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NATIONAL BEVERAGE CORP - Quarter Report: 2003 August (Form 10-Q)

NATIONAL BEVERAGE CORP. 8/2/2003
Table of Contents



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 August 2, 2003

Commission file number 1-14170

NATIONAL BEVERAGE CORP.

(Exact name of registrant as specified in its charter)

NATIONAL BEVERAGE CORP LOGO

     
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 (X) No (  )

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

The number of shares of registrant’s common stock outstanding as of September 8, 2003 was 18,249,128.

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TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
CEO CERTIFICATION PURSUANT SECTION 302
PFO CERTIFICATION PURSUANT SECTION 302
CEO CERTIFICATION PURSUANT SECTION 906
PFO CERTIFICATION PURSUANT SECTION 906


Table of Contents



NATIONAL BEVERAGE CORP.
QUARTERLY REPORT ON FORM 10-Q

INDEX

PART I — FINANCIAL INFORMATION

                   
      Page        
     
       
Item 1. Financial Statements
               
 
Condensed Consolidated Balance Sheets as of August 2, 2003 and May 3, 2003
    3          
 
Condensed Consolidated Statements of Income for the three months ended August 2, 2003 and July 27, 2002
    4          
 
Condensed Consolidated Statements of Cash Flows for the three months ended August 2, 2003 and July 27, 2002
    5          
 
Notes to Condensed Consolidated Financial Statements
    6          
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
    8          
Item 3. Quantitative and Qualitative Disclosures About Market Risk
    10          
Item 4. Controls and Procedures
    10          
PART II — OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
    11          

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Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF AUGUST 2, 2003 AND MAY 3, 2003

(In thousands, except share amounts)


                     
        (Unaudited)
        August 2,   May 3,
        2003   2003
       
 
Assets
               
Current assets:
               
   
Cash and equivalents
  $ 61,817     $ 60,334  
   
Trade receivables — net of allowances of $580 ($562 at May 3, 2003)
    53,519       41,031  
   
Inventories
    33,635       28,695  
   
Deferred income taxes
    1,701       1,678  
   
Prepaid and other
    3,345       4,685  
 
   
     
 
   
Total current assets
    154,017       136,423  
Property — net
    60,843       60,432  
Goodwill
    13,145       13,145  
Intangible assets — net
    1,995       2,011  
Other assets
    5,832       6,184  
 
   
     
 
 
  $ 235,832     $ 218,195  
 
   
     
 
Liabilities and Shareholders’ Equity
               
Current liabilities:
               
   
Accounts payable
  $ 40,201     $ 34,969  
   
Accrued liabilities
    19,964       18,657  
   
Income taxes payable
    4,689       1,862  
   
Current maturities of long-term debt
    1,200       1,150  
 
   
     
 
   
Total current liabilities
    66,054       56,638  
Long-term debt
          300  
Deferred income taxes
    15,078       14,843  
Other liabilities
    3,138       3,122  
Commitments and contingencies
               
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 22,257,112 (22,250,202 shares at May 3, 2003)
    223       223  
   
Additional paid-in capital
    16,866       16,818  
   
Retained earnings
    152,296       143,846  
   
Treasury stock — at cost:
               
   
  Preferred stock - 150,000 shares
    (5,100 )     (5,100 )
   
  Common stock - 4,030,784 shares (4,014,784 shares at May 3, 2003)
    (12,873 )     (12,645 )
 
   
     
 
   
Total shareholders’ equity
    151,562       143,292  
 
   
     
 
 
  $ 235,832     $ 218,195  
 
   
     
 

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 AUGUST 2, 2003 AND JULY 27, 2002

(In thousands, except per share amounts)


                   
      (Unaudited)
      2003   2002
     
 
Net sales
  $ 145,665     $ 142,877  
Cost of sales
    97,037       95,404  
 
   
     
 
Gross profit
    48,628       47,473  
Selling, general and administrative expenses
    35,108       34,551  
Interest expense
    36       120  
Other income — net
    137       225  
 
   
     
 
Income before income taxes
    13,621       13,027  
Provision for income taxes
    5,171       4,976  
 
   
     
 
Net income
  $ 8,450     $ 8,051  
 
   
     
 
Net income per share -
               
 
Basic
  $ .46     $ .44  
 
   
     
 
 
Diluted
  $ .44     $ .42  
 
   
     
 
Average common shares outstanding -
               
 
Basic
    18,417       18,395  
 
   
     
