NATIONAL BEVERAGE CORP

Quarterly Report • Sep 13, 2005

10-Q 1 g97325e10vq.htm NATIONAL BEVERAGE CORP. National Beverage Corp. PAGEBREAK

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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 July 30, 2005

Commission file number 1-14170

NATIONAL BEVERAGE CORP.

(Exact name of registrant as specified in its charter)

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

One North University Drive, Ft. Lauderdale, FL	33324
(Address of principal executive offices)	(Zip Code)

(954) 581-0922 (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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

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

The number of shares of registrant’s common stock outstanding as of September 8, 2005 was 37,052,876.

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NATIONAL BEVERAGE CORP.

QUARTERLY REPORT ON FORM 10-Q INDEX

TOC

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of July 30, 2005 and April 30, 2005	3
Condensed Consolidated Statements of Income for the three months ended
July 30, 2005 and July 31, 2004	4
Condensed Consolidated Statements of Cash Flows for the three months ended
July 30, 2005 and July 31, 2004	5
Notes to Condensed Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations	9
Item 3. Quantitative and Qualitative Disclosures About Market Risk	11
Item 4. Controls and Procedures	11
PART II — OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K	12
Audit Committee Charter
Section 302 Certification of CEO
Section 302 Certification of PFO
Section 906 Certification of CEO
Section 906 Certification of PFO

/TOC

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JULY 30, 2005 AND APRIL 30, 2005

(In thousands, except share amounts)

	(Unaudited) — July 30,	April 30,
	2005	2005
Assets
Current assets:
Cash and equivalents	$ 70,707	$	54,557
Trade receivables — net of allowances of $657 ($585 at April 30, 2005)	49,529		46,135
Inventories	33,229		29,738
Deferred income taxes — net	1,818		1,759
Prepaid and other assets	5,442		7,657
Total current assets	160,725		139,846
Property — net	60,948		62,879
Goodwill	13,145		13,145
Intangible assets — net	1,924		1,939
Other assets	11,668		6,778
	$ 248,410	$	224,587
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$ 43,361	$	38,012
Accrued liabilities	21,958		18,290
Income taxes payable	6,293		1,582
Total current liabilities	71,612		57,884
Deferred income taxes — net	16,169		15,958
Other liabilities	7,547		7,449
Shareholders’ equity:
Preferred stock, 7% cumulative, $1 par value, aggregate liquidation
preference of $15,000 — 1,000,000 shares authorized; 150,000
shares issued; no shares outstanding	150		150
Common stock, $.01 par value — authorized 50,000,000 shares;
issued 41,037,260 shares (41,018,960 shares at April 30, 2005)	410		410
Additional paid-in capital	19,782		19,679
Retained earnings	150,740		141,057
Treasury stock — at cost:
Preferred
stock — 150,000 shares	(5,100	)	(5,100	)
Common stock
— 4,032,784 shares	(12,900	)	(12,900	)
Total shareholders’ equity	153,082		143,296
	$ 248,410	$	224,587

See accompanying Notes to Condensed Consolidated Financial Statements.

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NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED JULY 30, 2005 AND JULY 31, 2004 (In thousands, except per share amounts)

	(Unaudited) — 2005	2004
Net sales	$ 142,363	$ 146,512
Cost of sales	93,035	98,175
Gross profit	49,328	48,337
Selling, general and administrative expenses	33,873	34,126
Interest expense	25	25
Other income — net	162	75
Income before income taxes	15,592	14,261
Provision for income taxes	5,909	5,405
Net income	$ 9,683	$ 8,856
Net income
per share —
Basic	$ .26	$ .24
Diluted	$ .25	$ .23
Average common shares outstanding — basic	37,619	37,560
Dilutive stock options	640	704
Average commons shares outstanding — diluted	38,259	38,264

See accompanying Notes to Condensed Consolidated Financial Statements.

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NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JULY 30, 2005 AND JULY 31, 2004 (In thousands)

	(Unaudited) — 2005	2004
Operating Activities:
Net income	$ 9,683	$	8,856
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization	3,305		3,039
Deferred income tax provision (benefit)	152		(108	)
Loss on sale of assets	176		5
Changes in assets and liabilities:
Trade receivables	(3,394	)	(4,112	)
Inventories	(3,491	)	(2,878	)
Prepaid and other assets	(3,429	)	2,289
Accounts payable	5,349		1,603
Accrued and other liabilities, net	8,503		2,513
Net cash provided by operating activities	16,854		11,207
Investing Activities:
Marketable securities purchased	(72,850	)	(32,000	)
Marketable securities sold	72,850		23,000
Property additions	(1,518	)	(2,277	)
Proceeds from sale of assets	737		—
Net cash used in investing activities	(781	)	(11,277	)
Financing Activities:
Proceeds from stock options exercised	77		47
Net cash provided by financing activities	77		47
Net Increase (Decrease) in Cash and Equivalents	16,150		(23	)
Cash and Equivalents — Beginning of Year	54,557		25,365
Cash and Equivalents — End of Period	$ 70,707	$	25,342
Other Cash Flow Information:
Interest paid	$ 26	$	26
Income taxes paid	200		198

See accompanying Notes to Condensed Consolidated Financial Statements.

