National Beverage Corp - Recent Material Event1
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PART I
ITEM 1. BUSINESS
GENERAL
National Beverage Corp. develops, manufactures, markets and distributes a complete portfolio of
quality beverage products throughout the United States. Incorporated in Delaware in 1985, National
Beverage Corp. is a holding company for various operating subsidiaries. In this report, the terms
“we,” “us,” “our,” “Company” and “National Beverage” mean National Beverage Corp. and its
subsidiaries.
We consider ourselves to be a leader in the development and sale of flavored beverage products in
the United States, offering the widest selection of flavored soft drinks, juices, sparkling waters,
energy drinks and nutritionally-enhanced waters. Our flavor development spans over 100 years
originating with our flagship brands, Shasta® and Faygo®, each of which has over 50 flavor
varieties. We also maintain a diverse line of flavored beverage products geared to the
health-conscious consumer, including Everfresh®, Home Juice®, and Mr. Pure® 100% juice and
juice-based products; LaCroix®, Mt. Shasta®, Crystal Bay® and ClearFruit® flavored, sparkling, and
spring water products; and ÀSanté™ nutritionally-enhanced waters. In addition, we produce Rip It®
energy drinks, Ohana® fruit-flavored drinks and St. Nick’s® holiday soft drinks. Substantially all
of our brands are produced in thirteen manufacturing facilities that are strategically located in
major metropolitan markets throughout the continental United States. To a lesser extent, we develop
and produce soft drinks for certain retailers and beverage companies.
We utilize various means to maintain our position as a cost-effective producer of beverage
products. These include centralized purchasing of raw materials, vertical integration of the
manufacturing process, close proximity to customer distribution centers, regionally targeted media
promotions and the use of multiple distribution systems. The strength of our brands and location
of our manufacturing facilities distinguish us as a national supplier of beverages to national and
regional retailers, mass merchandisers, wholesalers and discount stores.
Our strategy emphasizes the growth of our products by offering a branded beverage portfolio of
proprietary flavors; by supporting the franchise value of regional brands and expanding those
brands with distinctive packaging and broader demographic emphasis; by developing and acquiring
innovative products tailored toward healthy lifestyles; and by appealing to the “quality-value”
expectations of the family consumer. We believe that the “regional share dynamics” of our brands
perpetuate consumer loyalty within local regional markets, resulting in more retailer sponsored
promotional activities.
PRODUCTS
Shasta and Faygo, our traditional soft drink brands that emphasize flavor variety and innovation,
have been manufactured and marketed throughout the United States for a combined period of over 200
years. Established nearly 120 years ago and distributed nationally, Shasta is the largest of
National Beverage’s brands and includes multiple flavors as well as bottled spring and drinking
waters. Established over 100 years ago, Faygo products are primarily distributed east of the
Mississippi River and include a multi-flavored product line. We also produce and market other
brands of soft drinks, juice and water products, including Ritz®, Everfresh, Mr. Pure, LaCroix,
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Crystal Bay, and Ohana. In addition, we offer Rip It energy drinks as well as ÀSanté
nutritionally- enhanced waters.
Our “fantasy of flavors” strategy emphasizes our distinctive flavored soft drinks, energy drinks,
juices and other specialty beverages. Although cola drinks account for approximately 50% of the
soft drink industry’s domestic grocery channel volume, colas account for less than 20% of our total
volume. We continue to emphasize expanding our beverage portfolio beyond traditional carbonated
soft drinks through new product development inspired by “lifestyle enhancement” trends, innovative
package enhancements, and, in recent years, the development of products designed to provide
functional benefits to the consumer. These include our line of energy drinks and vitamin-enhanced
waters. We intend to expand our product offerings through in-house development and/or
acquisitions, to further our strategy within the evolving “functional” category geared toward
health and wellness. Products currently being test marketed include Sundance® organic
life/super-fruit blends, BODYWORX™ premium enhanced waters as well as powder and effervescent
tablet beverage enhancers sold under the NutraFizz™ brand name.
