National Beverage Corp.
Annual Report 2009

Plain-text annual report

It’s the way...we A n n uA l R epoR t 2 0 0 9 p 0 1 0 0 n A t i o n A l B e v e R A g e c o R p . It’s the way...we we formulate… we innovate… we celebrate… p 0 1 0 2 n A t i o n A l B e v e R A g e c o R p . A n n u A l R e p o R t 2 0 0 9 p 0 1 0 3 A n n u A l R e p o R t 2 0 0 9 p 0 1 p 0 2 N a t I o N a l B e v e r a g e c o r p . Tenacious—Unyielding—Relentless …a genuine description of our competitiveness—we also have the finesse to create, motivate and inspire a great team of people to reach for excellence. 2008–2009, when analyzed in its obituary, will forever be referenced with lessons of abuse, catastrophic business failures, the demise of companies that gave Americana its torch and…of human suffering like no one could have predicted. The most significant loss was the destruction of trust, faith and, ultimately, confidence! These words are simple to write, but describe the most sacred of human emotions and, for certain, are the most delicate to restore. Some of us will never return to a previous normal. The scar… There was a compelling feeling to review more about the perils of all the catastrophes that have occurred, but here is a sobering disclosure—we at National Beverage truly are in contrast to all the chaos that has enveloped the economic world! So, we count ourselves fortunate and most appreciative that we are able to say—We Finished Our Best Year Ever at National Beverage Corp! This Annual Report and any that came before it is provided for many reasons, but the most precious is that…it is Team National’s report card. As with any form of recognition, the nicer, the better! This one will be the last of this type, for the internet age is more efficient and effective. Our annual reports, in addition to a specific theme and performance results, are also fun. We at National Beverage are all about feelings! Joy… As you peruse and hopefully learn more about us, allow yourself to feel the National Beverage Way. Be careful to note that thinking, formulating, innovating and celebrating can be tools of a philosophy as unique as the peculiar character of an inspiring inventor and as motivating as the joy the invention and its enhancement delivers to all who become recipients! Mentorship… InsIde VIew… FY 2009, while for National Beverage a direct contrast with the general economic conditions facing our nation, demanded relentless diligence and superb execution to achieve our results. Some may compare 2009 EBITDA to that of FY 2007, but in no way can the conditions of this past year be comparable with ANY prior year. Explicitly, when analyzed, the statistics relative to marketing and sales performance produced the finest financial results in the Company’s history. The slower growth of revenues over the decade preceding FY 2009 grew to a rate more acceptable relative to targeted organic growth…and, as of this writing, we continue to perform as such. We are very pleased with this achievement, especially when compared to other U.S. soft-drink producers. The irony that has resulted (in our favor) is—all who experienced this troubling recession and collapsed confidence have returned to value purchasing—even the most fortunate only spend through value-justification! Revived faith in what was previously confirmed to be good—gives credence to value. Our century-wise, time-honored value brands, Shasta and Faygo, boldly incite real value for both consumers and retailers alike. Our specialty…Fun—Joy The flavor segment of all sparkling beverages continues its growth, with National Beverage flavors far outpacing most others—as the cola segment drifts in decline. New distribution, coupled with our strong consumer demand in the take-home channel, gave our Shasta and Faygo brands growth achievements exceeding targeted expectations. Also, larger single-serve, value-perceived National Beverage flavors are quickly gaining distribution as this consumer demographic seeks more taste—more variety—more refreshment! Yes, more value… Honored family celebrations, Americana at its best, where warm joyous feelings replace stressors of daily life, boost feelings of comfort, faith and confidence—are memory creators with sounds of flavors—both Shasta’s and Faygo’s—always a joyous part of the lasting memory. Our sparkling, flavored water, LaCroix, also is leading our growth charge. As more and