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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 1, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-14170
NATIONAL BEVERAGE CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 59-2605822
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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 [ ]
The number of shares of Registrant's common stock outstanding as of September 8,
1998 was 18,478,888.
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NATIONAL BEVERAGE CORP.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED AUGUST 1, 1998
INDEX
PART I - FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of August 1, 1998 and May 2, 1998 ..................................... 3
Condensed Consolidated Statements of Income for the three months ended
August 1, 1998 and August 2, 1997 ........................................ 4
Condensed Consolidated Statements of Cash Flows for the three months ended
August 1, 1998 and August 2, 1997 ........................................ 5
Notes to Condensed Consolidated Financial Statements ..................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........................ 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings .................................................... 13
Item 6. Exhibits and Reports on Form 8-K ..................................... 13
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NATIONAL BEVERAGE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF AUGUST 1, 1998 AND MAY 2, 1998
(In thousands, except share amounts)
- --------------------------------------------------------------------------------
(Unaudited)
August 1, May 2,
1998 1998
--------- ---------
ASSETS
Current assets:
Cash and equivalents $ 31,298 $ 40,447
Trade receivables - net of allowances of $813 (August 1, 1998)
and $715 (May 2, 1998) 37,545 35,781
Inventories 24,624 23,402
Deferred income taxes 1,871 2,154
Prepaid and other 5,589 5,557
--------- ---------
Total current assets 100,927 107,341
Property - net 55,385 55,945
Intangible assets - net 14,840 14,973
Other assets 5,003 4,068
--------- ---------
$ 176,155 $ 182,327
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,173 $ 37,065
Accrued liabilities 18,161 18,606
Income taxes payable 2,124 879
Current portion of long-term debt 347 393
--------- ---------
Total current liabilities 44,805 56,943
Long-term debt 41,600 41,600
Deferred income taxes 8,078 8,332
Other liabilities 5,324 5,472
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
22,028,812 shares (August 1, 1998) and 22,025,212 shares (May 2, 1998) 220 220
Additional paid-in capital 15,141 15,118
Retained earnings 74,318 67,973
Treasury stock - at cost:
Preferred stock (150,000 shares) (5,100) (5,100)
Common stock (3,530,724 shares) (8,381) (8,381)
--------- ---------
Total shareholders' equity 76,348 69,980
--------- ---------
$ 176,155 $ 182,327
========= =========
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 1, 1998 AND AUGUST 2, 1997
(In thousands, except per share amounts)
- --------------------------------------------------------------------------------
(Unaudited)
Three Months Ended
1998 1997
-------- --------
Net sales $121,906 $116,202
Cost of sales 79,966 77,914
-------- --------
Gross profit 41,940 38,288
Selling, general and administrative expenses 31,251 28,017
Interest expense 924 1,118
Other income - net 371 383
-------- --------
Income before income taxes 10,136 9,536
Provision for income taxes 3,791 3,566
-------- --------
Net income $ 6,345 $ 5,970
======== ========
Earnings per common share -
Basic $ 0.34 $ 0.32
======== ========
Diluted $ 0.33 $ 0.31
======== ========
Outstanding and dilutive shares -
Average shares outstanding 18,497 18,462
Dilutive stock options 846 877
-------- --------
19,343 19,339
======== ========
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 1, 1998 AND AUGUST 2, 1997
(In thousands)
- --------------------------------------------------------------------------------
(Unaudited)
1998 1997
-------- --------
Operating Activities:
Net income $ 6,345 $ 5,970
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,347 2,242
Deferred income tax provision 29 37
Loss on sale of property 4 11
Changes in:
Trade receivables (1,764) (13,456)
Inventories (1,222) 1,721
Prepaid and other assets (1,611) (639)
Accounts payable (12,892) (3,343)
Other liabilities, net 660 7,075
-------- --------
Net cash used in operating activities (8,104) (382)
-------- --------
Investing Activities:
Property additions (1,005) (1,950)
Other, net -- 48
-------- --------
Net cash used in investing activities (1,005) (1,902)
-------- --------
Financing Activities:
Debt borrowings -- 8,300
Debt repayments (46) (13,246)
Proceeds from stock options exercised 6 10
-------- --------
Net cash used in financing activities (40) (4,936)
-------- --------
Net Decrease in Cash and Equivalents (9,149) (7,220)
Cash and Equivalents - Beginning of Year 40,447 37,257
-------- --------
Cash and Equivalents - End of Period $ 31,298 $ 30,037
======== ========
Other Cash Flow Information:
Interest paid $ 312 $ 2,082
Income taxes paid 2,511 59
See accompanying Notes to Condensed Consolidated Financial Statements.
