|• FORM 10-Q • EXHIBIT 31.1 • EXHIBIT 31.2 • EXHIBIT 32.1 • EXHIBIT 32.2 • XBRL INSTANCE • XBRL TAXONOMY EXTENSION SCHEMA • XBRL TAXONOMY EXTENSION CALCULATION • XBRL TAXONOMY EXTENSION DEFINITION • XBRL TAXONOMY EXTENSION LABELS • XBRL TAXONOMY EXTENSION PRESENTATION|
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended January 28, 2012
Commission file number 1-14170
NATIONAL BEVERAGE CORP.
(Exact name of registrant as specified in its charter)
8100 SW Tenth Street, Suite 4000, Fort Lauderdale, FL 33324
(Address of principal executive offices including zip code)
(Registrant’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 (ü) 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 (ü) 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. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ( ) Accelerated filer (ü) Non-accelerated filer ( ) Smaller reporting company ( )
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ( ) No (ü)
The number of shares of registrant’s common stock outstanding as of March 2, 2012 was 46,277,935.
NATIONAL BEVERAGE CORP.
QUARTERLY REPORT ON FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See accompanying Notes to Condensed Consolidated Financial Statements.
NATIONAL BEVERAGE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
See accompanying Notes to Condensed Consolidated Financial Statements.
NATIONAL BEVERAGE CORP. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying Notes to Condensed Consolidated Financial Statements.
NATIONAL BEVERAGE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
National Beverage Corp. develops, manufactures, markets and distributes a complete portfolio of multi-flavored soft drinks, juice drinks, water and specialty beverages. 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.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and rules and regulations of the Securities and Exchange Commission for interim financial information. The financial statements do not include all information and notes required by GAAP for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Results for the interim periods presented are not necessarily indicative of results which might be expected for the entire fiscal year.
These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2011.
Derivative Financial Instruments
We use derivative financial instruments to partially mitigate our exposure to changes in raw material costs. All derivative financial instruments are recorded at fair value in our Condensed Consolidated Balance Sheets. The estimated fair value of derivative financial instruments is calculated based on market rates to settle the instruments. We do not use derivative financial instruments for trading or speculative purposes. See Note 5.
Inventories are stated at the lower of first-in, first-out cost or market. Inventories at January 28, 2012 are comprised of finished goods of $21,827,000 and raw materials of $16,331,000. Inventories at April 30, 2011 are comprised of finished goods of $20,215,000 and raw materials of $13,138,000.
2. PROPERTY, PLANT AND EQUIPMENT
Property consists of the following:
Depreciation expense was $2,064,000 and $6,399,000 for the three-month and nine-month periods ended January 28, 2012, respectively, and $2,430,000 and $7,552,000 for the three-month and nine-month periods ended January 29, 2011, respectively.
At January 28, 2012, a subsidiary of the Company maintained unsecured revolving credit facilities with banks aggregating $75,000,000 (the “Credit Facilities”). The Credit Facilities expire through July 8, 2013 and, currently, any borrowings would bear interest at .3% to .9% above LIBOR or, at our election, .5% below the banks’ reference rate. At January 28, 2012, $2,639,000 of the Credit Facilities was used for standby letters of credit and $72,361,000 was available for borrowings.
The Credit Facilities require the subsidiary to maintain certain financial ratios, principally debt to net worth and debt to EBITDA (as defined in the loan agreements), and contain other restrictions, none of which are expected to have a material effect on our operations or financial position. At January 28, 2012, we were in compliance with all loan covenants and approximately $1,320,000 of retained earnings was restricted from distribution.
4. STOCK-BASED COMPENSATION
During the nine months ended January 28, 2012, options to purchase 3,000 shares of common stock were granted (weighted average exercise price of $6.14 per share), options to purchase 48,100 shares were exercised (weighted average exercise price of $2.08 per share), and options to purchase 12,660 shares were cancelled (weighted average exercise price of $9.34 per share). At January 28, 2012, options to purchase 543,860 shares (weighted average exercise price of $7.30 per share) were outstanding and stock-based awards to purchase 2,960,944 shares of common stock were available for grant.