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NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JULY 30, 2005 (UNAUDITED)

1. BASIS OF PRESENTATION

National Beverage Corp. develops, manufactures, markets and distributes a complete portfolio of quality non-alcoholic beverage products throughout the United States. 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, 2005.

2. STOCK-BASED COMPENSATION

As provided by SFAS 123, we use the intrinsic value method to account for stock based compensation awarded to employees, which generally does not recognize any compensation expense with respect to such awards unless the exercise price of options granted is less than the market price on the date of grant. SFAS 123R, which will be effective for fiscal 2007, requires the use of the fair value method for all share-based payments. Had the fair value method been used, net income and basic and diluted earnings per share for the three-month periods ended July 30, 2005 and July 31, 2004 would have been reduced on a pro forma basis by less than $100,000 and $.01 per share for each period.

During the three months ended July 30, 2005, options for 18,300 shares were exercised at a weighted average exercise price of $4.20. At July 30, 2005, options to purchase 957,358 shares at a weighted average exercise price of $2.72 were outstanding and stock-based awards to purchase 2,959,902 shares of common stock were available for grant.

3. INVENTORIES

Inventories are stated at the lower of first-in, first-out cost or market. Inventories at July 30, 2005 are comprised of finished goods of $19,532,000 and raw materials of $13,697,000. Inventories at April 30, 2005 are comprised of finished goods of $17,411,000 and raw materials of $12,327,000.

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4. PROPERTY

Property consists of the following:

	(In thousands) — July 30,	April 30,
	2005	2005
Land	$ 9,738	$	10,187
Buildings and improvements	38,504		38,743
Machinery and equipment	120,862		119,850
Total	169,104		168,780
Less accumulated depreciation	(108,156	)	(105,901	)
Property
— net	$ 60,948	$	62,879

Depreciation expense was $2,536,000 and $2,388,000 for the three-month periods ended July 30, 2005 and July 31, 2004, respectively.

5. DEBT AND LEASE COMMITMENTS

A subsidiary maintains unsecured revolving credit facilities aggregating $45 million (the “Credit Facilities”) with banks. The Credit Facilities expire through May 1, 2007 and bear interest at 1 / 2 % below the banks’ reference rate or 3 / 4 % above LIBOR, at the subsidiary’s election. At July 30, 2005, there was no outstanding debt under the Credit Facilities and approximately $42 million was available for future borrowings.

The Credit Facilities require the subsidiary to maintain certain financial ratios and contain other restrictions, none of which are expected to have a material impact on our operations or financial position. Significant financial ratios and restrictions include: fixed charge coverage; net worth ratio; and limitations on incurrence of debt. At July 30, 2005, we were in compliance with all loan covenants and approximately $25 million of retained earnings were restricted from distribution.

In July 2005, the Company entered into an equipment lease. Under the terms of the lease, the Company has guaranteed a residual value of the equipment at the end of the lease term (approximately $11.6 million). No liability has been recorded for the guarantee as management believes that the potential recovery of value from the equipment when sold will be greater than the residual value.

6. COMMON STOCK

In January 1998, the Board of Directors authorized the purchase of up to 800,000 shares of National Beverage common stock. There were no shares purchased during the three months ended July 30, 2005 and aggregate shares purchased since January 1998 was 502,060. Such shares are classified as treasury stock.

7. FRUCTOSE SETTLEMENT

In June 2005, we received approximately $7.7 million from the settlement of our claim in a class action lawsuit known as “In re: High Fructose Corn Syrup Antitrust Litigation Master File No. 95-1477 in the United States District Court for the Central District of Illinois”. The lawsuit related to purchases of high fructose corn syrup made by the Company and others. The settlement amount was allocated to each class action recipient based on the proportion of its purchases to total purchases by all class action recipients. The proceeds less offsets and expenses

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of $.5 million were recorded as a reduction in cost of sales in the first quarter ended July 30, 2005. The amount received to date represents approximately 90% of the expected recovery and payment of the remaining balance is subject to final resolution of all claims.

8. CHANGES IN ACCOUNTING STANDARDS

Management has reviewed the current changes in accounting standards and does not expect any of these changes to have a material impact on the Company.

9. RECLASSIFICATIONS

Reclassifications have been made to prior year amounts to conform to the current year presentation, including reclassifications to our Condensed Consolidated Statements of Cash Flows for the first quarter of fiscal 2005 to reflect the gross purchases and sales of auction rate securities as investing activities rather than as a component of cash and equivalents.

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ITEM 2. 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. When used in this report, the terms “we,” “us,” “our,” “Company” and “National Beverage” mean National Beverage Corp. and its subsidiaries.

Our lines of multi-flavored soft drinks, including those of our flagship brands, Shasta® and Faygo ®, emphasize distinctive flavor variety. In addition, we offer an assortment of premium beverages 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 and spring water products. We also produce specialty products, including Rip It™, an energy drink geared toward young consumers, Ohana® fruit-flavored drinks and St. Nick’s® holiday soft drinks. Substantially all of our brands are produced in 14 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 retail grocery chains, warehouse clubs, mass-merchandisers and wholesalers (“allied brands”) as well as soft drinks for other beverage companies.