more female professionals change the demographic of the workplace, the incentive of ownership, as LaCroix is perceived by this dynamic consumer, is affecting p 0 1 0 4 n A t i o n A l B e v e R A g e c o R p . A n n u A l R e p o R t 2 0 0 9 p 0 1 0 5 A n n u A l R e p o R t 2 0 0 9 p 0 3 p 0 4 N a t I o N a l B e v e r a g e c o r p . brand perception. We have been advantaged by the fact that our zesty LaCroix is demanded by consumers who want a great-tasting, sparkling beverage, but without the calories and sugar. Health-oriented carbonated beverage consumers are switching to a sparkling beverage that meets all their demands and leaves them with the feeling of—intelligent choice. LaCroix does this in a great-tasting way! Sparkling fun… As the stress of our lives exceeded crippling conditions, so has the need to replenish nutrients and boost energy. Current conditions have prompted a new concept of providing goodness and promoting goodness by filling dual needs—nutritional boost and energy boost to the same consumer—this is our new marketing formulation. Therefore, our brands Everfresh, Mr. Pure and Rip It are all marketed to serve a purpose, in addition to their thirst and taste benefits. In this segment of our business, we have also witnessed above-estimated target growth. These brands also provide extra margin and promote additional distribution advantages in that they are sold as cool, ready-to-drink beverages. Our other family of soft drink beverages is distinctly beneficial to our marketing philosophy and creates opportunities to enhance our overall performance as a top of the class…soft-drink producer. ahead… Although our efforts produced strong financial results, both in relative and absolute terms during very unusual market conditions for FY 2009…the relentless and tenacious use of human energy required to produce these has heightened our resolve to ‘stay guarded’! Yes, the performance of FY 2010 is on track to produce our targeted goals and we are quite pleased. Again… Over the past couple of years, non-core events required the use of mega-human energy thus diverting efforts that could have further enhanced the Company’s growth. All of these have been resolved and that stress is now converted to aggressive ambition—I’m happy to report! We have excellent strengths that are rare and normally not found in the typical organization. Our owner-operator mentality is far more advantageous anytime— and, in these times, gives us added devotion that converts into energy! We choose ‘Tough-Grit’ over scheduled intelligence ALL DAY—EVERY DAY! Yes Sir… More often than not…tough mindedness wins the day! Can a mind be fortified—TOO? Yes, we do so…we’re national Beverage Corp.! VItals + MOre… As a Company, we are in an enviable position—distinctive and apart from all other soft-drink producers. Our vitals are excellent… Team National performs when it counts Brands that sparkle in tough times Fortress balance sheet Investor focus that yields appreciation Investor cash—returned appropriately No debt and hordes of cash The only vital that ultimately matters is how we measure up in unprecedented times and conditions—this is the profound test of all tests! Absolutely… Our brands, our assets, the formulas—most of what we have—are power tools and require human traits and skills to generate value through outstanding performance. This value is worth very little…if it cannot bring joy and participating appreciation to those who create it—Team National, Directors, employees, customers and consumers— ALL! And, YOU, our investor/shareholder whose trust we most certainly respect. National Beverage’s proprietary uniqueness is found within its relentless drive and success-inducing philosophy…these are dynamically inspired by—TEAM NATIONAL… Team National is a winning team! Why…It’s the way we think! Nick A. Caporella Chairman and Chief Executive Officer P.S. Stay Motivated! p 0 4 n A t i o n A l B e v e R A g e c o R p . A n n u A l R e p o R t 2 0 0 9 p 0 5 Formulating…a one-of-a-kind character! Creating…one-of-a-kind results! The intense, single-minded human that can convince some- one their idea has a place in the future and, through hard work and drive, pushes so hard that a powerful inertia creates a dynamic outcome for that idea! This is the Formulation of Formulations— This formulation and how it works is the basis of life at National Beverage! This annual report is designed to reflect the dynamics of this formulation and the results of the opportunistic enterprise it created. We at National Beverage live a culture in which new ideas, new developments, innovation and philosophy, stimulate admirable performance and create enviable results. This culture provides that the achievable can happen quicker and more efficiently with on-demand innovation at our fingertips. SHAREHOLDERS’ EqUITY GREW 565% SINCE JANUARY 15, 1996 It’s the way...we formulate $1B e B i t D a $ 50M s e u n $575M FY09 e v e R 1 : 7 . 