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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended January 28, 201727, 2018

 

Commission file number 1-14170

 

NATIONAL BEVERAGE CORP.

(Exact name of registrant as specified in its charter)

Delaware	Delaware		59-2605822
	(State of incorporation)		(I.R.S. Employer Identification No.)

 

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

(Address of principal executive offices including zip code)

 

(954) 581-0922

(Registrant’sRegistrant’s telephone number including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (✔(✔) 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes (✔) No (  )

 

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (  )

 

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

 

The number of shares of registrant’sregistrant’s common stock outstanding as of February 24, 2017March 2, 2018 was 46,568,550.46,608,690.

 

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Table of Contents

 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share data)

See accompanying Notes to Consolidated Financial Statements.

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except per share amounts)

See accompanying Notes to Consolidated Financial Statements.

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)

See accompanying Notes to Consolidated Financial Statements.

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

(In thousands)

See accompanying Notes to Consolidated Financial Statements.

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

See accompanying Notes to Consolidated Financial Statements.

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

National Beverage Corp. develops, produces, markets and sells a distinctivediverse portfolio of Sparkling Waters, Juices, Energy Drinks and Carbonated Soft Drinksflavored 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.

Depreciation expense was $2.7$2.7 million and $8.1$8.8 million for the three and nine months ended January 27, 2018, respectively, and $2.7 million and $8.1 million for the three and nine months ended January 28, 2017, respectively, and $2.5 million and $7.8 million for the three and nine months ended January 30, 2016, respectively.

As of January 28, 2017, 27, 2018, the notional amount of our outstanding aluminum swap contracts was $2.4$33.6 million and, assuming no change in the commodity prices, $336,000$4.7 million of unrealized gain before tax will be reclassified from AOCI and recognized in earnings over the next twelve12 months. See Note 1.

As of January 28, 2017, 27, 2018, the fair value of the derivative asset was $336,000,$4.7 million, which was included in prepaid and other assets. At April 30, 2016, 29, 2017, the fair value of the derivative asset, derivative liability and derivative long-term liability was $2.5 million,$602,000,$848,000 and $476,000, which was included in prepaid and other assets, accrued liabilities.liabilities and other liabilities, respectively. 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.

statements.

In February 2018, the FASB issued Accounting Standards Update 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”). This update permits the impact of lower corporate income tax rates related to items classified in accumulated other comprehensive income to be reclassified directly to retained earnings. We adopted ASU 2018-02 effective for our third quarter ended January 27, 2018. We elected not to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings.

21% in subsequent fiscal years.

On December 22, 2017, the U.S. Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin 118 (“SAB 118”), which clarifies accounting for income taxes under FASB’s Accounting Standards Codification 740 in the reporting period that include the enactment date of the Tax Act. SAB 118 allows a company to report provisional estimates in the reporting period that include the enactment date if the company does not have the necessary information to fully analyze certain income tax effects of the Tax Act.

We are compelled by regulations to record a one-time adjustment to remeasure previous deferred tax liabilities by $4.3 million and adjust prior year-to-date income tax to the estimated effective tax rate for the full year resulting in a $7 million reduction in tax expense.

Accordingly, our effective tax rate for the third quarter and firstnine months of fiscal 2018 was 10.9% and 26.9%, respectively.  For the third quarter and firstnine months of fiscal 2017, the effective tax rate was 34.2%.

ITEM 2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

National Beverage Corp. proudly refreshes America with a distinctive portfolio of Sparkling Waters, Juices, Energy Drinks and Carbonated Soft Drinks. We believe that our ingenious product designs, innovative packaging and imaginative flavors, along with our corporate culture and philosophy, makes National Beverage unique in the beverage industry. The Company’s primary market focus is the United States,North America, but our products are also distributed in various other countries. 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.

National Beverage is in an ongoing transitionevolving to meet the healthy hydration demands of the American consumer.consumers. Health and wellness awareness has increased significantly, resulting in growing demand for beveragesbeverages with little or no calories and wholesome natural ingredients. Our brands emphasize distinctly-flavored beverages in attractive packaging that appeal to multiple demographic groups. The attentive, conscioushealth-conscious and discriminating consumer is ever more alert to healthywellness choices and better-for-you ingredients that align to this transition and strategic focus.