 
 
Diluted
    19,069       19,059  
 
   
     
 

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 AUGUST 2, 2003 AND JULY 27, 2002

(In thousands)


                     
        (Unaudited)
        2003   2002
       
 
Operating Activities:
               
Net income
  $ 8,450     $ 8,051  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
 
Depreciation and amortization
    2,809       2,773  
 
Deferred income tax provision
    212       220  
 
(Gain) loss on sale of property
    5       (6 )
 
Changes in assets and liabilities:
               
   
Trade receivables
    (12,488 )     (5,983 )
   
Inventories
    (4,940 )     1,141  
   
Prepaid and other assets
    1,024       1,286  
   
Accounts payable
    5,232       (4,465 )
   
Accrued and other liabilities, net
    4,178       5,319  
 
   
     
 
Net cash provided by operating activities
    4,482       8,336  
 
   
     
 
Investing Activities:
               
Property additions
    (2,543 )     (1,356 )
Proceeds from sale of assets
    2       56  
 
   
     
 
Net cash used in investing activities
    (2,541 )     (1,300 )
 
   
     
 
Financing Activities:
               
Debt repayments
    (250 )     (200 )
Purchase of common stock
    (228 )      
Proceeds from stock options exercised
    20        
 
   
     
 
Net cash used in financing activities
    (458 )     (200 )
 
   
     
 
Net Increase in Cash and Equivalents
    1,483       6,836  
Cash and Equivalents — Beginning of Year
    60,334       42,646  
 
   
     
 
Cash and Equivalents — End of Period
  $ 61,817     $ 49,482  
 
   
     
 
Other Cash Flow Information:
               
Interest paid
  $ 30     $ 120  
Income taxes paid
    880       1,698  

See accompanying Notes to Condensed Consolidated Financial Statements.

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NATIONAL BEVERAGE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 2, 2003
(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 generally accepted accounting principles for interim financial information. The financial statements do not include all information and notes required by generally accepted accounting principles for complete financial statements. Except for the matters disclosed herein, there has been no material change in the information disclosed in the notes to consolidated financial statements for the fiscal year ended May 3, 2003. In our opinion, all adjustments (consisting of normal recurring accruals) 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.

2.     STOCK-BASED COMPENSATION

We apply Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations, in accounting for stock-based awards to employees. Under APB 25, we generally recognize no 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. Had compensation cost for our option plans been determined and recorded consistent with the Black-Scholes option pricing model in accordance with SFAS 123, net income and earnings per share for the three-month periods ended August 2, 2003 and July 27, 2002 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 August 2, 2003, options for 6,910 shares were exercised at prices ranging from $2.09 to $9.88 per share. At August 2, 2003, options to purchase 930,766 shares at a weighted average exercise price of $4.36 (ranging from $.01 to $9.88 per share) were outstanding and stock-based awards to purchase 1,172,374 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 August 2, 2003 are comprised of finished goods of $17,992,000 and raw materials of $15,643,000. Inventories at May 3, 2003 are comprised of finished goods of $16,288,000 and raw materials of $12,407,000.

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4.     PROPERTY

Property consists of the following:

                 
    (In thousands)
    August 2,   May 3,
    2003   2003
   
 
Land
  $ 10,635     $ 10,625  
Buildings and improvements
    36,524       36,331  
Machinery and equipment
    105,066       102,832  
 
   
     
 
Total
    152,225       149,788  
Less accumulated depreciation
    (91,382 )     (89,356 )
 
   
     
 
Property — net
  $ 60,843     $ 60,432  
 
   
     
 

Depreciation expense was $2,125,000 and $2,145,000 for the three-month periods ended August 2, 2003 and July 27, 2002, respectively.

5.     DEBT

Certain subsidiaries maintain unsecured revolving credit facilities aggregating $45 million (the “Credit Facilities”) and an unsecured term loan facility (“Term Loan Facility”) with banks. The Credit Facilities expire through December 10, 2004 and bear interest at 1/2% below the banks’ reference rate or 1% above LIBOR, at the subsidiaries’ election. At August 2, 2003, approximately $42 million was available under the Credit Facilities. The Term Loan Facility is repayable in installments through July 31, 2004, and bears interest at the bank’s reference rate or 1 1/4% above LIBOR, at the subsidiary’s election. At August 2, 2003, the outstanding balance under the Term Loan Facility was $1,200,000.

