National Beverage (FIZZ) - 2019 Q4 - Annual Report

PART I Business Overview National Beverage Corp. specializes in innovative healthy beverages, leveraging flavor innovation, efficient marketing, and a vertically integrated system for competitive advantage in its primary US and Canadian markets - National Beverage Corp. differentiates itself in the beverage industry through unique flavors, innovative packaging and marketing, and rapid response to consumer demand for healthier beverages[9][11][12] - The company's primary markets are concentrated in the United States and Canada, with consideration for expanding distribution to other regions[17] - The company employs a vertically integrated production model with 12 strategic manufacturing facilities for efficient production, distribution, quality control, and flavor innovation[33][34][35] - The company serves a diverse customer base through a hybrid distribution system, including warehouse and direct store delivery, covering at-home, convenience, and foodservice channels[37][38][40] Company Overview National Beverage Corp. offers sparkling water, juices, energy drinks, and carbonated soft drinks, focusing on healthier options to meet evolving consumer habits and lifestyles - National Beverage Corp. offers sparkling water, juices, energy drinks, and carbonated soft drinks, focusing on developing healthier beverages to meet changing consumer habits and lifestyles[9] - The company achieves a differentiated competitive advantage through flavor innovation, innovative marketing, packaging design, consumer interaction, and rapid response to market trends[11][12][16] Brand Portfolio The company's brand portfolio includes "Power+ Brands" like LaCroix sparkling water, Rip It energy drinks, Everfresh juices, and carbonated soft drinks such as Shasta and Faygo, with LaCroix being a core brand - The company's brand portfolio includes for active and health-conscious consumers "Power+ Brands" (e.g., LaCroix sparkling water, Rip It energy drinks, Everfresh juices) and carbonated soft drinks (e.g., Shasta and Faygo)[19] - LaCroix sparkling water is the company's most significant brand, recognized as the best-selling domestic sparkling water in the US due to its zero calories, zero sweeteners, and zero sodium attributes[21] - At the end of fiscal year 2019, the company launched three new LaCroix NiCola flavors: Coconut Cola, Cubana (Mojito), and Coffea Exotica (Sumatra Coffee & Cola), targeting "crossover consumers" from cola and diet cola categories[23] - The company continuously reformulates many brands to reduce calorie content while maintaining classic flavors, committed to offering healthier beverage options[32] Production The company employs a vertically integrated production philosophy with 12 strategic manufacturing facilities, integrating raw material sourcing, flavor creation, and finished product production for efficient market coverage and quality control - The company adheres to a vertically integrated production philosophy, combining raw material procurement, flavor and concentrate creation, and finished product manufacturing, with 12 strategically located production facilities efficiently covering most of the US market[33] - By controlling all national production, distribution, and marketing aspects, the company effectively manages quality control, consumer appeal, and rapidly responds to market changes, which is considered an advantage over competitors relying on third-party bottlers[34][35] Distribution The company utilizes a hybrid distribution system across three main channels—at-home, convenience, and foodservice—to serve a diverse customer base, also employing vending machines and coolers for marketing - The company employs a hybrid distribution system, distributing products through three main channels (at-home, convenience, and foodservice) to serve a diverse customer base, including national retailers and smaller outlets[37][38][40][41] - The company uses vending machines and glass-door coolers as marketing and promotional tools to expand on-site trials, increase sales, and enhance brand awareness[42] Sales and Marketing The company conducts product sales and marketing through an internal sales team and a network of professional brokers, with strategies focusing on innovative digital marketing, social media engagement, and regional events to enhance brand recognition - The company conducts product sales and marketing through an internal sales team and a network of professional brokers, organized by specific markets, geographic areas, distribution channels, or product lines[43] - Marketing strategies focus on direct consumer engagement through innovative digital marketing, social media interaction, sponsorships, and creative content, combined with regional events, in-store promotions, and brand ambassadors to enhance brand awareness and loyalty[45][46] Raw Materials The company procures raw materials like aluminum cans, bottles, water, CO2, juices, and sweeteners through a centralized purchasing department, self-producing most flavor concentrates, and hedging against price fluctuations via agreements - The company establishes supplier relationships through a centralized purchasing department, procuring various raw materials such as aluminum cans, glass and plastic bottles, water, carbon dioxide, juice and flavor concentrates, and sweeteners, while self-producing most flavors and concentrates[47][48] - Raw material prices are influenced by global commodity market conditions, and the company partially hedges against cost fluctuations through multi-year supply agreements and derivative financial instruments[49] Seasonality The company's operating performance is influenced by raw material cost fluctuations, holidays, seasonal promotions, and