MANUFACTURING
Our thirteen plants are strategically located in major metropolitan markets across the continental
United States, enabling us to efficiently manufacture and distribute beverages to substantially all
geographic markets. Each plant 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 seven ounces to three liters.
We believe that ownership 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
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 assure manufacture of 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 servicing the United States,
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
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retailer’s centralized distribution centers and then distributed by the retailer to each of its
outlet locations with other goods. Products sold through the direct-store delivery system are
distributed directly to the customer’s retail outlets by our direct-store delivery fleet and by
independent distributors.
We also 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 in recent years. These include development of products
specifically targeted to this market, such as ClearFruit, Crystal Bay, Rip It, ÀSanté and
Sundance. Additionally, we have created proprietary and specialized packaging with distinctive
graphics for these products.
Our food-service division is responsible for sales to hospitals, schools, military bases, airlines,
hotels and food-service wholesalers. Food-service products are distributed primarily through
independent, specialized distributors. Additionally, our Company-owned direct-store distribution
systems service certain schools and other institutions.
Each of 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 that the placement of vending and
cooler equipment provides not only increased beverage sales, but also the enhancement of brand
awareness and the development of brand loyalty.
SALES AND MARKETING
We sell and market our products through an internal sales force as well as select 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 that this focus allows our sales
group to provide high level, responsive service and support to the customers and markets served.
Our sales and marketing programs are directed toward maintaining and enhancing consumer brand
recognition and loyalty, and typically utilize a combination of regional advertising, special event
marketing, endorsements and sponsorships, and consumer coupon distribution. 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. We believe these elements allow us to tailor marketing
and advertising programs to meet local and regional economic conditions and demographics. We also
seek to maintain points of difference between our brands and those of our competitors by combining
high product quality, flavor innovation, unique packaging designs, and, for some product lines,
value pricing. Additionally, National Beverage sponsors special holiday promotions including St.
Nick’s, which features special holiday flavors and packaging.
Our “regional share dynamics” strategy emphasizes the acquisition and support of brands that have a
significant regional presence. We believe that these types of products enjoy a regional
identification that foster long-term consumer loyalty and make them less vulnerable to consumer
switching. In addition, these types of “home-town” products often generate more aggressive
retailer
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sponsored promotional activities and receive media exposure through community activities and other
local events.
RAW MATERIALS
Our centralized procurement division 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,
allowing us 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 or
Acesulfame-K. We manufacture a substantial portion of our flavor concentrates and purchase
remaining raw materials from multiple suppliers.
Substantially all of the materials and ingredients we purchase are presently available from several
suppliers, although strikes, weather conditions, utility shortages, governmental control or
regulations, national emergencies, price or supply fluctuations or other events outside our control
could adversely affect the supply of specific materials. Our key raw materials, including aluminum
cans, plastic bottles and high fructose corn syrup, are derived from commodities. Therefore,
pricing and availability tend to fluctuate based upon worldwide 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 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. Aluminum cans comprise a significant portion of our raw material purchases.
SEASONALITY
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. Sales volume may be affected 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 refreshments, including coffee,
milk, tea and water. 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, Inc. 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.
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TRADEMARKS
We maintain registered trademarks for our brands in the United States and abroad, which are
significant to our business. Shasta, Faygo, Ritz, LaCroix, Everfresh, Big Shot, Mr. Pure, Home
Juice, ClearFruit, Mt. Shasta, Crystal Bay, Rip It, ÀSanté, Sundance, NutraFizz, Ohana, and St.
Nick’s are among the trademarks of National Beverage. 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. Our management believes that we are in
compliance in all material respects with such existing legislation.
Certain states and localities prohibit the sale of certain beverages unless a deposit or tax is
charged for containers. These requirements vary by each jurisdiction. Similar legislation has
been proposed in certain other states and localities, as well as by Congress. We are unable to
predict whether such legislation will be enacted or what impact its enactment would have on our
business, financial condition or results of operations.