2 i o a t R 1. C u R R e n t the ultimate formulation is creating value for our investors! Financial results and the strength of our balance sheet, while extremely important, are a result of our top priority—which is developing the best team possible. There is much to formulate as our dynamic team searches the corners of the globe for cutting-edge solutions and innovative ideas that, together, will continue creating value at National Beverage. Loyal consumers rely on our consistent quality. Our brands not only taste great, but their value confidence enhancement gives our consumers an added boost of spirit! p 0 6 n A t i o n A l B e v e R A g e c o R p . A n n u A l R e p o R t 2 0 0 9 p 0 7 LACROIx #1 CANNED SPARkLING WATER IN U.S. It’s the way...we entrepreneurially instinctive people reach for innovation with each and every fiber within them. Only through their efforts does the impossible and unlikely…result! Winning awards with our packages, wowing consumers with our formulations and creating and promoting inventive sourcing for raw materials…is novel innovation at work. Innovation is the result of a human mind that is programmed to challenge itself and create a more effective result. Our culture induces, through a caring and protective atmosphere, a mental stimulation to think outside the box and inspire each other to achieve more, thus giving us an edge over our competition. Our shareholders are the benefactors of this charged culture. While the Team is intellectually advancing due to innovation that ultimately rewards all participants, they also share in the enhanced enterprise value. Team National…takes Innovation to a new level. p 0 8 n A t i o n A l B e v e R A g e c o R p . A n n u A l R e p o R t 2 0 0 9 p 0 9 It’s the way...we celebrate f c t i Visualizing… yourself participating in a future celebration programs the brain to do a few things…set a goal to win… win…Celebrate again! Preparing and stimulating one’s mind is not new… this thought process is as old as civilization itself… but focusing on programming the mind to induce a preferred outcome is the new paradigm. Winning and exceeding expectations is desired by all…but those of us who envision an outcome and witness how it is developed by embracing this philosophy, have given themselves a definite advantage. Creating an atmosphere in which fun is a part of the result is our ultimate incentive. We produce joy for others and, in doing so, put our joy of doing it into our efforts to enhance taste and deliver enjoyment… The Team National Way! Yes!! VALUE OF $1,000 INVESTED IN t — think f — formulate i — innovate c — celebrate $12,647.76 1/15/96 THROUGH 5/2/09, INCLUDING DIVIDEND REINVESTMENT. p 0 1 0 n A t i o n A l B e v e R A g e c o R p . National Beverage... FINANCIALS P 1 4 N a t i o N a l B e v e r a g e c o r P . Selected Financial Data (In thousands, except per share amounts) S U M M A RY O F O P E R AT I O N S : Net sales cost of sales(2) gross profit Selling, general and administrative expenses interest expense other income—net income before income taxes Provision for income taxes Net income P E R S H A R E DATA : Basic net income(3) Diluted net income (3) closing stock price(3) cash dividends paid(4) B A L A N C E S H E E T DATA : cash and equivalents Working capital Property, plant and equipment—net total assets Deferred income tax liability Shareholders’ equity(4) Fiscal Year ended May 2, 2009 May 3, 2008(1) april 28, 2007 april 29, 2006 april 30, 2005 $ 575,177 405,322 $ 566,001 393,420 $ 539,030 365,793 $ 516,802 349,131 $ 495,572 340,206 169,855 131,918 107 967 38,797 14,055 172,581 138,447 109 1,053 35,078 12,598 173,237 137,212 106 2,587 38,506 13,824 167,671 135,090 105 2,416 34,892 12,666 155,366 130,037 106 1,199 26,422 9,536 $ 24,742 $ 22,480 $ 24,682 $ 22,226 $ 16,886 $ .54 .54 10.47 — $ 84,140 