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NATIONAL BEVERAGE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 1, 1998
(UNAUDITED)
- -----------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
National Beverage Corp. and its subsidiaries (the "Company") 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, however, there has been
no material change in the information disclosed in the notes to consolidated
financial statements for the fiscal year ended May 2, 1998. In the opinion of
management, 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. Certain prior year amounts have been
reclassified to conform to the current year presentation.
2. INVENTORIES
Inventories are stated at the lower of first-in, first-out cost or market.
Inventories at August 1, 1998 are comprised of finished goods of $12,630,000 and
raw materials of $11,994,000. Inventories at May 2, 1998 are comprised of
finished goods of $11,868,000 and raw materials of $11,534,000.
3. PROPERTY
Property consists of the following:
(In thousands)
August 1, 1998 May 2, 1998
-------------- ------------
Land $ 8,897 $ 8,897
Buildings and improvements 31,520 31,520
Machinery and equipment 78,887 77,888
--------- ---------
Total 119,304 118,305
Less accumulated depreciation (63,919) (62,360)
--------- ---------
Property - net $ 55,385 $ 55,945
========= =========
Depreciation expense was $1,561,000 and $1,611,000 for the three month periods
ended August 1, 1998 and August 2, 1997, respectively.
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4. DEBT
Debt consists of the following:
(In thousands)
August 1, 1998 May 2, 1998
-------------- -----------
Senior Notes (see below) $ 25,000 $ 25,000
Term Loan Facility (see below) 16,600 16,600
Other (including capital leases) 347 393
-------- --------
Total 41,947 41,993
Less current portion (347) (393)
-------- --------
Long-term portion $ 41,600 $ 41,600
======== ========
A subsidiary of NBC has outstanding 9.95% unsecured senior notes in the original
principal amount of $50 million (the "Senior Notes") payable in annual principal
installments of $8.3 million through November 1, 2000. Additionally, the
subsidiary has two unsecured revolving credit facilities aggregating $35 million
(the "Credit Facilities") and a $16.6 million unsecured term loan facility
("Term Loan Facility") with banks. The Credit Facilities expire May 31, 1999 and
August 31, 1999, and bear interest at 1/2% below the banks' reference rate or 1%
above LIBOR, at the subsidiary's election. The Term Loan Facility is repayable
in installments from May 1999 through November 1999, and bears interest at the
bank's reference rate or 1 1/4% above LIBOR, at the subsidiary's election. The
Company intends to utilize its existing long-term credit facilities to fund the
next principal payment due on its Senior Notes and Term Loan Facility.
Certain of the Company's debt agreements contain restrictions which require the
subsidiary to maintain certain financial ratios and minimum net worth, and limit
the subsidiary with respect to incurring certain additional indebtedness, paying
cash dividends and making certain loans, advances or other investments. At
August 1, 1998, net assets of the subsidiary totaling approximately $53
million were restricted from distribution. The Company was in compliance with
all loan covenants and restrictions and such restrictions are not expected to
have a material adverse impact on the operations of the Company.