All of our facilities in the United States are subject to federal, state and local environmental
laws and regulations. Compliance with these provisions has not had any material adverse effect on
our financial or competitive position. We believe that our current practices and procedures for
the control and disposition of toxic or hazardous substances comply in all material respects with
applicable law. However, compliance with or any violation of current and future laws or
regulations could require material expenditures or otherwise have a material adverse effect.
EMPLOYEES
As of May 3, 2008, we employed approximately 1,300 people, of which approximately 300 are covered
by collective bargaining agreements. We believe that relations with employees are 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 internet 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 internet 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.
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ITEM 1A. RISK FACTORS
In addition to other information in this 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 results of operations and financial condition 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 competitive action may make it more difficult to sustain revenues and
profits.
Customer consolidation. 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 results of operations and financial position.
Raw materials and energy. The production of our products is dependent on certain raw materials,
including aluminum, resin, linerboard and corn, and 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 results of operations and financial condition 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. New laws or regulations or changes in existing laws or
regulations could negatively impact our financial results through higher operating costs to achieve
compliance.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
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ITEM 2. PROPERTIES
Our principal properties include thirteen production facilities located in eleven states, which
aggregate approximately two million square feet. We own eleven production facilities in the
following states: Arizona, California (2), Georgia, Kansas, Michigan (2), Ohio, Texas, Utah and
Washington. Two production facilities, located in Maryland and Florida, are leased subject to
agreements that expire through 2010. We believe our facilities are generally in good condition and
sufficient to meet present needs. We periodically review the capabilities of our facilities and,
on the basis of such review, may acquire additional facilities and/or dispose of existing
facilities.
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 delivery trucks, other trucks, vans and automobiles used in the sale and
distribution of our products. In addition, we lease office space, transportation equipment, office
equipment, data processing equipment and certain plant equipment.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are a party to various litigation matters arising in the ordinary course of
business. In our opinion, the ultimate disposition of such matters will not have a material
adverse effect on our consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were voted upon during the fourth quarter of fiscal 2008.
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”. Prior to June 12, 2007, the Common
Stock was listed on the American Stock Exchange under the symbol “FIZ”. The following table shows
the range of high and low prices per share of the Common Stock for the fiscal quarters indicated:
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Of the estimated 5,000 holders of our Common Stock, including those whose securities are held in
the names of various dealers and/or clearing agencies, there were approximately 700 shareholders of
record at July 2, 2008, according to records maintained by our transfer agent.
On May 25, 2007, the Company declared a 20% stock dividend payable on June 22, 2007 to shareholders
of record on June 4, 2007. On June 15, 2007, the Company declared a cash dividend of $.80 per
share payable on or before August 17, 2007 to shareholders of record on July 20, 2007. On December
23, 2005, the Company declared a cash dividend of $1.00 per share ($.83 per share
adjusted for the 20% stock dividend), which was paid on January 27, 2006 to shareholders of record on January 5, 2006. The stock prices above have been restated to give retroactive effect to the 20% stock dividend. Currently, the Board of Directors has no plans to declare additional cash dividends. See Note 4 of
Notes to Consolidated Financial Statements for certain restrictions on the payment of dividends.
Performance Graph
The following graph shows a comparison of the five-year cumulative returns of an investment of $100
cash on May 3, 2003 in (i) our common stock, (ii) the NASDAQ Composite Index and (iii) a company
constructed peer group consisting of Coca-Cola Enterprises, Inc., Coca-Cola Bottling Company
Consolidated, Cott Corporation and PepsiAmericas, Inc. The graph assumes that all dividends have
been reinvested.
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ITEM 6. SELECTED FINANCIAL DATA
NATIONAL BEVERAGE CORP. AND SUBSIDIARIES
(In thousands, except per share amounts)
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
National Beverage Corp. develops, manufactures, markets and distributes a complete portfolio of
quality beverage products throughout the United States. Incorporated in Delaware in 1985, National
Beverage Corp. is a holding company for various operating subsidiaries. In this report, the terms
“we,” “us,” “our,” “Company” and “National Beverage” mean National Beverage Corp. and its
subsidiaries.
