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

six

years. Fiscal

2017,

Fiscal

2016

and Fiscal

2015

consisted of

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

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

2017,

219,000

shares in Fiscal

2016

and

206,000

shares in Fiscal

2015.

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

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 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. At

April 29, 2017

and

April 30, 2016,

other liabilities included accruals of

$6.9

million and

$5.8

million, respectively, for estimated non-current risk retention exposures, of which

$5.4

million and

$4.8

million were covered by insurance.

Intangible Assets

Intangible assets as of

April 29, 2017

and

April 30, 2016

consisted of non-amortizable trademarks

Inventories

Inventories are stated at the lower of

first

-in,

first

-out cost or market. Inventories at

April 29, 2017

were comprised of finished goods of

$35.0

million and raw materials of

$18.4

million. Inventories at

April 30, 2016

were comprised of finished goods of

$29.1

million and raw materials of

$18.8

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

$44.9

million in Fiscal

2017,

$38.8

million in Fiscal

2016

and

$42.4

million in Fiscal

2015.

New Accounting Pronouncements

March

2016,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update

2016

09,

“Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting” (“ASU

2016

09”

). This amendment addresses several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU

2016

is effective for our fiscal year beginning

April 30, 2017.

Adoption is

not

expected to have a material impact on our financial position, results of operations or cash flows.

February 2016,

the FASB issued Accounting Standards Update

No.

2016

02,

“Leases” (“ASU

2016

02”

). ASU

2016

requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. ASU

2016

is effective for our fiscal year beginning

April 28, 2019.

We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

November 2015,

the FASB issued Accounting Standards Update

No.

2015

17,

“Balance Sheet Classification of Deferred Taxes” (“ASU

2015

17”

). ASU

2015

requires companies to classify all deferred tax liabilities and assets as noncurrent on the balance sheet. ASU

2015

is effective for our fiscal year beginning

April 30, 2017.

When implemented, current deferred tax asset will be reclassified to noncurrent in the consolidated balance sheet.

May 2014,

the FASB issued Accounting Standards Update

No.

2014

09,

“Revenue from Contracts with Customers” (“ASU

2014

09”

). ASU

2014

requires an entity to recognize revenue in an amount that reflects the consideration it expects to receive in exchange for goods or services. On

August 12, 2015,

the FASB issued ASU

2015

which deferred the effective date of ASU

2014

one

year and is effective for our fiscal year beginning

April 29, 2018.

We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements; however, adoption is

not

expected to have a material impact on our financial position, results of operations or cash flows.

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

years for buildings and improvements and

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.

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

$50.0

million in Fiscal

2017,

$44.6

million in Fiscal

2016

and

$44.4

million in Fiscal

2015.

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

Trade Receivables

We record trade receivables at net realizable value, which includes an estimated 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 2017			Fiscal 2016			Fiscal 2015
Balance at beginning of year	$	484		$	330		$	399
Net charge to expense		74			232			117
Net charge-off		(90	)		(78	)		(186	)
Balance at end of year	$	468		$	484		$	330

As of

April 29, 2017

and

April 30, 2016,

we did

not

have any customer that comprised more than

10%

of trade receivables.

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.