of the following:

 

   

(In thousands)

 
   

2015

   

2014

 

Deferred tax assets:

               

Accrued expenses and other

  $ 5,281     $ 4,126  

Inventory and amortizable assets

    417       400  

Total deferred tax assets

    5,698       4,526  

Deferred tax liabilities:

               

Property

    16,497       15,616  

Intangibles and other

    98       98  

Total deferred tax liabilities

    16,595       15,714  

Net deferred tax liabilities

  $ 10,897     $ 11,188  

Current deferred tax assets – net

  $ 4,348     $ 2,685  

Noncurrent deferred tax liabilities – net

  $ 15,245     $ 13,873  

 

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

 

   

Fiscal

   

Fiscal

   

Fiscal

 
   

2015

   

2014

   

2013

 

Statutory federal income tax rate

    35.0 %     35.0 %     35.0 %

State income taxes, net of federal benefit

    2.3       2.3       1.6  

Manufacturing deduction benefit

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

Other differences

    (.1 )     (.1 )     .1  

Effective income tax rate

    34.0 %     30.9 %     33.4 %

 

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.

 

As of May 2, 2015, the gross amount of unrecognized tax benefits was $1.8 million and $191,000 was recognized as a tax benefit in Fiscal 2015. If we were to prevail on all uncertain tax positions, the net effect would be to reduce our tax expense by approximately $1.2 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

 
   

2015

   

2014

   

2013

 

Beginning balance

  $ 2,123     $ 4,349     $ 4,548  

Increases due to current period tax positions

    122       268       415  

Decreases due to lapse of statute of limitations and audit resolutions

    (444 )     (2,494 )*     (614 )

Ending balance

  $ 1,801     $ 2,123     $ 4,349  

_______________________________

* 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.

 

 

 
33

 

 

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of May 2, 2015, unrecognized tax benefits included accrued interest of $269,000, of which approximately $82,000 was recognized as a tax benefit in Fiscal 2015.

 

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 2010.

 

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 shareholders.

 

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.

 

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.

 

 

 
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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 276,800 shares in Fiscal 2015, 5,245 shares in Fiscal 2014 and 2,000 shares in Fiscal 2013. The weighted average Black-Scholes fair value assumptions for stock options granted are as follows: weighted average expected life of 7.4 years for Fiscal 2015, 8 years for Fiscal 2014 and 8 years for Fiscal 2013; weighted average expected volatility of 32.8% for Fiscal 2015, 35.8% for Fiscal 2014 and 38.1% for Fiscal 2013; weighted average risk free interest rates of 2.2% for Fiscal 2015, 1.9% for Fiscal 2014 and 1.6% for Fiscal 2013; and expected dividend yield of 4.6% for Fiscal 2015, 4.6% for Fiscal 2014 and 5.0% for Fiscal 2013.  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 and ranged from 0% to 16% for Fiscal 2015, Fiscal 2014 and Fiscal 2013.

 

The following is a summary of stock option activity for Fiscal 2015:

 

   

Number of Shares

   

Price (a)

 

Options outstanding, beginning of year

    404,355     $ 6.67  

Granted

    276,800       17.84  

Exercised

    (50,220 )     4.55  

Cancelled

    (17,800 )     16.26  

Options outstanding, end of year

    613,135       11.23  

Options exercisable, end of year

    265,437       5.93  

_______________________________

(a) Weighted average exercise price.

 

Stock-based compensation expense was $307,000 for Fiscal 2015, $95,000 for Fiscal 2014 and $230,000 for Fiscal 2013. The total fair value of shares vested was $371,000 for Fiscal 2015, $90,000 for Fiscal 2014 and $453,000 for Fiscal 2013. The total intrinsic value for stock options exercised was $917,000 for Fiscal 2015, $76,000 for Fiscal 2014 and $406,000 for Fiscal 2013. Net cash proceeds from the exercise of stock options were $228,000 for Fiscal 2015, $47,000 for Fiscal 2014 and $239,000 for Fiscal 2013. Stock based income tax benefits aggregated $240,000 for Fiscal 2015, $17,000 for Fiscal 2014 and $201,000 for Fiscal 2013. The weighted average fair value for stock options granted was $8.30 for Fiscal 2015, $12.50 for Fiscal 2014 and $8.76 for Fiscal 2013.