We consider ourselves to be a leader in the development and sale of flavored beverage products in
the United States, offering the widest selection of flavored soft drinks, juices, sparkling waters
and energy drinks. Our flavor development spans over 100 years originating with our flagship
brands, Shasta® and Faygo®, each of which has over 50 flavor varieties. We also maintain a diverse
line of flavored beverage products geared to the health-conscious consumer, including Everfresh®,
Home Juice®, and Mr. Pure® 100% juice and juice-based products; and LaCroix®, Mt. Shasta®, Crystal
Bay® and ClearFruit® flavored, sparkling, and spring water products; and ÀSanté™
nutritionally-enhanced waters. In addition, we produce Rip It® energy drinks, Ohana®
fruit-flavored drinks and St. Nick’s® holiday soft drinks. Substantially all of our brands are
produced in thirteen manufacturing facilities that are strategically located in major metropolitan
markets throughout the continental United States. To a lesser extent, we develop and produce soft
drinks for certain retailers and beverage companies (“allied brands”).
Our strategy emphasizes the growth of our products by offering a branded beverage portfolio of
proprietary flavors; by supporting the franchise value of regional brands and expanding those
brands with distinctive packaging and broader demographic emphasis; by developing and acquiring
innovative products tailored toward healthy lifestyles; and by appealing to the “quality-price”
expectations of the family consumer. We believe that the “regional share dynamics” of our brands
perpetuate consumer loyalty within local regional markets, resulting in more retailer sponsored
promotional activities.
Over the last several years, we have focused on increasing penetration of our brands in the
convenience channel through Company-owned and 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 in recent years. These include development of
products specifically targeted to this market, such as ClearFruit, Crystal Bay, Rip It, ÀSanté and
Sundance®. Additionally, we have created proprietary and specialized packaging with distinctive
graphics for these products. We intend to continue our focus on enhancing growth in the
convenience channel through both specialized packaging and innovative product development.
Beverage industry sales are seasonal with the highest volume typically realized during the summer
months. Additionally, our operating results are subject to numerous factors, including
fluctuations in the costs of raw materials, changes in consumer preference for beverage products
and competitive pricing in the marketplace.
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RESULTS OF OPERATIONS
Net Sales
Net sales for fiscal 2008 increased 5.0% to $566.0 million compared to fiscal 2007. The net sales
increase reflects case volume growth of 9% for our energy drinks, juices and waters along with the
effect of a 11% improvement in unit pricing due to product mix and price increases instituted to
recover higher raw material costs. These increases were partially offset by a 6% decline in
branded carbonated soft drink volume as well as the phase out of certain allied brands.
Net sales for fiscal 2007 increased 4.3% to $539.0 million compared to fiscal 2006. Led by higher
sales of Rip It, the case volume of our energy drinks, juices and waters increased 12%. The volume
improvement in higher margin products along with the effect of price increases instituted to
recover raw material cost increases resulted in a 9% improvement in unit pricing. This increase
was partially offset by a 7% decrease in carbonated soft drink volume, due primarily to a 21%
volume decline in allied brands.
Gross Profit
Gross profit approximated 30.5% of net sales for fiscal 2008 and 32.1% of net sales for fiscal
2007. The decline in gross margin was due to higher manufacturing and raw material costs and the
effect of lower volume. This was partially offset by the higher unit pricing noted above and a
$1.4 million business interruption insurance recovery. Cost of goods sold per unit increased
approximately 14%.
Gross profit approximated 32.1% of net sales for fiscal 2007 and 30.8% of net sales for fiscal
2006, after excluding an $8.4 million fructose settlement gain recorded in cost of sales in fiscal
2006. The gross margin improvement is primarily the result of the increase in unit pricing noted
above, partially offset by higher manufacturing and raw material costs. Excluding the fructose
settlement, cost of goods sold per unit increased approximately 7%. See Note 10 of Notes to
Consolidated Financial Statements.