117,840 56,141 265,682 16,517 170,012 $ .49 .49 8.05 .80 $ .54 .54 13.13 — $ .49 .48 12.80 .83 $ .37 .37 5.92 — $ 51,497 89,396 57,639 239,122 16,624 144,625 $ 65,579 97,684 57,369 257,632 15,217 157,361 $ 42,119 75,025 56,027 218,339 17,783 130,860 $ 54,557 81,962 62,879 224,587 15,958 143,296 (1) Fiscal 2008 consisted of 53 weeks. (2) Fiscal 2006 cost of sales includes a fructose settlement gain of $8.4 million. (3) Basic net income per share is computed by dividing earnings applicable to common shares by the weighted average number of shares outstanding. Diluted net income per share includes the dilutive effect of stock options. Net income per share and the closing stock price have been adjusted for the 20% stock dividend distributed on June 22, 2007. (4) In January 2006, the Company paid a cash dividend of $1.00 per share ($.83 per share after adjusting for the 20% stock dividend), aggregating $38.0 million. In August 2007, the Company paid a cash dividend of $.80 per share, aggregating $36.7 million. a N N u a l r e P o r t 2 0 0 9 P 1 5 Management’s Discussion and Analysis of Financial Condition and Results of Operations OV E RV I E W National Beverage corp. develops, manufactures, markets and distributes a complete portfolio of quality beverage products throughout the united States. incor porated in Delaware in 1985, National Beverage corp. is a holding company for various operating subsidiaries. in this report, the terms “we,” “us,” “our,” “company” and “National Beverage” mean National Beverage corp. and its subsidiaries. We consider ourselves to be a leader in the develop- ment and sale of flavored beverage products in the united States, offering the widest selection of flavored soft drinks, juices, sparkling waters, energy drinks and nutritionally- enhanced waters. our flavor development spans over 100 years originating with our flagship brands, Shasta® and Faygo®, each of which has over 50 flavor varieties. We also maintain a diverse line of flavored beverage products geared to the health-conscious consumer, including everfresh®, Home Juice®, and Mr. Pure® 100% juice and juice-based products; lacroix®, crystal Bay® and clearFruit® flavored, sparkling, and spring water products; and ÀSanté® nutritionally-enhanced waters. in addition, we distribute rip it® energy drinks, ohana® fruit-flavored drinks, St. Nick’s® holiday soft drinks as well as powder and effervescent tablet beverage enhancers sold under the NutraFizz® brand name. Substantially all of our brands are produced in twelve manufacturing facilities that are strategically located in major metropolitan markets throughout the continental united States. to a lesser extent, we develop and produce soft drinks for certain retailers and beverage companies (“allied brands”). our strategy emphasizes the growth of our products by offering a branded beverage portfolio of proprietary fla- vors; by supporting the franchise value of regional brands and expanding those brands with distinctive packaging and broader demographic emphasis; by developing and acquiring innovative products tailored toward healthy lifestyles; and by appealing to the “quality-price” expectations of the family consumer. We believe that the “regional share dynamics” of our brands perpetuate consumer loyalty within local regional markets, resulting in more retailer sponsored promotional activities. over the last several years, we have focused on increasing penetration of our brands in the convenience channel through company-owned and independent distrib- utors. the convenience channel consists of convenience stores, gas stations, and other smaller “up-and-down-the- street” accounts. Because of the higher retail prices and margins that typically prevail, we have undertaken several measures to expand convenience channel distribution in recent years. these include development of products spe- cifically targeted to this market, such as clearFruit, crystal Bay, rip it and ÀSanté. additionally, we have created pro- prietary and specialized packaging with distinctive graphics for these products. We intend to continue our focus on enhancing growth in the convenience channel through both specialized packaging and innovative product development. Beverage industry sales are seasonal with the highest volume typically realized during the summer months. addi- tionally, our operating results are subject to numerous factors, including