5. COMMITMENTS AND CONTINGENCIES
Albert H. Kahn v. Nick A. Caporella, et al., Civil Action No. 11890 was filed in
December 1990 by a shareholder of Burnup & Sims Inc. ("BSI"), now MasTec, Inc.,
in the Court of Chancery of the State of Delaware in and for New Castle County
against the Company, the members of the Board of Directors of BSI and against
BSI. In May 1993, plaintiff amended its class action and shareholder derivative
complaint (the "Amended Complaint"). The class action claims allege, among other
things, that the Board of Directors of BSI, and the Company, as its largest
shareholder, breached their respective fiduciary duties in approving (i) the
dividend by BSI of its shares of the Company common stock (the "Distribution")
and (ii) the exchange of certain shares of BSI's common stock held by the
Company for certain indebtedness of the Company held by BSI (the "Exchange"; the
Distribution and the Exchange are hereafter referred to as the "1991
Transaction"), in allegedly placing the interests of the Company ahead of the
interests of other shareholders of BSI. The derivative action claims allege,
among other things, that the Board of
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Directors of BSI breached their fiduciary duties by approving executive officer
compensation arrangements, by financing the Company's operations on a current
basis, and by permitting the interests of BSI to be subordinated to those of the
Company. In the lawsuit, plaintiff seeks to rescind the 1991 Transaction and to
recover unspecified damages. The defendants, including the Company, have moved
to dismiss the actions for failure to make a demand and state a claim upon which
relief can be granted. The motion is still pending.
In November 1993, plaintiff filed a class action and derivative complaint, Civil
Action No. 13248 (the "1993 Complaint") against the Company, BSI, the members of
the Board of Directors of BSI, and certain other defendants (referred to as
"Other Defendants"). In December 1993, plaintiff amended the 1993 Complaint (the
"1993 Amended Complaint"). The 1993 Amended Complaint alleges, among other
things, that the Board of Directors of BSI, and the Company, as BSI's largest
shareholder, breached their respective fiduciary duties by approving an
agreement dated October 15, 1993, as amended, between BSI and the Other
Defendants (the "Acquisition Agreement") and the exchange of 3,153,847 shares of
BSI common stock owned by the Company for certain indebtedness owed to BSI by
the Company (the "Redemption") which, according to the allegations of the 1993
Complaint, benefits the President and Chief Executive Officer of the Company at
the expense of BSI's shareholders. On November 29, 1993, plaintiff filed a
motion for an order preliminary and permanently enjoining the transactions under
the Acquisition Agreement and the Redemption. On March 7, 1994, the court heard
oral arguments with respect to plaintiff's motion to enjoin the transactions
and, on March 10, 1994, the court denied plaintiff's request for injunctive
relief finding that plaintiff had not established a likelihood of success on the
merits and that, in any event, the equities did not favor the imposition of
injunctive relief.
There has been no further discovery or other court proceedings since May 1995.
Management believes that the allegations in the complaint, the Amended
Complaint, the 1993 Complaint and the 1993 Amended Complaint are without merit,
and intends to vigorously defend these actions.
The Company is a defendant in various other lawsuits arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
the foregoing lawsuits will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
In the ordinary course of its business, the Company enters into commitments for
the supply of certain raw materials, none of which are material to the Company's
financial position.
6. CAPITAL STOCK
During the three months ended August 1, 1998, options for 3,600 shares were
exercised at prices ranging from $2.38 to $5.00 per share. At August 1, 1998,
options to purchase 1,114,486 shares at a weighted average exercise price of
$2.61 (ranging from $.13 to $13.50 per share) were outstanding and stock-based
awards to purchase 522,154 shares of common stock were available for grant.
In August 1998, the Company purchased 20,000 shares of its common stock. Such
shares will be classified as treasury stock.
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PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
National Beverage Corp. (the "Company") is a holding company for various
subsidiaries that market, manufacture and distribute a full line of beverage
products: Shasta(R), Faygo(R) and Big Shot(R) multi-flavored and cola soft
drinks; Everfresh(R) juice and juice-enriched products; LaCROIX(R) and Mt.