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 $138.4 million or 24.5% of net sales for fiscal
2008 compared to $137.2 million or 25.5% of net sales for last year. The increase in expenses is
due primarily to higher distribution costs, which were affected by increases in fuel and energy
costs.
Selling, general and administrative expenses were $137.2 million or 25.5% of net sales for fiscal
2007 compared to $135.1 million or 26.1% of net sales for last year. The $2.1 million increase is
due to higher marketing costs primarily related to new product introductions associated with energy
drinks and increased cooperative advertising.
Interest Expense and Other Income-Net
Interest expense is comprised of financing costs related to maintaining lines of credit. Other
income includes interest income of $1,218,000 for fiscal 2008, $1,701,000 for fiscal 2007, and
$1,450,000 for fiscal 2006. The decline in interest income for fiscal 2008 is due to lower
investment yields and average invested balances, reflecting the effects of declining rates and the
$36.7 million dividend
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paid in August 2007. The increase in interest income for fiscal 2007 is due to an increase in
investment yields and average invested balances. In addition, other income includes gains related
to a contract settlement with a customer of $895,000 for fiscal 2007 and $1.1 million for fiscal
2006. See Note 6 of Notes to Consolidated Financial Statements.
Income Taxes
Our effective tax rate was approximately 35.9% for fiscal 2008 and fiscal 2007, and 36.3% for
fiscal 2006. The difference between the effective rate and the federal statutory rate of 35% was
primarily due to the effects of state income taxes, nondeductible expenses, and nontaxable interest
income. See Note 7 of Notes to Consolidated Financial Statements.
LIQUIDITY AND FINANCIAL CONDITION
Capital Resources
Our current sources of capital are cash flow from operations and borrowings under existing credit
facilities. A subsidiary of the Company maintains unsecured revolving credit facilities
aggregating $45 million, of which $2.7 million is utilized for standby letters of credit at May 3,
2008. We believe that existing capital resources are sufficient to meet our capital requirements
and those of the parent company for the foreseeable future.
On June 22, 2007, the Company distributed a 20% stock dividend to shareholders of record on June 4,
2007. On August 17, 2007, the Company paid a cash dividend of $.80 per share, aggregating $36.7
million, to shareholders of record on July 20, 2007.
Cash Flows
During fiscal 2008, $34 million was provided from operating activities, which was partially offset
by $12.7 million used for investing activities. Cash provided by operating activities increased
$1.2 million due primarily to a favorable change in deferred income taxes. Cash used in investing
activities increased $1.8 million due to a net increase in marketable securities purchased. Cash
used in financing activities aggregated $35.4 million in fiscal 2008 and was comprised of a $36.7
million dividend payment partially offset by proceeds and tax benefits from stock options
exercised.
During fiscal 2007, $32.8 million was provided from operating activities, which was partially
offset by $10.9 million used for investing activities. Cash provided by operating activities
increased $4.3 million due primarily to an increase in earnings and accounts payable. Cash used in
investing activities increased $5.8 million due to an increase in net capital expenditures. Cash
provided by financing activities aggregated $1.5 million in fiscal 2007 and was comprised of
proceeds and tax benefits from stock options exercised.
Financial Position
During fiscal 2008, our working capital decreased $8.3 million to $89.4 million due to the August
2007 cash dividend payment. Trade receivables decreased $2.8 million due to changes in customer
mix and timing of customer payments. Inventory decreased $5.3 million due to the elimination of
certain inventory items and improved inventory management. Prepaid and other assets increased $2.3
million due to an increase in income tax refund receivable. At May 3, 2008 and April 27, 2007, the
current ratio was 2.3 to 1.
During fiscal 2007, our working capital increased $22.7 million to $97.7 million primarily due to
cash provided from operations. Trade receivables increased $3.7 million due to higher sales in
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April 2007. Inventory increased $9.6 million due to the effects of new products and cost
increases. At April 28, 2007, the current ratio was 2.3 to 1 compared to 2.2 to 1 at April 29,
2006.