Our brands consist of (i) beverages geared to the active and health-conscious consumer (“Power+ Brands”) including sparkling waters, energy drinks, and juices, and (ii) Carbonated Soft Drinks in a variety of flavors including regular, sugar-free and reduced calorie options.Power+options. Our portfolio of Power+ Brands includeincludes LaCroix®, LaCroix Cúrate™, LaCroix NiCola™ and Shasta® sparkling waterShasta Sparkling Water® products; Rip It® energy drinks and shots; and Everfresh®, Everfresh Premier Varietals™ and Mr. Pure® 100% juice and juice-based products. Our Carbonated Soft Drinks portfolio includes Shasta® and Faygo®, iconic brands whose flavor development spans more than 125 years.

To service a diverse customer base that includes numerous national retailers, as well as thousands of smallersmaller “up-and-down-the-street” accounts, we utilize a hybrid distribution system to deliver our products primarily through the take-home, convenience and food-service channels.

Our strategy emphasizes the growth of our products by (i) developing healthierhealthier beverages in response to the global shift in consumer buying habits and tailoring the variety and types of beverages in our portfolio to satisfy the preferences of a diverse mix of ‘crossover consumers’ – a growing group desiring a change to better-for-you beverages; (ii) emphasizing unique flavor development and variety throughout our product lines and brands; (iii) producing and developing products of the highest quality that also appeal to the value expectations of the consumer; (iv) leveraging our efficient production and distribution systems, and our cost-effective social media platforms and regionally focused marketing programs to profitably deliver high-quality products at optimal consumer price-points; and (v)(iv) responding faster and more creatively to consumer trends than competitors who are burdened by production and distribution complexity as well as legacy costs.

Sales have beenOur 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. Beverage sales are seasonal with the highest volume typically realized during the summer and warmer 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.

RESULTS OF OPERATIONS

Three Months EndedJanuary 27, 2018 (thirdquarter of fiscal 2018) compared to

Three Months EndedJanuary 28, 2017 (third quarter offiscal 2017) compared toThree Months EndedJanuary 30, 2016 (third quarter offiscal 20162017)

Net sales for the third quarter of fiscal 20172018 increased 20.3%16.9% to $194.6$227.5 million compared to $161.7$194.6 million for the third quarter of fiscal 2016.2017. The higherincrease in sales resulted primarily from a 17.5%14.9% increase in case volume whichand, to a lesser extent, a higher average selling price. The volume increase includes 48.6%38.0% growth of our Power+ Brands, due to increased velocity and distribution of sparkling waters. The increase was partially offset by a decline in Carbonated Soft Drinks. The averageDrinks primarily due to the conclusion of the Company’s retail brands business. Average selling price per case increased 2.3% primarily2.0% due to changes in product mix.

Gross profit for the third quarter of fiscal 20172018 increased 44.5%20.1% to $75.9$91.2 million compared to $52.6$75.9 million for the third quarter of fiscal 2016.2017.  The increase in gross profit is primarily due to higher salesincreased volume and a declinegrowth in average cost per case of 7.2%. The decrease in costhigher-margin Power+ Brands. Cost of sales per case was due to product mix changes and lower raw material costs.flat. As a result, gross margin improved to 39.0%40.1% compared to 32.5%39.0% for the third quarter of fiscal 2016.2017. 

Selling, general and administrative expenses were $39.2 million or 20.1% of net sales for the third quarter of fiscal 2017 compared2018 increased $6.3 million to $35.4$45.4 million or 21.9% of net salesfrom $39.2 million for the third quarter of fiscal 2016.2017.  The $3.7 million increase in expenses was primarily due to higher distribution, selling and marketing costs.costs, related to volume growth.  As a percent of net sales, selling, general and administrative expenses were relatively flat.

Other income includes interest income of $402,000 for the third quarter of fiscal 2018 and $191,000 for the third quarter of fiscal 2017 and $25,000 for the third quarter of fiscal 2016.2017. The increase in interest income is due to higher average invested balances and investment yields.return on investments. 

