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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 27,July 28, 2018

 

Commission file number 1-14170

 

NATIONAL BEVERAGE CORP.

(Exact name of registrant as specified in its charter)

Delaware	59-2605822
(State of incorporation)		59-2605822 (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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “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 March 2,September 4, 2018 was 46,608,690.46,625,640.

 

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Table of Contents

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

National Beverage Corp. develops, produces, 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.

Depreciation expense was $2.7 million and $8.83.4 million for the three and ninemonths ended January 27,July 28, 2018 respectively, and $2.7 million and $8.13.0 million for the three and ninemonths ended January 28, 2017, July 29, 2017.respectively.

As of January 27,July 28, 2018, the notional amount of our outstanding aluminum swap contracts was $33.626.3 million and, assuming no change in the commodity prices, $4.73.6 million of unrealized gaingains before tax will be reclassified from AOCI and recognized in earnings over the next 12 months. See Note 1.

As of January 27,July 28, 2018, the fair value of the derivative asset was $4.73.6 million, which was included in prepaid and other assets. At April 29, 2017,28, 2018, the fair value of the derivative asset derivative liability and derivative long-term liability was $602,000,6.2 $848,000 and $476,000,million, which was included in prepaid and other assets, accrued liabilities and other liabilities, respectively.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.

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

Overview

National Beverage Corp. proudlyinnovatively refreshes America with a distinctive portfolio of Sparkling Waters, Juices, Energy Drinkssparkling waters, juices and, Carbonated Soft Drinks.to a lesser degree, energy drinks. Over the past few years, our carbonated soft drink brands continue to be modified as we endeavor to make them more adaptable to our consumers. We believe that our ingenious product designs, innovative packaging and imaginative flavors, along with our corporate culture and philosophy, makesmake National Beverage unique as a stand-alone entity in the beverage industry. The Company’s

Our strategy seeks the profitable growth of our products by (i) developing healthier beverages in response to the global shift in consumer buying habits and tailoring our beverage portfolio to the preferences of a diverse mix of ‘crossover consumers’ – a growing group desiring a healthier alternative to artificially sweetened and high-caloric beverages; (ii) emphasizing unique flavor development and variety throughout our brands that appeal to multiple demographic groups; (iii) maintaining points of difference through innovative marketing, packaging and consumer engagement and (iv) responding faster and more creatively to changing consumer trends that larger competitors who are burdened by legacy production, distribution complexity and costs cannot quickly comply with.

Our brands consist of beverages geared to the active and health-conscious consumer (“Power+ Brands”) including sparkling waters, energy drinks, and juices. Our portfolio of Power+ Brands includes LaCroix®, LaCroix Cúrate®, LaCroix NiCola® and Shasta® Sparkling Water products; Rip It® energy drinks and shots; and Everfresh®, Everfresh Premier Varietals™ and Mr. Pure® 100% juice and juice-based products. Additionally, we produce and distribute carbonated soft drinks including Shasta® and Faygo®, iconic brands whose consumer loyalty spans more than 125 years.

Presently, our primary market focus is North America, butthe United States and Canada. Certain of our products are also distributed on a limited basis in various other countries. countries and expanding distribution to other regions is being considered. To service a diverse customer base that includes numerous national retailers, as well as thousands of smaller “up-and-down-the-street” accounts, we utilize a hybrid distribution system to deliver our products primarily through the warehouse delivery system and distributors.

National Beverage Corp. wasis 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 evolving to meet the healthy hydration demands of consumers. Health and wellness awareness has increased significantly, resulting in growing demand for beverages 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, health-conscious and discriminating consumer is ever more alert to wellness 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. Our portfolio of Power+ Brands includes LaCroix®, LaCroix Cúrate™, LaCroix NiCola™ and Shasta 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 smaller “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 healthier 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) leveraging our efficient production and distribution systems, cost-effective social media platforms and regionally focused marketing programs to profitably deliver high-quality products at optimal consumer price-points; and (iv) responding faster and more creatively to consumer trends than competitors who are burdened by production and distribution complexity as well as legacy costs.