weather conditions, with higher sales typically occurring in the summer - The company's operating results are affected by various factors including raw material cost fluctuations, holidays, seasonal promotions, and weather conditions, with higher sales volumes during the summer due to increased outdoor activities[51] Competition The beverage industry is highly competitive, with company products competing against various liquid beverages; major competitors possess greater financial resources, while the company differentiates through innovation, brand recognition, and efficient distribution - The beverage industry is highly competitive, with company products competing against various liquid beverages, including water, soft drinks, juices, and energy drinks, and major competitors like Nestlé, PepsiCo, and Coca-Cola possess greater financial resources[53] - The company differentiates its competition through innovative approaches, key brand recognition, focused social media presence, innovative flavor diversity, attractive packaging, efficient distribution methods, and value pricing for certain product lines[54] Trademarks The company possesses numerous brand trademarks crucial to its business and plans to continuously maintain the registration and use of all significant trademarks - The company owns numerous brand trademarks essential to its business and plans to continue maintaining the registration and use of all important trademarks[55] Governmental Regulation The production, distribution, and sale of the company's products are subject to various federal, state, and local laws and regulations, and the company believes it complies with existing regulations in all material respects - The production, distribution, and sale of the company's products are subject to various federal, state, and local laws and regulations, including those related to food, drugs, occupational safety, and environmental protection[57] - The company believes it complies with existing regulations in all material respects, and compliance with environmental regulations has not had a material adverse effect on its financial or competitive position[57][59] Employees As of April 27, 2019, the company employed approximately 1,640 individuals, with 380 employees covered by collective bargaining agreements, maintaining good employee relations - As of April 27, 2019, the company employed approximately 1,640 individuals, with 380 employees covered by collective bargaining agreements, and maintains good employee relations[60] Available Information The company's annual reports (Form 10-K), quarterly reports (Form 10-Q), current reports (Form 8-K), proxy statements, and amendments are freely available on its website - The company's annual reports (Form 10-K), quarterly reports (Form 10-Q), current reports (Form 8-K), proxy statements, and amendments are freely available on the company's website[61] Risk Factors The company faces multiple risks including brand image, consumer preferences, market competition, customer relationships, raw material and energy cost fluctuations, government regulation, rising employee benefit costs, and reliance on key personnel - Changes in brand image and consumer preferences pose a primary risk, as negative publicity or quality issue allegations could harm the company's reputation, potentially impacting financial performance if consumer trends are not adapted to[64] - The beverage industry is highly competitive, with major competitors possessing greater resources, and discounting and promotional activities could impact the company's revenue and profit[65] - Fluctuations in raw material prices (e.g., aluminum, resins, corn, juices) and energy costs (e.g., natural gas, fuel, electricity), along with supply disruptions, could lead to increased costs that are difficult to pass on to customers[67] - Government regulations, including potential soft drink taxes, and continuously rising employee benefit costs could also negatively impact the company's financial performance[68][69] Unresolved Staff Comments The company reports no unresolved staff comments - The company has no unresolved staff comments[78] Properties The company owns and leases 12 production facilities, totaling approximately 2 million square feet across 10 states, which are in good condition and sufficient for current needs, with ongoing investment in efficient equipment - The company owns 12 production facilities, 10 of which are owned and 2 are leased, totaling approximately 2 million square feet across 10 states, sufficient to meet current production needs[73] - Beverage production is a capital-intensive industry where technological advancements primarily result in incremental cost savings, and the company continuously invests in more efficient equipment, anticipating no industry technological changes that would adversely affect existing capacity or production costs[74] Legal Proceedings The company is a defendant in multiple legal proceedings, including derivative and class-action lawsuits alleging synthetic ingredients in LaCroix brand products, but believes these claims lack merit and will not materially adversely affect its financial condition or operations - The company faces multiple legal proceedings, including class-action lawsuits alleging that LaCroix brand products contain synthetic ingredients[76][193] - The company firmly believes these lawsuits lack merit and is actively defending them, expecting no material adverse effect on its financial condition, cash flows, or operating results[76][193] Mine Safety Disclosures The company reports that mine safety disclosures are not applicable - Mine safety disclosures are not applicable[76] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock is listed on the Nasdaq Global Select