Liquidity
Although we continually evaluate capital projects designed to expand capacity, enhance packaging
capabilities and improve efficiencies at our manufacturing facilities, the Company did not have any
material capital expenditure commitments as of May 3, 2008. We anticipate that fiscal 2009
expenditures will be comparable to historical amounts.
On May 25, 2007, the Company declared a 20% stock dividend payable on June 22, 2007 to shareholders
of record on June 4, 2007. On June 15, 2007, the Company declared a cash dividend of $.80 per
share payable on or before August 17, 2007 to shareholders of record on July 20, 2007. On January
27, 2006, the Company paid a cash dividend of $1.00 per share ($.83 per share adjusted for the 20%
stock dividend).
In January 1998, the Board of Directors authorized the purchase of up to 800,000 shares of National
Beverage common stock of which 502,060 shares have been purchased. There were no shares purchased
during the last three fiscal years.
Pursuant to a management agreement, we incurred a fee to Corporate Management Advisors, Inc.
(“CMA”) of approximately $5.7 million for fiscal 2008, $5.4 million for fiscal 2007, and $5.2
million for fiscal 2006. At May 3, 2008, we owed $2.7 million to CMA for unpaid fees. See Note 5
of Notes to Consolidated Financial Statements.
CONTRACTUAL OBLIGATIONS
Long-term contractual obligations at May 3, 2008 are payable as follows:
(In thousands)
We have guaranteed the residual value of certain leased equipment in the amount of $11.3 million.
Management believes that the net realizable value of such equipment will be in excess of the
guaranteed amount when the lease terminates in July 2012.
We contribute to certain pension plans under collective bargaining agreements based on hours worked
and to a discretionary profit sharing plan, none of which have any long-term contractual funding
requirements. Contributions were $2.2 million for fiscal 2008, fiscal 2007, and fiscal 2006.
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 claims settlement varies
significantly, we are not able to reasonably estimate future payments for the periods indicated.
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We have standby letters of credit aggregating $2.7 million related to our self-insurance programs,
which expire in fiscal 2009. We expect to renew these standby letters of credit until they are no
longer required.
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 affect 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 in
accordance with SFAS No. 142. 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 and the tax bases of assets and liabilities are 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 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.
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Sales Incentives
We offer various sales incentive arrangements to our customers, which require customer performance
or achievement of certain sales volume targets. In those circumstances when the incentive is paid
in advance, we amortize the amount paid over the period of benefit or contractual sales volume.
When the incentive is paid in arrears, 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 revenues and actual amounts
may vary from reported amounts.
NEW ACCOUNTING STANDARDS
See Note 1 of Notes to Consolidated Financial Statements for information about recently issued
accounting standards.
FORWARD-LOOKING STATEMENTS
National Beverage and its representatives may from time to time 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, and the ability to pass along any cost increases to
our customers; our ability to increase prices for our products; labor strikes or work stoppages or
other interruptions or difficulties 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 of implementing business strategies; changes in business strategy or
development plans; government regulations; unseasonably cold or wet weather conditions; and other
factors referenced in this Form 10-K. 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, and various 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.
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Interest Rates
We had no outstanding debt or debt related interest rate exposure during fiscal 2008. Our
investment portfolio is comprised of highly liquid securities consisting primarily of short-term
money market instruments, the yields of which fluctuate based largely on short-term Treasury rates.
If the yield of these instruments had changed by 100 basis points (1%), interest income for fiscal
2008 would have changed by approximately $400,000.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NATIONAL BEVERAGE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF MAY 3, 2008 AND APRIL 28, 2007 (In thousands, except share amounts)
See
accompanying Notes to Consolidated Financial Statements.
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NATIONAL BEVERAGE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME FOR THE FISCAL YEARS ENDED MAY 3, 2008, APRIL 28, 2007 AND APRIL 29, 2006 (In thousands, except per share amounts)
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