Shasta(TM) spring and carbonated water products; ClearFruit(R), Spree(R) and
nuAnce(R) flavored carbonated and non-carbonated beverages; and specialty items,
Creepy Coolers(TM) and St. Nick's(TM). Substantially all of the Company's brands
are produced in its fourteen manufacturing facilities which are strategically
located throughout the continental United States. The Company also develops and
produces branded soft drinks for retail grocery chains, warehouse clubs,
mass-merchandisers and wholesalers ("allied brands") as well as soft drinks for
other beverage companies ("manufacturing services").
The Company's strategy emphasizes the growth of its 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. In addition, the Company seeks to utilize the
strength of its brands and location of its manufacturing facilities to be a
single source supplier of branded and allied branded beverages for national and
large regional retailers. These "Strategic Alliances" provide for retailer
promotional support for the Company's brands through in-store and point-of-sale
advertising, and provide nationally integrated manufacturing and distribution
services for the retailer's own branded products.
Various means are utilized by the Company to maintain its position as a
cost-effective producer of its beverage products. These include vertical
integration of the supply of raw materials for the manufacturing process, bulk
delivery to customer distribution centers, regionally targeted media promotions
and the use of multiple distribution systems. Management believes it is able to
offer retailers a higher profit margin on Company branded products and allied
brands than is typically available from the sale of nationally distributed
products.
Industry soft drink sales are seasonal with the highest volume typically
realized during the summer months. Additionally, the Company's 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 1, 1998 (FIRST QUARTER OF FISCAL 1999) COMPARED TO
THREE MONTHS ENDED AUGUST 2, 1997 (FIRST QUARTER OF FISCAL 1998)
- ----------------------------------------------------------------------------
Net sales for the quarter ended August 1, 1998 increased approximately $5.7
million, or 5%, over the first quarter of the prior year. This growth was
primarily attributable to an increase in average net selling prices of the
Company's brands due to favorable changes in distribution channel and product
mix, and the effects of Strategic Alliances. As part of the Company's Strategic
Alliance program, sales of branded products are supported by expanded in-store
advertising and merchandising which had the effect of increasing net selling
prices. These increases were partially offset by reduced sales of certain
lower-margin products and the effects of competitive pricing.
Gross profit increased to approximately 34% of net sales for the first quarter
of fiscal 1999 from 33% of net sales for the first quarter of fiscal 1998. This
increase was due to higher selling prices and favorable changes in product mix
as noted above. The Company believes that inflationary trends do not have a
significant impact on operating results since fluctuations in raw material costs
are typically influenced more by commodity market conditions than inflation.
Although there can be no assurances as to future predictability, the Company
does not expect changes in raw material costs to materially impact the results
of operations for the remainder of fiscal 1999.
Selling, general and administrative expenses increased approximately $3.2
million to 26% of net sales for the first quarter of fiscal 1999 from 24% of net
sales for the first quarter of fiscal 1998. This increase is primarily due to
higher selling, marketing and advertising costs. Shipping costs also increased
due to the Company's expansion of its direct-store delivery system in certain
markets.
Interest expense declined during the first quarter of fiscal 1999 compared to
the prior year due to a reduction in debt. See Note 4 of Notes to Condensed
Consolidated Financial Statements.
The effective rate for income taxes, based upon estimated annual income tax
rates, approximated 37% of income before taxes for both the first quarter of
fiscal 1999 and fiscal 1998. 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 increased 6% to $6.3 million, or $.34 per share, for the quarter
ended August 1, 1998, from $6.0 million, or $.32 per share, for the quarter
ended August 2, 1997.
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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
AUGUST 1, 1998 COMPARED TO MAY 2, 1998
- --------------------------------------
Management views earnings before interest expense, taxes, depreciation and
amortization ("EBITDA") as a key indicator of the Company's operating
performance and enterprise value, although not as a substitute for cash flow
from operations or operating income. During the three months ended August 1,
1998, the Company generated EBITDA of $13.4 million, which represents a 4%
increase from EBITDA of $12.9 million for the same period last year. EBITDA for
the twelve month period ended August 1, 1998 was $34.9 million, representing a
12% increase over EBITDA of $31.3 million for the prior twelve month period.