Our operatingoperating 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 marketplaceholiday and seasonal programming and weather conditions. BeverageWhile yesteryear we witnessed more seasonality, we continue to see higher 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.when outdoor activities are more prevalent.

Our highly innovative business, where new beverages are developed and produced for selective holidays and ceremonial dates, should not be analyzed on the common three-month (quarterly) periods, traditionally found acceptable. Today, costly development projects and seasonal weather periods plus promotional packaging, make quarter-to-quarter comparisons unworthy statistics and forcing companies into decision making for that purpose is not truly beneficial for investors and shareholders alike.

Traditional and typical are not a part of an innovator’s vocabulary.

RESULTS OF OPERATIONS

Three Months Ended January 27, 2018July 28, 2018 (thirdfirst quarter of fiscal 2018201)9) compared to

Three Months Ended January 28, 2017July 29, 2017 (thirdfirst quarter of fiscal 20172018)

Net sales for the thirdfirst quarter of fiscal 20182019 increased 16.9%12.6% to $227.5$292.6 million compared to $194.6$259.8 million for the thirdfirst quarter of fiscal 2017.2018. The increase in sales resulted primarily from a 14.9%10.4% increase in case volume and, to a lesser extent, a higher average selling price. The volume increase includes 38.0% growth of our Power+ Brands, partially offset by a decline in Carbonated Soft Drinks primarily due to the conclusion of the Company’s retail brands business. Average selling price per case increased 2.0% due to changes in product mix.

Gross profit for the third quarter of fiscal 2018 increased 20.1% to $91.2 million compared to $75.9 million for the third quarter of fiscal 2017.  The increase in gross profit is due to increased volume and growth in higher-margin Power+ Brands. Cost of sales per case was flat. As a result, gross margin improved to 40.1% compared to 39.0% for the third quarter of fiscal 2017. 

Selling, general and administrative expenses for the third quarter of fiscal 2018 increased $6.3 million to $45.4 million from $39.2 million for the third quarter of fiscal 2017.  The increase was due to higher distribution, selling and marketing 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. The increase in interest income is due to higher average invested balances and return on investments. 

The Company’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.  The reduction 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 due to state income taxes, the domestic manufacturing 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 Ended January 27, 2018 (first nine months of fiscal 2018) compared to

Nine Months Ended January 28, 2017 (first nine months of fiscal 2017)

Net sales for the first nine months of fiscal 2018 increased 19.0% to $731.4 million compared to $614.9 million for the first nine months of fiscal 2017. The increase in sales resulted primarily from a 15.8% increase in case volume and, to a lesser extent, a higher average selling price. The volume increase includes 38.9%29.1% growth of our Power+ Brands, partially offset by a decline in Carbonated Soft Drinks. The Company discontinued its lower-margin, private-label carbonated soft drink business in the third quarter of Fiscal 2018, allowing future performance to be more focused on brand equity appreciation. Average selling price per case increased 2.0%3.8% due to changes in product mix.

Gross profit for the first nine monthsquarter of fiscal 20182019 increased 21.5%10.7% to $291.8$115.7 million compared to $240.1$104.5 million for the first nine monthsquarter of fiscal 2017.2018. The increase in gross profit is due to increased volume and growth in higher-marginhigher margin Power+ Brands. CostThe cost of sales per case was flat.increased 2.1% primarily due to higher aluminum and freight costs. As a result, the gross margin improved to 39.9%was 39.5% compared to 39.1%40.2% for the first nine monthsquarter of fiscal 2017.2018.

Selling, general and administrative expenses for the first nine monthsquarter of fiscal 20182019 increased $15.5$6.0 million to $137.6$52.7 million from $122.0$46.7 million for the first nine monthsquarter of fiscal 2017.2018. The increase was primarily due to higher distribution selling,costs and marketing and administrative costs, primarily related to volume growth.spending.  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.remained at 18.0%. 

