NATIONAL BEVERAGE CORP 10-K

ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES   The common stock of National Beverage Corp., par value $.01 per share, (“Common Stock”) is listed on The NASDAQ Global Select Market under the symbol “FIZZ”.   At June 17, 2022, there were approximately 41,400 holders of our Common Stock, the majority of which hold their shares in the names of banks, brokers and other financial institutions.   In the last five fiscal years, the Company paid special cash dividends on Common Stock as follows:   ● $280.0 million ($3.00 per share) on December 29, 2021;   ● $279.9 million ($3.00 per share) on January 29, 2021;   ● $135.2 million ($1.45 per share) on January 29, 2019; and   ● $69.9 million ($.75 per share) on August 4, 2017.   13 Table of Contents   On February 5, 2021, the Company's Board of Directors declared a one-for-one stock split in the form of a stock dividend. This dividend was distributed on February 19, 2021 to shareholders of record on February 16, 2021. Share information and earnings per share have been retroactively adjusted to reflect the stock split. Our Board of Directors has authorized a program to repurchase 3.2 million shares of our common stock of which approximately 1.9 million shares remain available and authorized for repurchases.     Performance Graph   The following graph shows a comparison of the five-year cumulative returns of an investment of $100 cash on April 29, 2017, assuming reinvestment of dividends, of our Common Stock with the NASDAQ Composite Index, the S&P 500 Index and the Dow Jones US Soft Drinks Index.       Legend                                                     Total Returns Index For:   4/29/2017     4/28/2018     4/27/2019     5/02/2020     5/01/2021     4/30/2022                                                     National Beverage Corp.     100.00       102.96       68.17       59.37       122.57       118.11                                                     NASDAQ Composite - Total Return     100.00       118.98       137.41       146.95       240.30       213.67                                                     Dow Jones US Soft Drinks Index     100.00       101.08       121.63       123.23       149.98       178.96                                                     S&P 500 Index - Total Return     100.00       114.20       128.28       126.04       189.28       189.68     14 Table of Contents   ITEM 6. RESERVED   ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS     OVERVIEW   The following Management’s Discussion and Analysis of Operations is intended to provide information about the Company’s operations and business environment and should be read in conjunction with our Consolidated Financial Statements and the accompanying Notes contained in Item 8 of this report.   National Beverage Corp. innovatively refreshes America with a distinctive portfolio of sparkling waters, juices, energy drinks (Power+ Brands) and, to a lesser extent, carbonated soft drinks. We believe our creative product designs, innovative packaging and imaginative flavors, along with our corporate culture and philosophy, make National Beverage unique as a stand-alone entity in the beverage industry.   National Beverage Corp., in recent years, has transformed to an innovative, healthier refreshment company. From our corporate philosophy, development of products and marketing to manufacturing, we are converting consumers to a ‘ Better for You ’ thirst quencher that compassionately cares for their nutritional health. We are committed to our quest to innovate for the joy, benefit and enjoyment of our consumers’ healthier lifestyle!   We believe our brands are uniquely positioned in three distinctive ways:     (1) The new consumer is the most competent/ knowledgeable product analyzer ever, and personal mental/physical lifestyles demand that healthier is their preferred choice. Calories must qualify as worthy; sugar being enemy #1 in the life of the Millennial and younger consumers.     (2) The retail industry is in a revolution. In prior years, each retailer induced their consumer with a proprietary brand (especially soft drinks), but today understands that the well-informed, smart consumer is demanding that retailers provide recognizable brands that have earned their respective consumer standing on their merits.     (3) Retail today is in the most competitively-indexed service industry, without exception. Innovation, plus the urgent time demands on the consumer, requires quick, expedient shopping. Home delivery is even more of a current shoppers’ choice. Retailers cannot carry slower-moving items that home delivery will not support.   