Market, with approximately 27,500 shareholders as of June 14, 2019, having paid special cash dividends, and its stock performance over the past five years outperformed major indices but lagged its self-constructed peer group - The company's common stock (FIZZ) is listed on the Nasdaq Global Select Market, with approximately 27,500 common stock holders as of June 14, 2019[80] Special Cash Dividend Payments | Date | Amount (Millions USD) | Amount Per Share (USD) | | :--------- | :--------------- | :--------------- | | Jan 29, 2019 | 135.2 | 2.90 | | Aug 4, 2017 | 69.9 | 1.50 | Five-Year Cumulative Total Return (May 3, 2014 = $100) | Metric | May 3, 2014 | May 2, 2015 | Apr 30, 2016 | Apr 29, 2017 | Apr 28, 2018 | Apr 27, 2019 | | :----------------------- | :------- | :------- | :-------- | :-------- | :-------- | :-------- | | National Beverage Corp. | $100.00 | $116.71 | $243.31 | $474.75 | $488.79 | $323.66 | | NASDAQ Composite –Total Return | 100.00 | 122.81 | 118.58 | 152.01 | 180.85 | 208.87 | | S&P 500 – Total Return | 100.00 | 114.38 | 114.50 | 135.02 | 154.19 | 173.21 | | Peer Group | 100.00 | 123.98 | 182.37 | 212.98 | 202.45 | 298.97 | Selected Financial Data This section provides a summary of selected financial data for the company's past five fiscal years, including operating summaries (net sales, gross profit, net income, EPS) and balance sheet data (cash and equivalents, working capital, total assets, stockholders' equity) Operating Summary (Thousands USD, except per share amounts) | Metric | Apr 27, 2019 | Apr 28, 2018 | Apr 29, 2017 | Apr 30, 2016 | May 2, 2015 | | :------------------------------------- | :------------ | :------------ | :------------ | :------------ | :----------- | | Net Sales | 1,014,105 | 975,734 | 826,918 | 704,785 | 645,825 | | Cost of Sales | 629,755 | 584,599 | 500,841 | 463,348 | 426,685 | | Gross Profit | 384,350 | 391,135 | 326,077 | 241,437 | 219,140 | | Selling, General and Administrative Expenses | 204,415 | 186,947 | 163,600 | 148,384 | 145,157 | | Interest Expense | 202 | 201 | 189 | 203 | 371 | | Other (Income) Expense - Net | (4,144) | (1,502) | (537) | 145 | (1,101) | | Income Before Income Taxes | 183,877 | 205,489 | 162,825 | 92,705 | 74,713 | | Provision for Income Taxes | 43,024 | 55,715 | 55,780 | 31,507 | 25,402 | | Net Income | 140,853 | 149,774 | 107,045 | 61,198 | 49,311 | | Basic Earnings Per Share | 3.02 | 3.21 | 2.30 | 1.31 | 1.06 | | Diluted Earnings Per Share | 3.00 | 3.19 | 2.29 | 1.31 | 1.05 | | Stock Price at Period End | 57.50 | 89.78 | 88.59 | 46.74 | 22.42 | | Common Stock Dividends Paid | 2.90 | 1.50 | 1.50 | - | - | Balance Sheet Data (Thousands USD) | Metric | Apr 27, 2019 | Apr 28, 2018 | Apr 29, 2017 | Apr 30, 2016 | May 2, 2015 | | :------------------------------------- | :------------ | :------------ | :------------ | :------------ | :----------- | | Cash and Cash Equivalents | 156,200 | 189,864 | 136,372 | 105,577 | 52,456 | | Working Capital | 224,420 | 248,297 | 181,115 | 143,603 | 97,130 | | Property, Plant and Equipment - Net | 111,316 | 85,807 | 65,150 | 61,932 | 60,182 | | Total Assets | 452,193 | 458,832 | 353,983 | 301,044 | 243,402 | | Long-Term Debt | - | - | - | - | 10,000 | | Deferred Income Tax Liability | 15,987 | 14,502 | 12,087 | 10,020 | 10,897 | | Stockholders' Equity | 331,609 | 331,440 | 245,618 | 206,152 | 147,782 | | Common Stock Dividends Paid | 135,247 | 69,878 | 69,850 | - | - | Management's Discussion and Analysis of Financial Condition and Results of Operations This section details the company's fiscal year 2019 financial condition and operating results, highlighting its transformation into an innovative healthy beverage company, market positioning, net sales growth, gross profit changes, ample liquidity, and key accounting policies - The company has transformed into an innovative healthy beverage company, focusing on "Better for You" products to meet consumer demand for healthier lifestyles, particularly among millennials and younger consumers seeking low-sugar, low-calorie beverages[89][91] - The company's strategy includes developing healthier beverages, emphasizing unique flavors, innovative marketing and packaging, and rapidly responding to consumer trends to achieve profitable growth[92] - The company believes its innovative business should not be analyzed solely on quarterly data due to factors like new product development, seasonal weather, and promotional packaging[97] Overview National Beverage Corp. has transformed into an innovative healthy beverage company, focusing on "Better for You" products and leveraging consumer preferences and health demands to maintain a unique market advantage amidst retail industry changes - National Beverage Corp. has transformed into an innovative healthy beverage company, focusing on "Better for You" products to meet consumer demand for healthier lifestyles[89] - The company holds unique advantages amidst retail industry changes, including consumer preference for well-known brands, retailer demand for quick and convenient shopping and home delivery, and growing consumer demand for healthy, low-sugar products[89][90][91] - The company's strategy aims to achieve profitable growth through developing healthy beverages, emphasizing unique flavors, innovative marketing, and rapidly responding to consumer trends[92] Results of Operations Fiscal year 2019 net sales grew by 3.9% due to increased Power+ Brands volume and higher average selling prices, but gross profit slightly decreased due to rising aluminum and manufacturing costs, while SG&A expenses increased from higher transportation and marketing outlays Net Sales and Gross Profit Changes | Metric | FY 2019 (Thousands USD) | FY 2018 (Thousands USD) | FY 2017 (Thousands USD) | FY 2019 YoY Change | FY 2018 YoY Change | | :--------- | :----------------- | :----------------- | :----------------- | :--------------- | :--------------- | | Net Sales | 1,014,105 | 975,734 | 826,918 | +3.9% | +18.0% | | Gross Profit | 384,350 | 391,135 | 326,077 | -1.7% | +20.0% | | Gross Margin | 37.9% | 40.1% | 39.4% | -2.2 percentage points | +0.7 percentage points | - Fiscal year 2019 net sales growth was primarily driven by a 5.0% increase in branded product volume and higher average selling prices, with Power+ Brands volume growing by 8.9%[100] - The 1.7% decrease in fiscal year 2019 gross profit was primarily due to a 7.7% increase in cost per case sold (rising aluminum and manufacturing costs), partially offset by higher volume of high-margin Power+ Brands; manufacturing costs were temporarily impacted by production disruptions from capacity expansion capital projects[102] Selling, General and Administrative Expenses (SG&A) | Metric | FY 2019 (Thousands USD) | FY 2018 (Thousands USD) | FY 2017 (Thousands USD) | FY 2019 YoY Change | FY 2018 YoY Change | | :--------- | :----------------- | :----------------- | :----------------- | :--------------- | :--------------- | | SG&A Expenses | 204,415 | 186,947 | 163,600 | +$17.5 million | +$23.3 million | | % of Net Sales | 20.2% | 19.2% | 19.8% | +1.0 percentage point | -0.6 percentage points | - The increase in fiscal year 2019 SG&A expenses was primarily due to higher transportation costs and marketing expenditures[105] Income Tax Information | Metric | FY 2019 | FY 2018 | FY 2017 | | :------------- | :------- | :------- | :------- | | Effective Tax Rate | 23.4% | 27.1% | 34.3% | | Federal Statutory Tax Rate | 21.0% | 30.4% | 35.0% | | Income Before Income Taxes (Thousands USD) | 183,877 | 205,489 | 162,825 | | Provision for Income Taxes (Thousands USD) | 43,024 | 55,715 | 55,780 | - The decrease in the effective tax rate was primarily due to the lower statutory tax rate resulting from the Tax Cuts and Jobs Act; the fiscal year 2018 effective tax rate included a $4.3 million one-time adjustment for the remeasurement of deferred tax liabilities[109][191] Liquidity and Financial Condition The company has a $100 million unsecured revolving credit facility with no outstanding borrowings, possesses sufficient capital resources, incurred $38.3 million in fiscal year 2019 capital expenditures primarily for capacity expansion, and experienced decreased operating cash flow due to lower net income and increased working capital - The company has a $100 million unsecured revolving credit facility with no outstanding borrowings as of April 27, 2019, and believes its existing capital resources are sufficient to meet liquidity and capital needs for the next 12 months[110][177] - Capital expenditures for fiscal year 2019 were $38.3 million, primarily for expanding production capacity, and are expected to decrease in fiscal year 2020[111] Cash Flow Summary (Thousands USD) | Activity | FY 2019 | FY 2018 | FY 2017 | | :--------- | :------- | :------- | :------- | | Net Cash Provided by Operating Activities | 139,442 | 154,721 | 114,267 | | Net Cash Used in Investing Activities | (38,315) | (31,911) | (13,987) | | Net Cash Used in Financing Activities | (134,791) | (69,318) | (69,485) | | Net (Decrease) Increase in Cash and Cash Equivalents | (33,664) | 53,492 | 30,795 | - Fiscal year 2019 operating cash flow decreased by $15.3 million, primarily due to lower net income and increased working capital; financing activities resulted in a $134.8 million outflow, mainly comprising $135.2 million in special cash dividends[113] Working Capital and Current Ratio | Metric | Apr 27, 2019 (Thousands USD) | Apr 28, 2018 (Thousands USD) | | :--------- | :-------------------- | :-------------------- | | Working Capital | 224,420 | 248,297 | | Current Ratio | 3.3:1 | 3.4:1 | - Fiscal year 2019 working capital decreased, primarily due to a reduction in cash and cash equivalents from dividend payments, partially offset by increased inventory and decreased accounts payable[116] Contractual Obligations As of April 27, 2019, the company's total contractual obligations amounted to $71.911 million, primarily comprising operating leases and purchase commitments, in addition to contributions to pension and profit-sharing plans Contractual Obligations (As of April 27, 2019, Thousands USD) | Type | Total | Less than 1 Year | 1 to 3 Years | 3 to 5 Years | More than 5 Years | | :------------- | :----- | :------ | :----- | :----- | :------ | | Operating Leases | 52,037 | 16,105 | 21,978 | 12,251 | 1,703 | | Purchase Commitments | 19,874 | 17,485 | 2,060 | 329 | - | | Total | 71,911 | 33,590 | 24,038 | 12,580 | 1,703 | - The company contributes to certain pension plans under collective bargaining agreements and discretionary profit-sharing plans, with annual contributions totaling $3.8 million in fiscal year 2019[118] Off-Balance Sheet Arrangements The company reports no off-balance sheet arrangements that have or are reasonably likely to have a material effect on its financial condition - The company has no off-balance sheet arrangements that have or are reasonably likely to have a material effect on its financial condition[122] Critical Accounting Policies Critical accounting policies encompass credit risk management, long-lived asset impairment, income taxes, insurance programs, and revenue recognition, all involving management's estimates and assumptions about future events, with the company having adopted ASU 2014-09 - Critical accounting policies include credit risk management, long-lived asset impairment assessment, income tax accounting, insurance programs, and revenue recognition, all involving management's estimates and assumptions about future events[123][124][125][126][128][129][130] - The