Debt agreements require subsidiaries 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. At August 2, 2003, retained earnings of approximately $28 million were restricted from distribution and we were in compliance with all loan covenants.

6.     COMMON STOCK

In January 1998, the Board of Directors authorized the purchase of up to 800,000 shares of National Beverage common stock. During the three months ended August 2, 2003, the Company purchased 16,000 shares and aggregate shares purchased since January 1998 was 500,060. Such shares are classified as treasury stock.

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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 non-alcoholic beverage products throughout the United States. 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 toward 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 VooDoo Rain®, a line of alternative beverages 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 branded products by offering a beverage portfolio of proprietary flavors; by supporting the franchise value of regional brands; by developing and acquiring innovative products tailored toward healthy lifestyles; and by appealing to the “quality-price” sensitivity factor of the family consumer. We believe that the “regional share dynamics” of our brands possess consumer loyalty within local markets and generate more aggressive 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 VooDoo Rain, ClearFruit, Everfresh, Mr. Pure, Ritz® and Crystal Bay. 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 August 2, 2003 (first quarter of fiscal 2004) Compared to Three Months Ended July 27, 2002 (first quarter of fiscal 2003)

Net sales for the three months ended August 2, 2003 increased 2% to $145.7 million compared to the first quarter of fiscal 2003. This increase was primarily the result of volume growth of our branded soft drinks, which was partially offset by a decline in allied branded volume.

Gross profit approximated 33.4% of net sales for the first quarter of fiscal 2004 and 33.2% of net sales for the first quarter of fiscal 2003. This improvement was due to an increase in higher margin branded business partially offset by increases in certain raw material costs.

Selling, general and administrative expenses were $35.1 million or 24.1% of net sales for the first quarter of fiscal 2004, compared to $34.6 million or 24.2% of net sales for last year. Changes in product and distribution mix resulted in higher selling and distribution costs, which were partially offset by a decline in administrative costs.

Interest expense declined during the first quarter of fiscal 2004 compared to the prior year due to reductions in average debt outstanding and interest rates. Other income, which is comprised primarily of interest income, decreased due to lower investment yields and increased investments in tax-exempt securities.

The Company’s effective rate for income taxes, based upon estimated annual income tax rates, approximated 38.0% of income before taxes for the first quarter of fiscal 2004 and 38.2% for fiscal 2003. The difference between the effective rate and the federal statutory rate of 35% was primarily due to the effects of state income taxes and non-deductible expenses.

Net income was $8,450,000 for the first quarter of fiscal 2004, compared to $8,051,000 for the first quarter of fiscal 2003.

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 August 2, 2003. We believe that existing capital resources are sufficient to meet our capital requirements and those of the parent company for the foreseeable future.

Cash Flows

During the first quarter of fiscal 2004, we generated cash of $4.5 million from operating activities, which was partially offset by $2.5 million expended for investing activities and $458,000 expended for financing activities. Cash provided by operating activities decreased $3.9 million primarily due to increases in trade receivables and inventories. Cash used in investing activities increased $1.2 million due to an increase in property additions, while cash used in financing activities increased slightly reflecting higher net debt repayments and common stock purchases.

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Financial Position

During the first quarter of fiscal 2004, our working capital increased $8.2 million to $88.0 million from $79.8 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. The decrease in prepaid and other is due to changes in income tax refund receivables. At August 2, 2003, the current ratio was 2.3 to 1 compared to 2.4 to 1 at May 3, 2003.

Liquidity

We periodically evaluate capital projects designed to expand capacity and improve efficiency at our manufacturing facilities. We presently have no material commitments for capital expenditures and expect that fiscal 2004 capital expenditures will be comparable to fiscal 2003.

FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q (this “Form 10-Q”), including statements under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” 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 May 3, 2003.

ITEM 4. CONTROLS AND PROCEDURES

National Beverage’s Chief Executive Officer and Principal Financial Officer have concluded that disclosure controls and procedures are effective, based on their evaluation of these controls and procedures within 90 days of this report. There have been no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

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PART II — OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         
(a)   Exhibits:    
         
    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 July 22, 2003, the Company filed a Form 8-K Current Report regarding a press release issued July 22, 2003, announcing the Company’s earnings for the fiscal year ended May 3, 2003.

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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 16, 2003        
 
         
 
    National Beverage Corp.
(Registrant)
 
         
 
    By:   /s/ Dean A. McCoy

Dean A. McCoy
Senior Vice President - Controller
and Chief Accounting Officer

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