Our strategy seeks the profitable growth of our products by (i) developing healthier beverages in response to the global shift in consumer buying habits and tailoring our beverage portfolio to the preferences of a diverse mix of ‘crossover consumers’ – a growing group desiring a healthier alternative to artificially sweetened and high-caloric beverages; (ii) emphasizing unique flavor development and variety throughout our brands that appeal to multiple demographic groups; (iii) maintaining points of difference through innovative marketing, packaging and consumer engagement and (iv) responding faster and more creatively to changing consumer trends than larger competitors who are burdened by legacy production and distribution complexity and costs.   15 Table of Contents   Presently, our primary market focus is the United States and Canada. Certain of our products are also distributed on a limited basis in other countries and options to expand distribution to other regions are being considered. To service a diverse customer base that includes numerous national retailers, as well as thousands of smaller “up-and-down-the-street” accounts, we utilize a hybrid distribution system consisting of warehouse and direct-store delivery. The warehouse delivery system allows our retail partners to further maximize their assets by utilizing their ability to pick up product at our warehouses, further lowering their/our product costs.   National Beverage Corp. is incorporated in Delaware and began trading as a public company on the NASDAQ Stock Market in 1991. In this report, the terms “we,” “us,” “our,” “Company” and “National Beverage” mean National Beverage Corp. and its subsidiaries unless indicated otherwise.   Our operating results are affected by numerous factors, including fluctuations in the costs of raw materials, holiday and seasonal programming and weather conditions. While prior years witnessed more seasonality, higher sales are realized during the summer when outdoor activities are more prevalent.   Our highly innovative business, where new beverages are developed and produced for selective holidays and ceremonial dates, should not be analyzed on the common three-month (quarterly) periods, traditionally found acceptable. Today, costly development projects and seasonal weather periods plus promotional packaging often make quarter-to-quarter comparisons unworthy statistics that force companies to decision making that is not truly beneficial for investors and shareholders alike.   Traditional and typical are not a part of an innovator’s vocabulary.   16 Table of Contents   RESULTS OF OPERATIONS The following section generally discusses the fiscal years ended April 30, 2022 (Fiscal 2022) and May 1, 2021 (Fiscal 2021) items and year-to-year comparisons between Fiscal 2022 and Fiscal 2021. Discussions of fiscal year ended May 2, 2020 (Fiscal 2020) items and year-to-year comparisons between Fiscal 2021 and Fiscal 2020 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended May 1, 2021, which is available free of charge on our website at www.nationalbeverage.com . Fiscal 2022 and Fiscal 2021 both consisted of 52 weeks.   Net Sales Net sales for Fiscal 2022 increased 6.1% to $1,138 million compared to $1,072 million for Fiscal 2021. The increase in sales resulted from a 7.6% increase in average selling price offset in part by a 1.4% decline in case volume, primarily in carbonated soft drinks. Power+ brands grew slightly in Fiscal 2022.   Gross Profit Gross profit for Fiscal 2022 was $417.8 million compared to $421.6 million for Fiscal 2021. The average cost per case increased due to increases in packaging, ingredients and freight costs, as well as availability of raw materials and labor which impacted manufacturing efficiency. Increased average selling price more than offset the increased costs, resulting in a slight increase in gross profit per case. Gross margin was 36.7% for Fiscal 2022 compared to 39.3% in Fiscal 2021.   Shipping and handling costs are included in selling, general and administrative expenses, the classification of which is consistent with many beverage companies. However, our gross margin may not be comparable to companies that include shipping and handling costs in cost of sales. See Note 1 of Notes to the Consolidated Financial Statements.   Selling, General and Administrative Expenses Selling, general and administrative expenses were $209.9 million for Fiscal 2022, increasing $16.2 million from Fiscal 2021. Selling, general and administrative expenses increased due to increased shipping and marketing costs, partially offset by decreased administrative costs. Increased shipping costs are primarily the result of higher fuel costs and reduced availability of transportation. The increase in marketing reflects the resumption of various on-site trade and consumer events as the country recovered from the pandemic. As a percent of net sales, selling, general and administrative costs increased to 18.4% in Fiscal 2022 from 18.1% in Fiscal 2021   Other (Expense) Income - Net Other (expense) income, net is primarily interest expense offset in part by interest income. In Fiscal 2022, interest expense increased by $.2 million while interest income declined due to reduced average investment balances.   