company adopted ASU 2014-09, "Revenue from Contracts with Customers," on April 29, 2018, which had no material impact on its consolidated financial statements[130][161][167] Forward-Looking Statements The company states that its written or oral statements may contain forward-looking information, involving known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from expectations - The company states that its written or oral statements may contain forward-looking information, involving known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from expectations[131] - Risk factors include economic and business conditions, competitive product pricing, new product success, raw material cost fluctuations, government regulations, weather conditions, and litigation risks[131] Quantitative and Qualitative Disclosure About Market Risk The company faces commodity price volatility risk, primarily for raw materials like aluminum cans, plastic bottles, and high-fructose corn syrup, managed through supplier agreements and derivative financial instruments, with no outstanding borrowings and thus no interest rate risk as of fiscal year 2019 end - The prices of raw materials procured by the company (e.g., aluminum cans, plastic bottles, high-fructose corn syrup, corrugated packaging, and juice concentrates) fluctuate due to commodity market conditions[133] - The company partially hedges against raw material cost changes through supplier pricing agreements and derivative financial instruments, such as aluminum swap contracts[133][150] - As of April 27, 2019, the company had no outstanding borrowings, thus incurring no debt-related interest rate risk in fiscal year 2019[134] Financial Statements and Supplementary Data This section includes the company's consolidated balance sheets as of April 27, 2019, and April 28, 2018, along with consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for the three years ended April 27, 2019; notes detail accounting policies, balance sheet items, debt, related party transactions, derivative financial instruments, income taxes, legal proceedings, stock-based compensation, pension plans, commitments and contingencies, and unaudited quarterly financial data, with the independent registered public accounting firm issuing an unqualified opinion on the financial statements and internal control effectiveness Consolidated Balance Sheets Summary (Thousands USD) | Metric | Apr 27, 2019 | Apr 28, 2018 | | :--------------------- | :------------ | :------------ | | Cash and Cash Equivalents | 156,200 | 189,864 | | Trade Accounts Receivable - Net | 84,841 | 84,360 | | Inventories - Net | 70,702 | 60,920 | | Prepaid Expenses and Other Assets | 9,714 | 17,823 | | Total Current Assets | 321,457 | 352,967 | | Property, Plant and Equipment - Net | 111,316 | 85,807 | | Goodwill | 13,145 | 13,145 | | Intangible Assets | 1,615 | 1,615 | | Other Assets | 4,660 | 5,298 | | Total Assets | 452,193 | 458,832 | | Accounts Payable | 66,202 | 74,853 | | Accrued Liabilities | 30,433 | 29,718 | | Income Taxes Payable | 402 | 99 | | Total Current Liabilities | 97,037 | 104,670 | | Deferred Income Taxes - Net | 15,987 | 14,502 | | Other Liabilities | 7,560 | 8,220 | | Total Stockholders' Equity | 331,609 | 331,440 | | Total Liabilities and Stockholders' Equity | 452,193 | 458,832 | Consolidated Statements of Operations Summary (Thousands USD, except per share amounts) | Metric | Apr 27, 2019 | Apr 28, 2018 | Apr 29, 2017 | | :--------------------- | :------------ | :------------ | :------------ | | Net Sales | 1,014,105 | 975,734 | 826,918 | | Cost of Sales | 629,755 | 584,599 | 500,841 | | Gross Profit | 384,350 | 391,135 | 326,077 | | Selling, General and Administrative Expenses | 204,415 | 186,947 | 163,600 | | Interest Expense | 202 | 201 | 189 | | Other Income - Net | (4,144) | (1,502) | (537) | | Income Before Income Taxes | 183,877 | 205,489 | 162,825 | | Provision for Income Taxes | 43,024 | 55,715 | 55,780 | | Net Income | 140,853 | 149,774 | 107,045 | | Basic Earnings Per Share | 3.02 | 3.21 | 2.30 | | Diluted Earnings Per Share | 3.00 | 3.19 | 2.29 | Consolidated Statements of Cash Flows Summary (Thousands USD) | Activity | Apr 27, 2019 | Apr 28, 2018 | Apr 29, 2017 | | :--------------------- | :------------ | :------------ | :------------ | | Net Cash Provided by Operating Activities | 139,442 | 154,721 | 114,267 | | Net Cash Used in Investing Activities | (38,315) | (31,911) | (13,987) | | Net Cash Used in Financing Activities | (134,791) | (69,318) | (69,485) | | Net (Decrease) Increase in Cash and Cash Equivalents | (33,664) | 53,492 | 30,795 | | Cash and Cash Equivalents at End of Period | 156,200 | 189,864 | 136,372 | - Independent registered public accounting firm RSM US LLP issued an unqualified opinion on the company's consolidated financial statements as of April 27, 2019, and April 28, 2018, and on the effectiveness of internal control over financial reporting as of April 27, 2019[220][221] 1. Significant Accounting Policies The company's financial statements adhere to US GAAP, utilize derivative financial instruments to hedge raw material cost risks, have adopted ASU 2014-09 and ASU 2018-02, and plan to adopt ASU 2016-02 in fiscal year 2020 - The company's financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and include the accounts of National Beverage Corp. and all its subsidiaries[148] - The company uses derivative financial instruments, such as aluminum swap contracts, to partially hedge against the risk of changes in raw material costs, with all derivative financial instruments recorded at fair value[150] - The company adopted ASU 2014-09, "Revenue from Contracts with Customers," and ASU 2018-02, "Reclassification of Certain Tax Effects," in fiscal year 2018, with