The Company’sCompany’s effective income tax rate, based upon estimated annual income tax rates, was 10.9% for the third quarter of fiscal 2018 and 34.2% for the third quarter of fiscal 2017 and third quarter of fiscal 2016.2017.  The difference betweenreduction in the effective tax rate as compared to the same period in the prior year was due primarily to the Tax Cuts and Jobs Act (the “Tax Act”) enacted into law on December 22, 2017. The Tax Act makes changes to the U.S. tax code, including reducing the U.S. federal tax rate from 35% to 21% effective January 1, 2018.  The phasing in of the lower corporate income tax rate results in a blended federal statutory rate of 30.4% for our fiscal 2018, compared with the previous 35% rate.  The federal statutory tax rate will be reduced to 21% in subsequent fiscal years. Additionally, our effective rate in both periods varies from the federal statutory rate of 35% was primarily due to the effect of state income taxes, and the domestic manufacturing deduction.deduction and the adoption of ASU 2016-09 related to share-based payment awards.  See Note 6 of Notes to Unaudited Consolidated Financial Statements.

We are compelled by regulations to record a one-time adjustment to remeasure previous deferred tax liabilities by $4.3 million and adjust prior year-to-date income tax to the estimated effective tax rate for the full year resulting in a $7 million reduction in tax expense.

Nine Months EndedJanuary 27, 2018 (first nine months of fiscal 2018) compared to

Nine Months Ended January 28, 2017 (first nine months offiscal 2017) compared toNine Months EndedJanuary 30, 2016 (first nine months offiscal 2016)

Net sales for the first nine months of fiscal 20172018 increased 16.9%19.0% to $731.4 million compared to $614.9 million compared to $525.8 million for the first nine months of fiscal 2016.2017. The higherincrease in sales resulted primarily from a 16.8%15.8% increase in case volume whichand, to a lesser extent, a higher average selling price. The volume increase includes 44.7%38.9% growth of our Power+ Brands, due to increased velocity and distribution of sparkling waters. The increase was partially offset by a decline in Carbonated Soft Drinks. The averageAverage selling price per case increased 2.2% primarily2.0% due to changes in product mix.

Gross profit for the first nine months of fiscal 20172018 increased 36.4%21.5% to $240.1$291.8 million compared to $176.1$240.1 million for the first nine months of fiscal 2016.2017. The increase in gross profit is primarily due to higher salesincreased volume and a declinegrowth in average cost per case of 5.6%. The decrease in costhigher-margin Power+ Brands. Cost of sales per case was due to product mix changes and lower raw material costs.flat. As a result, gross margin improved to 39.1%39.9% compared to 33.5%39.1% for the first nine months of fiscal 2016.2017.

Selling, general &and administrative expenses were $122.0 million or 19.8% of net sales for the first nine months of fiscal 2017 compared2018 increased $15.5 million to $109.5$137.6 million or 20.8% of net salesfrom $122.0 million for the first nine months of fiscal 2016.2017. The $12.6 million increase in expenses was primarily due to higher distribution, selling, marketing and administrative costs, much of which isprimarily related to volume growth. As a percent of net sales, selling, general and administrative expenses decreased to 18.8% from 19.8% primarily due to the leveraging effects of higher volume on fixed costs.

Interest expense decreased to $139,000Other income includes interest income of $998,000 for the first nine months of fiscal 2017 due to repayments on borrowings under credit facilities during the prior fiscal year. Other income includes interest income of2018 and $437,000 for the first nine months of fiscal 20172017. The increase in interest income is due to higher average invested balances and $50,000 for the first nine months of fiscal 2016.return on investments.

The Company’sCompany’s effective income tax rate, based upon estimated annual income tax rates, was 26.9% for the first nine months of fiscal 2018 and 34.2% for the first nine months of fiscal 2017 and the first nine months of fiscal 2016.2017. The difference betweenreduction in the effective tax rate andwas due primarily to the statutory rate decreases set forth in the Tax Act discussed above. Additionally, our effective rate in both periods varies from the federal statutory rate of 35% was primarily due to the effect of state income taxes, and the domestic manufacturing deduction.deduction and the adoption of ASU 2016-09 related to share-based payment awards. See Note 6 of Notes to Unaudited Consolidated Financial Statements.