Income Taxes Our effective tax rate was 23.6% for Fiscal 2022 and 23.7% for Fiscal 2021. The differences between the effective rate and the federal statutory rate were primarily due to the effects of state income taxes.   17 Table of Contents   LIQUIDITY AND FINANCIAL CONDITION   Liquidity and Capital Resources Our principal source of funds is cash generated from operations. At April 30, 2022, we had $48.1 million in cash and cash equivlents and we maintained $150 million in unsecured revolving credit facilities, under which $30 million in borrowings were outstanding and $2.5 million was reserved for standby letters of credit. We believe that existing capital resources will be sufficient to meet our liquidity and capital requirements for the next twelve months. See Note 5 of Notes to the Consolidated Financial Statements.   Expenditures for property, plant and equipment amounted to $29.0 million for Fiscal 2022 primarily for capital projects to expand our production capacity, enhance packaging capabilities or improve efficiencies at our production facilities. We intend to continue production capacity and efficiency improvement projects in Fiscal 2023 and expect capital expenditures to be comparable to Fiscal 2022.   The Company paid special cash dividends of approximately $280 million ($3.00 per share) on each of December 29, 2021 and January 29, 2021.   Pursuant to a management agreement, we incurred a fee to Corporate Management Advisors, Inc. (CMA) of $11.4 million for Fiscal 2022 and $10.7 million for Fiscal 2021. Included in current liabilities were amounts due CMA of $4.0 million at April 30, 2022 and $3.8 million at May 1, 2021. See Note 6 of Notes to the Consolidated Financial Statements.   Cash Flows During Fiscal 2022, $133.1 million was provided by operating activities, $29 million was used in investing activities and $249.7 million was used in financing activities. Cash provided by operating activities decreased $60.7 million primarily due to increased working capital requirements as a result of inflationary cost increases. Cash used in investing activities increased $3.7 million due to higher capital expenditures. Cash used in financing activities primarily consists of the $280 million ($3.00 per share) special cash dividend paid on December 29, 2021 offset in part by the $30 million in net borrowings during the year.   Financial Position During Fiscal 2022, our working capital declined $90.6 million to $129.2 million. The decrease in working capital reflects lower cash and equivalents due to the December 2021 cash dividend, partially offset by increased inventories, prepaid expenses and trade receivables. Trade receivables increased $7.1 million or 8.3% and days sales outstanding was 30 days at April 30, 2022 compared to 30.1 days at May 1, 2021. Inventories increased $31.8 million as a result of the increased cost of finished goods and raw materials, and higher stock levels maintained as a safeguard against possible supply chain disruptions. Annual inventory turns decreased to 8.2 from 9.6 times. At April 30, 2022, the current ratio was 1.9 to 1 compared to 2.5 to 1 at May 1, 2021.   18 Table of Contents   CONTRACTUAL OBLIGATIONS   Contractual obligations at April 30, 2022 are payable as follows:       (In thousands)       Total     1 Year Or less     2 to 3 Years     4 to 5 Years     More Than 5 Years   Operating leases   $ 33,207     $ 11,315     $ 13,646     $ 5,722     $ 2,524   Long-term debt     30,000       -       30,000       -       -   Purchase commitments     23,784       19,525       3,210       1,049       -   Total   $ 86,991     $ 30,840     $ 46,856     $ 6,771     $ 2,524       We contribute to certain pension plans under collective bargaining agreements and to a discretionary profit sharing plan. Annual contributions were $4.0 million for Fiscal 2022 and $3.7 million for Fiscal 2021.  See Note 11 of Notes to Consolidated Financial Statements.   We maintain self-insured and deductible programs for certain liability, medical and workers’ compensation exposures. Other long-term liabilities include known claims and estimated incurred but not reported claims not otherwise covered by insurance based on actuarial assumptions and historical claims experience. Since the timing and amount of claim payments vary significantly, we are not able to reasonably estimate future payments for specific periods and therefore such payments have not been included in the table above. Standby letters of credit aggregating $2.5 million have been issued in connection with our self-insurance programs. These standby letters of credit expire through June 2023 and are expected to be renewed.   OFF-BALANCE SHEET ARRANGEMENTS AND ESTIMATES   We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition.   CRITICAL ACCOUNTING POLICIES AND ESTIMATES    The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. We believe that the critical accounting policies described in the following paragraphs comprise the most significant estimates and assumptions used in the preparation of our consolidated financial statements. For these policies, we caution that future events rarely develop exactly as estimated and the best estimates routinely require adjustment.   