no material impact on its consolidated financial statements[160][161] - The company plans to adopt ASU 2016-02, "Leases," in fiscal year 2020, which is expected to result in the recognition of right-of-use assets and lease liabilities representing approximately 10% of total assets on the balance sheet, but is not expected to materially impact the statements of operations and cash flows[162] 2. Property, Plant and Equipment This section provides a detailed breakdown of the company's net property, plant, and equipment, including land, buildings, and machinery, along with depreciation expenses for each fiscal year Net Property, Plant and Equipment (Thousands USD) | Metric | Apr 27, 2019 | Apr 28, 2018 | | :--------------------- | :------------ | :------------ | | Land | 9,835 | 9,500 | | Buildings and Improvements | 58,291 | 56,947 | | Machinery and Equipment | 222,243 | 194,241 | | Total | 290,369 | 260,688 | | Less: Accumulated Depreciation | (179,053) | (174,881) | | Property, Plant and Equipment – Net | 111,316 | 85,807 | - Depreciation expense was $12.8 million in fiscal year 2019, $11.1 million in fiscal year 2018, and $10.7 million in fiscal year 2017[174] 3. Accrued Liabilities This section provides a detailed breakdown of the company's accrued liabilities, including accrued compensation, promotions, freight, insurance, and other items Accrued Liabilities Details (Thousands USD) | Item | Apr 27, 2019 | Apr 28, 2018 | | :------------- | :------------ | :------------ | | Accrued Compensation | 9,506 | 9,790 | | Accrued Promotions | 6,449 | 7,011 | | Accrued Freight | 4,387 | 5,984 | | Accrued Insurance | 3,780 | 2,256 | | Other | 6,311 | 4,677 | | Total | 30,433 | 29,718 | 4. Debt As of April 27, 2019, the company's subsidiary had a $100 million unsecured revolving credit facility with no outstanding borrowings, and complying with all loan covenants, expecting no material impact on operations or financial condition - As of April 27, 2019, the company's subsidiary had a $100 million unsecured revolving credit facility with no outstanding borrowings, of which $2.1 million was used for letters of credit and $97.9 million was available for borrowing[177] - The company complies with all loan covenants, and the credit facility requires the subsidiary to maintain specific financial ratios, but this is not expected to materially impact the company's operations or financial condition[178] 5. Capital Stock and Transactions with Related Parties The company paid special cash dividends, authorized the repurchase of 1.6 million shares of common stock, and has a management agreement with Corporate Management Advisors, Inc. (CMA), owned by the Chairman and CEO, for which management fees are paid Special Cash Dividend Payments | Date | Amount (Millions USD) | Amount Per Share (USD) | | :--------- | :--------------- | :--------------- | | Jan 29, 2019 | 135.2 | 2.90 | | Aug 4, 2017 | 69.9 | 1.50 | | Jan 27, 2017 | 69.9 | 1.50 | - The company is authorized to repurchase 1.6 million shares of common stock under its stock repurchase plan, with 502,060 shares repurchased as of April 27, 2019, and no common stock repurchases in the past three fiscal years[180] - The company has a management agreement with Corporate Management Advisors, Inc. (CMA), owned by the Chairman and CEO, for senior corporate functions and innovation services; management fees paid to CMA were $10.2 million in fiscal year 2019, $9.8 million in fiscal year 2018, and $8.3 million in fiscal year 2017[184] 6. Derivative Financial Instruments The company partially hedges against aluminum can cost changes using aluminum swap contracts designated as cash flow hedges, with gains and losses from their effective portions recognized in accumulated other comprehensive income - The company partially hedges against the risk of changes in aluminum can costs through aluminum swap contracts, which are designated as cash flow hedges, with gains and losses from their effective portions recognized in accumulated other comprehensive income (AOCI)[185] Cash Flow Hedge Gains and Losses (Thousands USD) | Metric | FY 2019 | FY 2018 | FY 2017 | | :--------------------------------- | :------- | :------- | :------- | | (Loss) Gain recognized in AOCI (pre-tax) | (6,138) | 9,498 | (984) | | Less: Income tax (benefit) provision | (1,468) | 3,085 | (365) | | Net | (4,670) | 6,413 | (619) | | Gain (Loss) reclassified from AOCI to cost of sales (pre-tax) | 2,100 | 2,569 | (2,749) | | Less: Income tax provision (benefit) | 452 | 1,383 | (1,020) | | Net | 1,648 | 1,186 | (1,729) | | Net Change in AOCI | (6,318) | 5,227 | 1,110 | - As of April 27, 2019, the notional amount of outstanding aluminum swap contracts was $41.5 million, with an estimated $2.0 million of unrealized losses (pre-tax) expected to be reclassified from AOCI into cost of sales over the next 12 months[186] 7. Income Taxes This section provides details on the company's provision for income taxes, deferred tax assets and liabilities, and a reconciliation of the effective income tax rate to the federal statutory income tax rate, explaining the impact of the Tax Cuts and Jobs Act on tax rates Provision for Income Taxes (Thousands USD) | Type | FY 2019 | FY 2018 | FY 2017 | | :----- | :------- | :------- | :------- | | Current | 39,673 | 55,039 | 54,422 | | Deferred | 3,351 | 676 | 1,358 | | Total | 43,024 | 55,715 | 55,780 | Deferred Tax Assets and Liabilities (Thousands USD) | Item | Apr 27, 2019 | Apr 28, 2018 | | :----------------- | :------------ | :------------ | | Deferred tax assets: | | | | Accrued expenses and other | 3,705 | 2,900 | | Inventories and amortizable assets | 265 | 331 | | Total deferred tax assets | 3,970 | 3,231 | | Deferred tax liabilities: | | | | Property | 18,505 | 14,858 | | Intangible assets and other | 1,452 | 2,875 | | Total deferred tax liabilities | 19,957 | 17,733 | | Net deferred tax liability | 15,987 | 14,502 | Reconciliation of Effective Income Tax Rate to Statutory Federal Income Tax Rate | Item | FY 2019 | FY 2018 | FY 2017 | | :------------------------- | :------- | :------- | :------- | | Statutory federal income tax rate | 21.0% | 30.4% | 35.0% | | State income taxes (net of federal benefit) | 2.9% | 2.4% | 2.2% | | Benefit of domestic manufacturing deduction | - | (2.4)% | (3.0)% | | Deferred tax remeasurement | - | (2.9)% | - | | Other differences | (0.5)% | (0.4)% | 0.1% | | Effective income tax rate | 23.4% | 27.1% | 34.3% | - The Tax Cuts and Jobs Act reduced the federal tax rate from 35% to 21%, resulting in a lower effective tax rate for the company in fiscal year 2018, which also included a $4.3 million adjustment for the remeasurement of deferred tax liabilities[191] 8. Legal Proceedings The company is a defendant in multiple legal proceedings, including derivative and class-action lawsuits alleging synthetic ingredients in LaCroix brand products, but believes these claims lack merit and will not materially adversely affect its financial condition or operations - The company is a defendant in multiple legal proceedings, including derivative and class-action lawsuits alleging synthetic ingredients in LaCroix brand products; the company believes these lawsuits lack merit and are not expected to have a material adverse effect on its financial condition, cash flows, or operating results[193] 9. Stock-Based Compensation The company offers stock-based compensation through multiple plans to attract and retain talent and align participant interests with shareholders, with this section summarizing stock option activity and compensation expenses - The company provides stock-based compensation through the 1991 Omnibus Incentive Plan, Special Stock Option Plans, and the Key Employee Equity Participation (KEEP) Program, aiming to attract and retain talent and align participants' interests with shareholders[194][195][198][199] Summary of Stock Option Activity (FY 2019) | Item | Number of Shares | Weighted-Average Exercise Price (USD) | | :----------------- | :------- | :----------------- | | Outstanding at beginning of year | 344,945 | 10.84 | | Granted | 9,000 | 40.03 | | Exercised | (27,300) | 16.70 | | Canceled | (4,200) | 14.17 | | Outstanding at end of year | 322,445 | 11.14 | | Exercisable at end of year | 230,259 | 9.16 | Stock-Based Compensation Expense and Cash Flow (Thousands USD) | Metric | FY 2019 | FY 2018 | FY 2017 | | :----------------- | :------- | :------- | :------- | | Stock-based compensation expense | 251 | 161 | 208 | | Total intrinsic value of stock options exercised | 2,200 | 3,000 | 1,500 | | Net cash received from stock option exercises | 456 | 560 | 365 | | Income tax benefit from stock-based compensation | 443 | 886 | 495 | - As of April 27, 2019, unrecognized compensation cost for unvested stock options was $0.591 million, expected to be recognized over a weighted-average period of 4.6 years[205] 10. Pension Plans The company contributes to pension plans under collective bargaining agreements and discretionary profit-sharing plans, participating in three multi-employer defined benefit pension plans, with the CSSS Fund currently in "red" zone status - The company contributes to certain pension plans under collective bargaining agreements and discretionary profit-sharing plans, with annual contributions of $3.8 million in fiscal year 2019, $3.4 million in fiscal year 2018, and $3.1 million in fiscal year 2017[207] - The company participates in three multi-employer defined benefit pension plans, with the Central States, Southeast and Southwest Areas Pension Plan (CSSS Fund) in "red" zone status and implementing a financial improvement plan, while the Western Conference of Teamsters Pension Trust Fund (WCT Fund) is in "green" zone status[208][211] Multi-Employer Pension Plan Contributions (Thousands USD) | Pension Plan | FY 2019 | FY 2018 | FY 2017 | | :--------------------- | :------- | :------- | :------- | | CSSS Fund | 1,465 | 1,370 | 1,262 | | WCT Fund | 769 | 619 | 477 | | Other Multi-Employer Pension Plans | 222 | 228 | 201 | | Total | 2,456 | 2,217 | 1,940 | 11. Commitments and Contingencies The company leases buildings, machinery, and equipment, with total minimum non-cancelable operating lease payments of $52.037 million as of April 27, 2019, along with raw material and property, plant, and equipment purchase commitments, and expects no material adverse effect from litigation - The company leases buildings, machinery, and equipment, with total minimum non-cancelable operating lease payments of $52.037 million as of April 27, 2019, to be paid between fiscal years 2020 and 2029[213][214] - As of April 27, 2019, the company had $12.7 million in raw material purchase commitments (through 2022) and $7.1 million in property, plant, and equipment purchase commitments (for fiscal year 2020)[216][217] - The company is involved in various lawsuits and claims from time to time, but the ultimate disposition of these matters is not expected to have a material adverse effect on its consolidated financial position or results of operations[217] 12. Quarterly Financial Data (Unaudited) This section presents the company's unaudited quarterly financial data for fiscal years 2019 and 2018, including net sales, gross profit, net income, and earnings per share FY 2019 Quarterly Financial Data (Thousands USD, except per share amounts) | Quarter | Net Sales | Gross Profit | Net Income | Basic EPS | Diluted EPS | | :----- | :------- | :----- | :----- | :----------- | :----------- | | Q1 | 292,590 | 115,694 | 48,830 | 1.05 | 1.04 | | Q2 | 260,709 | 103,524 | 41,077 | 0.88 | 0.88 | | Q3 | 220,892 | 80,554 | 24,811 | 0.53 | 0.53 | | Q4 | 239,914 | 84,578 | 26,135 | 0.56 | 0.56 | FY 2018 Quarterly Financial Data (Thousands USD, except per share amounts) | Quarter | Net Sales | Gross Profit | Net Income | Basic EPS | Diluted EPS | | :----- | :------- | :----- | :----- | :----------- | :----------- | | Q1 | 259,832 | 104,503 | 38,272 | 0.82 | 0.82 | | Q2 | 244,119 | 96,080 | 33,980 | 0.73 | 0.72 | | Q3 | 227,477 | 91,193 | 41,080 | 0.88 | 0.88 | | Q4 | 244,306 | 99,359 | 36,442 | 0.78 | 0.78 | Report of Independent Registered Public Accounting Firm RSM US LLP issued an unqualified opinion on National Beverage Corp.'s consolidated financial statements as of April 27, 2019, and April 28, 2018, and on the effectiveness of internal control over financial reporting as of April 27, 2019 - RSM US LLP issued an unqualified opinion on National Beverage Corp.'s consolidated financial statements as of April 27, 2019, and April 28, 2018, and on the effectiveness of internal control over financial reporting as of April 27, 2019[220][221] - The audit was conducted in accordance with PCAOB standards, aiming to obtain reasonable assurance that financial statements are free of material misstatement and that internal controls are effectively maintained[223] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with accountants on accounting and financial disclosure - The company has no changes in or disagreements with accountants on accounting and financial disclosure[229] Controls and Procedures Company management assessed and concluded that, as of April 27, 2019, its disclosure controls and procedures and internal control over financial reporting were effective, with no significant changes in internal control over financial reporting during the quarter - As of April 27, 2019, company management assessed and concluded that its disclosure controls and procedures were effective[230] - Management also concluded that the company's internal control over financial reporting was effective as of April 27, 2019, as confirmed by the audit of independent registered public accounting firm RSM US LLP[231][233] - There were no significant changes in internal control over financial reporting during the quarter ended April 27, 2019[234] Other Information The company reports no other information requiring disclosure - No other information requires disclosure[236] PART III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance in this section is incorporated by reference from the company's 2019 proxy statement, listing key executive officers and their positions - The information required by this item is incorporated by reference from the company's 2019 proxy statement[238] Executive Officer Information (As of April 27, 2019) | Name | Age | Position | | :--------------- | :--- | :------------------------- | | Nick A. Caporella | 83 | Chairman and Chief Executive Officer | | Joseph G. Caporella | 59 | President | | George R. Bracken | 73 | Executive Vice President – Finance | - Nick A. Caporella has served as Chairman, Chief Executive Officer, and Director since the company's inception in 1985, with his services provided by Corporate Management Advisors, Inc., which he owns[239] Executive Compensation Information regarding executive compensation in this section is incorporated by reference from the company's 2019 proxy statement - The information required by this item is incorporated by reference from the company's 2019 proxy statement[242] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management and related stockholder matters in this section is incorporated by reference from the company's 2019 proxy statement - The information required by this item is incorporated by reference from the company's 2019 proxy statement[243] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships and related transactions and director independence in this section is incorporated by reference from the company's 2019 proxy statement - The information required by this item is incorporated by reference from the company's 2019 proxy statement[244] Principal Accounting Fees and Services Information regarding principal accounting fees and services in this section is incorporated by reference from the company's 2019 proxy statement - The information required by this item is incorporated by reference from the company's 2019 proxy statement[245] PART IV Exhibits, Financial Statement Schedules This section lists the financial statements and exhibits filed as part of the report, including consolidated balance sheets, statements of operations, comprehensive income, stockholders' equity, cash flows, and their notes, along with articles of incorporation, management agreements, and various certifications - This report includes consolidated financial statements, comprising balance sheets, statements of operations, comprehensive income, stockholders' equity, cash flows, and notes to the financial statements[247] - The exhibit list includes articles of incorporation, management agreements, various incentive plans, credit agreements, subsidiary information, and certifications by the Chief Executive Officer and Chief Financial Officer under the Sarbanes-Oxley Act[248][252] Signatures This report has been duly signed by the registrant as required by the Securities Exchange Act of 1934, with signatories including the Chief Executive Officer, President, Chief Financial Officer, and several directors - This report has been signed by George R. Bracken (Executive Vice President – Finance), Nick A. Caporella (Chairman and Chief Executive Officer), Joseph G. Caporella (President and Director), Cecil D. Conlee (Director), Samuel C. Hathorn, Jr. (Director), and Stanley M. Sheridan (Director)[255][256]