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 new 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 is composed 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 specific measures to expand distribution in this channel. These include development of products specifically targeted to this market, such as ClearFruit, Everfresh, Mr. Pure, Crystal Bay, and Rip It. Additionally, we have created proprietary and specialized packaging for these products with distinctive graphics. 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

Three Months Ended July 30, 2005 (first quarter of fiscal 2006) compared to Three Months Ended July 31, 2004 (first quarter of fiscal 2005)

Net sales for the three months ended July 30, 2005 decreased approximately 1.6% to $142.4 million compared to the first quarter of fiscal 2005, after adjusting for the $1.8 million received last year from a customer relative to a recovery of pricing and promotional allowances for product shipped in a previous period. This decrease was primarily the result of an 11.7% volume decline of allied branded product related to our decision to eliminate certain lower margin business. Branded volume declined 1.7% as a result of price increases initiated last year to offset raw material cost increases. However, the related sales decline was offset by pricing improvements and favorable product mix changes, including increased sales of our energy drink, Rip It. Excluding the $1.8 million noted above, net sales per unit increased approximately 2.1% during the first quarter of fiscal 2006.

Gross profit approximated 34.6% of net sales for the first quarter of fiscal 2006 and 33.0% of net sales for the first quarter of fiscal 2005. This increase was due to net proceeds of $7.2 million received from a fructose settlement partially offset by the effects of higher cost of goods sold, lower volume, and the $1.8 million noted above. Excluding the fructose settlement, cost of goods sold per unit increased approximately 5.9%, primarily due to higher packaging and energy costs. See Note 7 of Notes to Condensed Consolidated Financial Statements.

Selling, general and administrative expenses were $33.9 million or 23.8% of net sales for the first quarter of fiscal 2006, compared to $34.1 million or 23.3% of net sales for last year. The decrease in expenses was due primarily to lower distribution and marketing costs of $321,000 and $482,000, respectively, related to the decline in sales volume.

Other income includes interest income of $293,000 (fiscal 2006) and $80,000 (fiscal 2005). The increase in interest income is due to higher invested balances and investment yields. Also, other income in the first quarter of fiscal 2006 includes a loss of $176,000 on the disposal of property.

The Company’s effective rate for income taxes, based upon estimated annual income tax rates, approximated 37.9% of income before taxes for the first quarter of fiscal 2006 and fiscal 2005. 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.

Net income was $9,683,000 for the first quarter of fiscal 2006, compared to $8,856,000 for the first quarter of fiscal 2005.

LIQUIDITY AND FINANCIAL CONDITION

Capital Resources

Our current sources of capital are cash flow from operations and borrowings under existing credit facilities. We maintain unsecured revolving credit facilities aggregating $45 million of which approximately $42 million was available for future borrowings at July 30, 2005. We believe that existing capital resources are sufficient to meet our capital requirements and those of the parent company for the foreseeable future.

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Cash Flows

During the first three months of fiscal 2006, we generated cash of $16.9 million from operating activities, which was partially offset by $781,000 expended for investing activities. Cash provided by operating activities increased $5.6 million primarily due to an increase in earnings and a decrease in working capital requirements. Cash used in investing activities decreased $10.5 million due to a change in net marketable securities purchased and a decline in property additions.

Financial Position

During the first three months of fiscal 2006, our working capital increased $7.2 million to $89.1 million primarily due to cash generated from operations. The increase in trade receivables, inventories and accounts payable was due to higher sales volume related to seasonality. At July 30, 2005, the current ratio was 2.2 to 1 compared to 2.4 to 1 at April 30, 2005.

Liquidity

We continually evaluate capital projects designed to expand capacity and improve efficiency at our manufacturing facilities. In fiscal 2005, we incurred increased capital expenditures to enhance packaging capabilities and improve manufacturing efficiencies. Such programs are expected to continue in fiscal 2006; however, capital expenditures in fiscal 2006 should not exceed fiscal 2005 amounts.

FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q (this “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 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. 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There are no material changes to the disclosures made on this matter in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2005.

ITEM 4. CONTROLS AND PROCEDURES

As of July 30, 2005, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Principal

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Financial Officer (“PFO”). Based on that evaluation, our CEO and PFO concluded that our disclosure controls and procedures as of July 30, 2005 were effective in timely alerting them to material information required to be included in this report. There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)	Exhibits:
	Exhibit 20.1	Audit Committee Charter
	Exhibit 31.1	Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
	Exhibit 31.2	Certification of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
	Exhibit 32.1	Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
	Exhibit 32.2	Certification of Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b)	Reports on Form 8-K:
	On August 1, 2005, the Company filed a Form 8-K Current Report regarding a press release
issued July 29, 2005, announcing the Company’s financial results for the fiscal year
ended April 30, 2005.

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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: September 13, 2005

National Beverage Corp. (Registrant)
By:	/s/ Dean A. McCoy
	Dean A. McCoy
	Senior Vice President and Chief Accounting Officer

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