We are compelled by regulations to record a one-time adjustment to remeasure previous deferred tax liabilities by $4.3 million and adjust prior year-to-date income tax to the estimated effective tax rate for the full year resulting in a $7 million reduction in tax expense.

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.operations. At January 28, 2017,27, 2018, we maintained $100 million unsecured revolving credit facilities, under which no borrowings were outstanding and $2.2 million was 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.

On November 18, 2016,May 5, 2017, the Company declared a special cash dividend of $1.50 per share payable to shareholders of record on November 28, 2016.June 5, 2017. The cash dividend aggregatingtotaling $69.9 million was paid on January 27,August 4, 2017. The Company also announced the Board has approved in concept an additional cash dividend, in an amount to be determined, to holders of record prior to the end of the current fiscal year.

Cash Flows

The Company’s cash position for the first nine months of fiscal 2017 increased $89,000 from April 30, 2016, which compares to an increase of $33.6 million for the first nine months of fiscal 2016.

Net cash provided by operating activities for the first nine months of fiscal 20172018 amounted to $81.4$106.8 million compared to $49.8$81.4 million for the first nine months of fiscal 2016.2017. For the first nine months of fiscal 2017,2018, cash flow was principally provided by net income of $77.9$113.3 million and depreciation and amortization aggregating $9.6$10.3 million, offset in part by an increasevolume related increases in accounts receivable.trade receivables and inventory.

Net cash used in investing activities for the first nine months of fiscal 20172018 reflects capital expenditures of $11.8$18.7 million, compared to capital expenditures of $7.8$11.8 million for the first nine months of fiscal 2016. The increase2017. Capital expenditures increased in capital expenditures is primarilyorder to support volume growth.

Net cash used in financing activities for the first nine months of fiscal 20172018 amounted to $69.5 million, which included the payment of cash dividends of $69.9 million. During the first nine months of fiscal 2016, the Company repaid $10 million in principal repayments under credit facilities.

Financial Position

During theThe first nine months of fiscal 2017 included the payment of cash dividends of $69.9 million.

Financial Position

During the first nine months of fiscal 2018, working capital increased to $152.9$214.3 million from $148.1$181.1 million at April 30, 2016.29, 2017. The increase in working capital resulted primarily from higher cash, trade receivables, inventories and prepaid and other assets, partially offset by higher accrued liabilities balance.liabilities. Trade receivables increased $7.7$4.6 million due to higherincreased sales, activity while days sales outstanding increasedimproved slightly to 32.130.4 days from 31.0 days at April 30, 2016.30.6 days. Inventories increased slightly$7.5 million as a result of the Company maintaining higher inventory levels to support increases in sales and new product introductions.increases. Inventory turns improveddeclined to 9.89.0 from 9.5 times. ThePrepaid and other assets increased $5.9 million due to increases in the cash flow hedge asset and income tax refund receivable. At January 27, 2018, the current ratio was 3.03.4 to 1 compared to 3.1 to 1 at January 28, 2017 and at April 30, 2016.29, 2017.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in market risks from those reported in our Annual Report on Form 10-K for the fiscal year ended April 30, 2016.29, 2017.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of the Company’sCompany’s management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Securities Exchange Act)Act of 1934). Based upon that evaluation, the Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective to ensure information required to be disclosed by us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q (the(the “Form 10-Q”) constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks,risk, uncertainties and other factors whichthat may cause the actual results, performance or achievements of theour 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 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 brand image, 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, unfavorable weather conditions and other factors referenced in this Form 10-Q. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained in our Annual Report on Form 10-K for the fiscal year ended April 30, 201629, 2017 and other filings with the Securities and Exchange Commission. 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.

PPARTART II - OTHER INFORMATION

ITEM 1A.RISK FACTORS

There have been no material changes in risk factors from those reported in our Annual Report on Form 10-K for the fiscal year ended April 30, 2016.

ITEM 6. EXHIBITS29, 2017.

Exhibit No.DescriptionITEM 6. EXHIBITS

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: March 8, 2018

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