Other income includes interest income of $998,000$871,000 for the first nine monthsquarter of fiscal 20182019 and $437,000$281,000 for the first nine monthsquarter of fiscal 2017.2018. The increase in interest income is due to higherchanges in average invested balances and increased return on investments.

The Company’sTax Cuts and Jobs Act (“the Tax Act”) was signed into law on December 22, 2017 which reduced the applicable federal statutory rate from 35% to 21% for fiscal 2019. The federal statutory rate for fiscal 2018 was 30.4%. The Company’s effective income tax rate, based upon estimated annual income tax rates, was 26.9%23.5% for the first nine monthsquarter of fiscal 20182019 and 34.2%34.1% for the first nine monthsquarter of fiscal 2017.2018. The reduction indifference between the effective tax rate was due primarily to the statutory rate decreases set forth in the Tax Act discussed above. Additionally, our effective rate in both periods varies fromand the federal statutory rate of 21% was primarily due to the effects of state income taxes, the domestic manufacturing deduction and the adoption of ASU 2016-09 related to share-based payment awards. See Note 6 of Notes to Unaudited Consolidated Financial Statements.taxes.

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. At January 27,July 28, 2018, we maintained $100 million unsecured revolving credit facilities, under which no borrowings were outstanding and $2.2$2.1 million was reserved for standby letters of credit. We believe existing capital resources will be sufficient to meet our liquidity and capital requirements for the next twelve months.

On May 5, 2017, the Company declared a special cash dividend of $1.50 per share to shareholders of record on June 5, 2017. The cash dividend totaling $69.9 million was paid on August 4, 2017.

Cash Flows

The Company’s cash position increased $53.0 million for the first quarter of fiscal 2019, which compares to an increase of $39.5 million for the first quarter of fiscal 2018.

Net cash provided by operating activities for the first nine monthsquarter of fiscal 20182019 amounted to $106.8$59.3 million compared to $81.4$43.5 million for the first nine monthsquarter of fiscal 2017.2018. For the first nine monthsquarter of fiscal 2018,2019, cash flow was principally provided by net income of $113.3$48.8 million, an increase in accrued and other liabilities of $13.3 million and depreciation and amortization aggregating $10.3$4.0 million, offset in part by seasonal and sales volume related increases in trade receivables and inventory.

Net cash used in investing activities for the first nine monthsquarter of fiscal 20182019 reflects capital expenditures of $18.7$6.2 million, compared to capital expenditures of $11.8$4.1 million for the first nine monthsquarter of fiscal 2017. Capital2018.  The Company expects capital expenditures increasedto increase in orderFiscal 2019 primarily to expand production capacity to support volume growth.

Net cash used in financing activities for the first nine months of fiscal 2018 amounted to $69.5 million, which included the payment of cash dividends of $69.9 million. The first nine months of fiscal 2017 included the payment of cash dividends of $69.9 million.

Financial Position

During the first nine monthsquarter of fiscal 2018,2019, our working capital increased to $214.3$293.7 million from $181.1$248.3 million at April 29, 2017.28, 2018. The increase in working capital resulted primarily fromwas due to higher cash, trade receivables inventories and prepaid and other assets,inventory, partially offset by higher accrued liabilities.accounts payable and income taxes payable. Trade receivables increased $4.6$10.3 million due to increased sales, while days sales outstanding improved slightly to 30.429.4 days from 30.631.4 days. Inventories increased $7.5$6.9 million as a result of the Company maintaining higher inventory levels to support sales increases. Inventory turns declinedimproved to 9.010.4 from 9.5 times. Prepaid and other assets increased $5.9 million due to increases in the cash flow hedge asset and income tax refund receivable. At January 27,July 28, 2018, the current ratio of 3.4 was 3.4 to 1 compared to 3.1 to 1 atunchanged from April 29, 2017.2018.

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 29, 2017.28, 2018.

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 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 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 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 29, 201728, 2018 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.

PART 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 29, 2017.28, 2018.

ITEM 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,September 6, 2018

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