19 Table of Contents   Credit Risk We sell products to a variety of customers and extend credit based on an evaluation of each customer’s financial condition, generally without requiring collateral. Exposure to credit losses varies by customer principally due to the financial condition of each customer. We monitor our exposure to credit losses and maintain allowances for anticipated losses based on our experience with past due accounts, collectability and our analysis of customer data.   Impairment of Long-Lived Assets All long-lived assets, excluding goodwill and intangible assets not subject to amortization, are evaluated for impairment on the basis of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Goodwill and intangible assets not subject to amortization are evaluated for impairment annually or sooner if management believes such assets may be impaired. An impaired asset is written down to its estimated fair market value based on discounted future cash flows.    Income Taxes The Company’s effective income tax rate is based on estimates of taxes which will ultimately be payable. Deferred taxes are recorded to give recognition to temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements. Valuation allowances are established to reduce the carrying amounts of deferred tax assets when it is deemed, more likely than not, that the benefit of deferred tax assets will not be realized.   Insurance Programs We maintain self-insured and deductible programs for certain liability, medical and workers’ compensation exposures. Accordingly, we accrue for known claims and estimated incurred but not reported claims not otherwise covered by insurance based on actuarial assumptions and historical claims experience.   Revenue Recognition We recognize revenue upon delivery to our customers, based on written sales terms that do not allow a right of return except in rare instances. Our products are typically sold on credit; however smaller direct-store delivery accounts may be sold on a cash basis. Our credit terms normally require payment within 30 days of delivery and may allow discounts for early payment. We estimate and reserve for bad debt exposure based on our experience with past due accounts, collectability and our analysis of customer data.   We offer various sales incentive arrangements to our customers that require customer performance or achievement of certain sales volume targets. Sales incentives are accrued over the period of benefit or expected sales. When the incentive is paid in advance, the aggregate incentive is recorded as a prepaid and amortized over the period of benefit. The recognition of these incentives involves the use of judgment related to performance and sales volume estimates that are made based on historical experience and other factors. Sales incentives are accounted for as a reduction of sales and actual amounts ultimately realized may vary from accrued amounts. Such differences are recorded once determined and have historically not been significant.   20 Table of Contents   FORWARD-LOOKING STATEMENTS   National Beverage Corp. and its representatives may make written or oral statements relating to future events or results relative to our financial, operational and business performance, achievements, objectives and strategies.  These statements are “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995 and include statements contained in this report and other filings with the Securities and Exchange Commission and in reports to our stockholders. Certain statements including, without limitation, statements containing the words “believes,” “anticipates,” “intends,” “plans,” “expects,” and “estimates” constitute “forward-looking statements” and involve known and unknown risk, uncertainties and other factors that may cause the actual results, performance or achievements of our Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Such factors include, but are not limited to, the following: general economic and business conditions, pricing of competitive products, success of new product and flavor introductions, fluctuations in the costs and availability of raw materials and packaging supplies, ability to pass along cost increases to our customers, labor strikes or work stoppages or other interruptions in the employment of labor, continued retailer support for our products, changes in brand image, consumer demand and preferences and our success in creating products geared toward consumers’ tastes, success in implementing business strategies, changes in business strategy or development plans, government regulations, taxes or fees imposed on the sale of our products, unfavorable weather conditions and other factors referenced in this report, filings with the Securities and Exchange Commission and other reports to our stockholders.  We disclaim any 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.