5. DERIVATIVE FINANCIAL INSTRUMENTS
We have entered into aluminum swap contracts to partially mitigate our exposure to changes in the cost of aluminum cans through April 2013. The financial instruments are designated and accounted for as a cash flow hedge. Accordingly, gains or losses attributable to the effective portion of the cash flow hedge are reported in Accumulated Other Comprehensive Income (“AOCI”) and reclassified into earnings through cost of sales in the period in which the hedged transaction affects earnings. The ineffective portion of the change in fair value of our cash flow hedge was immaterial. The following summarizes the gains (losses) recognized in AOCI and the Condensed Consolidated Statements of Income relative to the cash flow hedge for the third quarter and nine months ended January 28, 2012 and January 29, 2011:
As of January 28, 2012, the notional amount of our outstanding aluminum swap contracts was $23,417,000 and, assuming no change in the commodity prices, $304,000 of unrealized net loss (before tax) will be reclassified from AOCI and recognized in earnings over the next twelve months. See Notes 1 and 6.
As of January 28, 2012 and April 30, 2011, the fair value of the derivative asset was $24,000 and $4,271,000, respectively, which was included in Prepaid and other assets. Such valuation does not entail a significant amount of judgment and the inputs that are significant to the fair value measurement are Level 2 in the fair value hierarchy as they are observable market based inputs or unobservable inputs that are corroborated by market data.
6. COMPREHENSIVE INCOME
Comprehensive income for the third quarter and nine months ended January 28, 2012 and January 29, 2011 was comprised of net income and changes in the fair value of our cash flow hedges (see Note 5 above) as follows:
7. CASH DIVIDEND
On February 14, 2011, the Company paid a special cash dividend of $2.30 per share, aggregating $106,314,000, to shareholders of record on December 16, 2010.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
National Beverage Corp. develops, manufactures, markets and distributes a complete portfolio of quality beverage products primarily in North America. 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 a wide 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 offer the health-conscious consumer a diverse line of flavored beverage products, including Everfresh®, Home Juice®, and Mr. Pure® 100% juice and juice-based products; LaCroix®, Crystal Bay® and ClearFruit® flavored, sparkling, and spring water products; and ÀSanté® nutritionally-enhanced waters. In addition, we produce and market Rip It® energy drinks, Ohana® fruit-flavored drinks and St. Nick’s® holiday soft drinks. We refer to energy drinks, waters and juices as our “premium brands”. Substantially all of our brands are produced in twelve manufacturing facilities that are strategically located near 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 promotes the growth of our products by (i) offering a branded beverage portfolio of proprietary flavors with distinctive packaging and broad demographic appeal, (ii) supporting the franchise value of regional brands, (iii) developing and acquiring innovative products tailored toward healthy lifestyles, and (iv) appealing to the “quality-value” expectations of the family consumer. We believe the “regional share dynamics” of our brands results in more retailer sponsored promotional activities which perpetuate consumer loyalty within local markets.
We continue to focus on increasing penetration of our brands in the convenience channel through Company-owned and independent distributors to benefit from the higher retail prices and margins that typically prevail in this market. The convenience channel consists of convenience stores, gas stations and other smaller “up-and-down-the-street” accounts. We have undertaken several measures to expand convenience channel distribution including developing new products and packaging specifically targeted for this market.
The majority of our sales are seasonal with the highest volume typically realized during the summer months. As a result, our operating results from one fiscal quarter to the next may not be comparable. Additionally, our operating results are 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.
RESULTS OF OPERATIONS
Three Months Ended January 28, 2012 (third quarter of fiscal 2012) compared to
Three Months Ended January 29, 2011 (third quarter of fiscal 2011)
Net sales for the third quarter of fiscal 2012 increased 3.4% to $136,401,000 compared to $131,926,000 for the third quarter of fiscal 2011. The sales improvement is due to case volume growth of 6.1% for our premium brands and 5.1% for carbonated soft drinks. The sales improvement was partially offset by a 1.8% decline in unit pricing due primarily to product mix changes.
Gross profit approximated 33.2% of net sales for the third quarter of fiscal 2012 compared to 37.5% of net sales for the third quarter of fiscal 2011. The gross profit decline was due primarily to higher raw material costs and product mix changes. Cost of sales increased 5.0% on a per unit basis.