 

As of May 2, 2015, unrecognized compensation expense related to the unvested portion of our stock options was $872,000, which is expected to be recognized over a weighted average period of 5.7 years. The weighted average remaining contractual term and the aggregate intrinsic value for options outstanding as of May 2, 2015 was 4.3 years and $6.9 million, respectively. The weighted average remaining contractual term and the aggregate intrinsic value for options exercisable as of May 2, 2015 was 2.7 years and $4.4 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 2, 2015, no shares have been issued under the plan.

 

 

 
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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 2015, $2.7 million for Fiscal 2014 and $2.6 million for Fiscal 2013.

 

The Company participates in various multi-employer defined benefit pension plans covering certain employees whose employment is covered under collective bargaining agreements. If the Company chooses to stop participating in the multi-employer plan or if other employers choose to withdraw to the extent that a mass withdrawal occurs, 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”) and the zone status under the Pension Protection Act (“PPA”). The most recent PPA zone status available in Fiscal 2015 and Fiscal 2014 is for the plans’ years ending December 31, 2013 and 2012, respectively.

               

   

PPA Zone Status

       
   

Fiscal

 

Fiscal

      Surcharge

Pension Fund

 

2015

 

2014

 

FIP/RP Status

 

Imposed

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

 

Red

 

Red

 

Implemented

 

No

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, 2013 and December 31, 2012, the Company was not listed in the Form 5500 Annual Returns as providing more than 5% of the total contributions for the above plans. The collective bargaining agreements expire on October 18, 2016 for the CSSS Fund and May 14, 2016 for the WCT Fund.

 

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

 

2015

   

2014

   

2013

 

CSSS Fund

  $ 1,103     $ 1,079     $ 1,051  

WCT Fund

    637       476       471  
Other multi-employer pension funds     306       295       262  

Total

  $ 2,046     $ 1,850     $ 1,784  

 

The trustees of one of the multi-employer pension plans that is not considered individually significant have notified a subsidiary of the Company that a mass withdrawal has occurred and have provided the subsidiary with a notice of withdrawal liability. The Company disputes various aspects of the withdrawal liability calculations and intends to challenge them in accordance with applicable Federal laws. The Company anticipates that the amount of its liability, if any, will not have a material effect on its financial position or results of operations.

 

 

 
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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 $8.2 million for Fiscal 2015, $7.9 million for Fiscal 2014 and $8.9 million for Fiscal 2013.

 

Our minimum lease payments under non-cancelable operating leases as of May 2, 2015 were as follows:

 

   

(In thousands)

 

Fiscal 2016

  $ 5,399  

Fiscal 2017

    4,620  

Fiscal 2018

    3,789  

Fiscal 2019

    3,341  

Fiscal 2020

    2,639  

Thereafter

    2,406  

Total minimum lease payments

  $ 22,194  

 

As of May 2, 2015, we guaranteed the residual value of certain leased equipment in the amount of $4.9 million. If the proceeds from the sale of such equipment are less than the balance required by the lease when the lease terminates on August 1, 2017, 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 enter into various agreements with suppliers for the purchase of raw materials, the terms of which may include variable or fixed pricing and minimum purchase quantities. As of May 2, 2015, we had purchase commitments for raw materials of $54.0 million for Fiscal 2016.

 

From time to time, we are a party to various litigation matters and claims 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.

 

 

 
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11.

QUARTERLY FINANCIAL DATA (UNAUDITED)

 

   

(In thousands, except per share amounts)

 
   

First Quarter

   

Second Quarter

   

Third Quarter

   

Fourth Quarter

 

Fiscal 2015

                               

Net sales

  $ 174,637     $ 163,575     $ 143,021     $ 164,592  

Gross profit

    59,842       57,732       46,090       55,476  

Net income

    15,363       12,958       8,808       12,182  

Earnings per common share – basic

  $ .33     $ .28     $ .19     $ .26  

Earnings per common share – diluted

  $ .33     $ .28     $ .19