For the three months ended August 1, 1998, net cash used in operating activities
of $8.1 million was comprised of income of $6.3 million plus non-cash charges of
$2.4 million less cash used for seasonal working capital requirements of $16.8
million. Cash of $1.0 million was used for capital expenditures. At August 1,
1998, the Company's ratio of current assets to current liabilities was 2.3 to 1
and the Company had approximately $33.4 million available under its credit
agreements.
Management believes that its cash and equivalents, together with funds generated
from operations and borrowing capabilities, will be sufficient to meet its
operating cash requirements in the foreseeable future. The Company is evaluating
various capital projects to expand capacity at certain manufacturing facilities.
Presently, however, the Company has no material commitments for capital
expenditures requiring cash outlays.
On January 23, 1998, the Company announced that its Board of Directors
authorized the Company to repurchase up to 800,000 shares of its common stock.
The Company expects to make such purchases from existing cash balances from time
to time through open market purchases, block trades and/or privately negotiated
transactions. Subsequent to August 1, 1998, the Company purchased 20,000 shares
of its common stock. See Note 6 of Notes to Condensed Consolidated Financial
Statements.
At August 1, 1998, the Company had outstanding long-term debt of $41.6 million.
Certain debt agreements contain restrictions which require a subsidiary to
maintain certain financial ratios and minimum net worth, and limit the
subsidiary with respect to incurring certain additional indebtedness, paying
cash dividends and making certain loans, advances or other investments. At
August 1, 1998, net assets of the subsidiary totaling approximately $53
million were restricted from distribution. Management believes that cash
balances of the parent company, when combined with funds available from its
subsidiary, provide sufficient liquidity to allow it to meet its current and
expected cash obligations. The Company was in compliance with all loan covenants
and restrictions at August 1, 1998, and such restrictions are not expected to
have a material adverse impact on the operations of the Company. See Note 4 of
Notes to Condensed Consolidated Financial Statements.
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YEAR 2000
Many computer systems were designed using two digit date fields for purposes of
determining the year. This raises the possibility that these systems will
recognize a date using "00" as 1900 rather than 2000, which could result in
improper processing of time sensitive data or system failure. The Company is in
the process of reviewing its information technology (IT) systems and non-IT
systems and modifying those that are subject to this problem. The Company is
also in the process of surveying its major suppliers and customers to determine
the status of their Year 2000 compliance programs. Based on available
information, management believes that the required modifications of its software
and equipment will be completed on a timely basis, and that the costs of the
Year 2000 compliance program will not have a material effect on the Company's
results of operations or financial position. However, due to the various
uncertainties involved, the possibility remains that the unsuccessful resolution
of Year 2000 issues by the Company or its important suppliers or customers could
have a material adverse effect on the Company's results of operations or
financial position.
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; competition; success of the
Company's Strategic Alliance objective; success of the Company in acquiring
other beverage businesses; success of new product and flavor introductions;
fluctuations in the costs of raw materials; the Company's ability to increase
prices; continued retailer support for the Company's brands; changes in consumer
preferences; changes in business strategy or development plans; government
regulations; regional weather conditions; unanticipated costs or problems
relating to Year 2000 compliance; and other factors referenced in this Form
10-Q. The Company will not undertake and specifically declines any obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 5 of Notes to Condensed Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
27 Financial Data Schedule (For SEC Use Only)
(b) Reports on Form 8-K: None
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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 15, 1998
NATIONAL BEVERAGE CORP.
(Registrant)
By: /s/ Dean A. McCoy
-------------------------------
Dean A. McCoy
Vice President - Controller
(On behalf of the Registrant and as
Principal Accounting Officer)
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1,000
3-MOS
MAY-01-1999
AUG-01-1998
31,298
0
38,358
813
24,624
100,927
119,304
63,919
176,155
44,805
41,600
0
150
220
75,978
176,155
121,906
121,906
79,966
79,966
0
0
924
10,136
3,791
6,345
0
0
0
6,345
.34
.33