Selling, general & administrative expenses were $33,415,000 or 24.5% of net sales for the third quarter of fiscal 2012 compared to $38,013,000 or 28.8% of net sales for the third quarter of fiscal 2011. The decrease in expenses was due to lower marketing and administrative expenses.
Other income includes interest income of $18,000 for the third quarter of fiscal 2012 and $39,000 for the third quarter of fiscal 2011.
The Company’s effective income tax rate, based upon estimated annual income tax rates, was 32.9% for the third quarter of fiscal 2012 and 35.6% for the third quarter of fiscal 2011. The difference between the effective rate and the federal statutory rate of 35% was primarily due to the effect of state income taxes and the manufacturing deduction.
Nine Months Ended January 28, 2012 (first nine months of fiscal 2012) compared to
Nine Months Ended January 29, 2011 (first nine months of fiscal 2011)
Net sales for the first nine months of fiscal 2012 increased 3.4% to $463,455,000 compared to $448,083,000 for the first nine months of fiscal 2011. The sales improvement is due to case volume growth of 9.3% for our premium brand portfolio and a 2.5% increase in unit pricing. The higher unit pricing is due to product mix changes and price increases implemented to mitigate higher raw material costs. The sales improvement was partially offset by a 1.7% decline in carbonated soft drink volume.
Gross profit approximated 34.6% of net sales for the first nine months of fiscal 2012 compared to 36.7% of net sales for the first nine months of fiscal 2011. The gross profit decline was due primarily to higher raw material costs partially offset by higher unit pricing. Cost of sales increased 5.8% on a per unit basis.
Selling, general & administrative expenses were $110,686,000 or 23.9% of net sales for the first nine months of fiscal 2012 compared to $118,252,000 or 26.4% of net sales for the first nine months of fiscal 2011. The decrease in expenses was due to lower marketing and administrative expenses.
Other income includes interest income of $41,000 for the first nine months of fiscal 2012 and $120,000 for the first nine months of fiscal 2011.
The Company’s effective income tax rate, based upon estimated annual income tax rates, was 34.5% for the first nine months of fiscal 2012 and 35.6% for the first nine months of fiscal 2011. The difference between the effective rate and the federal statutory rate of 35% was primarily due to the effect of state income taxes and the manufacturing deduction.
LIQUIDITY AND FINANCIAL CONDITION
Liquidity and Capital Resources
Our principal source of funds is cash generated from operations, which may be supplemented by borrowings available under our credit facilities. We maintain unsecured revolving credit facilities aggregating $75,000,000, of which $2,639,000 was used for standby letters of credit at January 28, 2012. We believe that existing capital resources will be sufficient to meet our liquidity and capital requirements for the foreseeable future.
The Company’s cash position for the first nine months of fiscal 2012 increased $12,589,000 to $19,961,000 at January 28, 2012.
Net cash provided by operating activities for the first nine months of fiscal 2012 amounted to $18,501,000 compared to $36,343,000 for the similar 2011 fiscal period. For the first nine months of fiscal 2012, cash flow was principally generated by net income of $32,462,000 and depreciation and amortization of $7,963,000. Net cash was also impacted by a decrease in trade receivables of $5,726,000, an increase in inventory of $4,805,000 and a decrease in accounts payable of $12,346,000.
Net cash used in investing activities for the first nine months of fiscal 2012, principally capital expenditures, amounted to $6,143,000 compared to $7,475,000 for the similar 2011 fiscal period.
During the first nine months of fiscal 2012, working capital increased $29,501,000 to $60,431,000 due to cash generated from operations. Trade receivables and accounts payable decreased due to lower seasonal volume. Inventories increased partially due to higher raw material costs while prepaid and other assets decreased due to a decline in derivative assets. The current ratio was 2.1 to 1 at January 28, 2012 and 1.4 to 1 at April 30, 2011.
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, 2011.
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’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 Exchange Act). 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 (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.
Certain statements in this Quarterly Report on Form 10-Q (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, uncertainties and other factors which may cause the actual results, performance or achievements of the 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, our ability to increase selling prices, continued retailer support for our products, changes in consumer preferences, success of implementing business strategies, changes in business strategy or development plans, government regulations, regional 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, 2011 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 30, 2011.
ITEM 6. EXHIBITS
The exhibits listed in the accompanying exhibit index are filed as part of this Quarterly Report on Form 10-Q.
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, 2012
* XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.