fluctuations in the costs of raw materials, changes in consumer preference for beverage products and competitive pricing in the marketplace. R E S U LT S O F O P E R AT I O N S Net Sales: Fiscal 2009 consisted of 52 weeks while fiscal 2008 consisted of 53 weeks. Net sales for fiscal 2009 increased to $575.2 million, or 3.8% after adjusting for the effect of the extra week in fiscal 2008. the net sales increase reflects case volume growth of 3.1% for our energy drinks, juices and waters and 2.1% for branded carbonated soft drinks. in addition, unit pricing increased 3.4% due to product mix and price increases instituted to recover higher raw material costs. this improvement was partially offset by a decline in allied branded volume. P 1 6 N a t i o N a l B e v e r a g e c o r P . Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Net sales for fiscal 2008 increased 5.0% to $566.0 million compared to fiscal 2007. the net sales increase reflects case volume growth of 8.8% for our energy drinks, juices and waters along with the effect of an 11% improvement in unit pricing due to product mix and price increases instituted to recover higher raw material costs. these increases were partially offset by a 6.1% decline in branded carbonated soft drink volume as well as the phase out of certain allied brands. Gross Profit: gross profit approximated 29.5% of net sales for fiscal 2009 and 30.5% of net sales for fiscal 2008. the decline in gross margin was due to higher manufacturing and raw material costs and the effect of a $1.4 million busi- ness interruption insurance recovery in fiscal 2008. this was partially offset by the higher unit pricing noted above. cost of goods sold per unit increased 4.9% . gross profit approximated 30.5% of net sales for fiscal 2008 and 32.1% of net sales for fiscal 2007. the decline in gross margin was due to higher manufacturing and raw material costs and the effect of lower volume. this was partially offset by the higher unit pricing noted above and a $1.4 million business interruption insurance recovery. cost of goods sold per unit increased approximately 14% . Shipping and handling costs are included in selling, gen- eral 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 consolidated Financial Statements. Selling, General and Administrative Expenses: Selling, general and administrative expenses were $131.9 million or 22.9% of net sales for fiscal 2009 compared to $138.4 million or 24.5% of net sales for fiscal 2008. the decline in expenses is due primarily to lower distribution and marketing costs. Selling, general and administrative expenses were $138.4 million or 24.5% of net sales for fiscal 2008 com- pared to $137.2 million or 25.5% of net sales for fiscal 2007. the increase in expenses is due primarily to higher distribution costs, which were affected by increases in fuel and energy costs. Interest Expense and Other Income—Net: interest expense is comprised of financing costs related to maintaining lines of credit. other income includes interest income of $865,000 for fiscal 2009, $1.2 million for fiscal 2008, and $1.7 million for fiscal 2007. the decline in interest income for fiscal 2009 is due to lower investment yields. the decline in interest income for fiscal 2008 is due to lower investment yields and a decline in average invested balances related to the $36.7 million dividend paid in august 2007. other income for fiscal 2009 includes a gain of $728,000 related to a legal settlement concerning leased property. in addition, other income for fiscal 2007 includes a gain of $895,000 related to a contract settlement with a customer. See Note 6 of Notes to consolidated Financial Statements. Income Taxes: our effective tax rate was approximately 36.2% for fiscal 2009 and 35.9% for fiscal 2008 and fiscal 2007. the difference between the effective rate and the federal statutory rate of 35% was primarily due to the effects of state income taxes, nondeductible expenses, and nontaxable interest income. See Note 7 of Notes to consolidated Financial Statements. a N N u a l r e P o r t 2 0 0 9 P 1 7 L I Q U I D I T Y A N D F I N A N C I A L C O N D I T I O N Liquidity and Capital Resources: our principal source of funds is cash generated from operations, which may be supplemented by borrowings available under our credit facilities. the company maintains unsecured revolving credit facilities aggregating $75 million, of which $2.9 mil- lion is utilized for standby letters of credit at May 2, 2009. We believe that existing capital resources, including our cash and equivalents aggregating $84.1 million as of May 2, 2009, are sufficient to meet our capital requirements for the foreseeable future. although we continually make capital improvements to expand our production capacity, enhance packaging capabilities or improve efficiencies at our manufacturing facilities, the company did not have any material capital expenditure commitments as of May 2, 2009. We antici- pate that fiscal 2010 expenditures will be higher than fiscal 2009 amounts. on June 22, 2007, the company distributed a 20% stock dividend to shareholders, increasing outstanding shares by 7.6 million. on august 17, 2007, the company paid a special cash dividend of $.80 per share, aggregating $36.7 million. Pursuant to a management agreement, we incurred a fee to corporate Management advisors, inc. (“cMa”) of approximately $5.8 million for fiscal 2009, $5.7 million for fiscal 2008, and $5.4 million for fiscal 2007. at May 2, 2009, we owed $2.8 million to cMa for unpaid fees. See Note 5 of Notes to consolidated Financial Statements. Cash Flows: During fiscal 2009, $35.8 million was provided from operating activities, which was partially offset by $3.5 million used for investing activities. cash provided by operating activities increased $1.8 million due primarily to higher earnings. cash used in investing activities improved $9.2 million due to changes in net marketable securities trans actions and reduced capital expenditures. cash provided by financing activities aggregated $305,000 in fiscal 2009. During fiscal 2008, $34 million was provided from operating activities, which was partially offset by $12.7 million used for investing activities. cash provided by oper- ating activities increased $1.2 million due primarily to a favorable change in deferred income taxes. cash used in investing activities increased $1.8 million due to a net increase in marketable securities purchased. cash used in financing activities aggregated $35.4 million in fiscal 2008, reflecting a $36.7 million dividend paid in august 2007. Financial Position: During fiscal 2009, our working capital increased $28.4 million to $117.8 million due primarily to cash provided from operations. trade receivables increased $4.5 million due to changes in customer mix and timing of customer payments. Prepaid and other assets decreased $6.5 million due primarily to changes in income tax refunds. at May 2, 2009, the current ratio was 2.7 to 1, compared to 2.3 to 1 at May 3, 2008. P 1 8 N a t i o N a l B e v e r a g e c o r P . Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) During fiscal 2008, our working capital decreased $8.3 million to $89.4 million due to the august 2007 cash dividend payment. trade receivables decreased $2.8 million due to changes in customer mix and timing of customer payments. inventory decreased $5.3 million due to the elimination of certain inventory items and improved inventory management. Prepaid and other assets increased $2.3 million due to an increase in income tax refund receivable. at May 3, 2008 and april 28, 2007, the current ratio was 2.3 to 1. C O N T R AC T U A L O B L I G AT I O N S long-term contractual obligations at May 2, 2009 are payable as follows: (In thousands) operating leases Purchase commitments total total 2010 2012 2014 thereafter 2011– 2013– $ 17,668 $ 5,335 $ 6,547 $ 2,764 $3,022 42,300 42,300 — — — $ 59,968 $ 47,635 $ 6,547 $ 2,764 $3,022 We have guaranteed the residual value of certain leased equipment in the amount of $11.3 million. Management believes that the net realizable value of such equipment will be in excess of the guaranteed amount when the lease terminates in July 2012. We contribute to certain pension plans under collec- tive bargaining agreements based on hours worked and to a discretionary profit sharing plan, none of which have any long-term contractual funding requirements. contributions were $2.3 million for fiscal 2009 and $2.2 million for fiscal 2008 and 2007. We maintain self-insured and deductible programs for certain liability, medical and workers’ compensation expo- sures. 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 claims settlement varies significantly, we are not able to reasonably estimate future payments for the periods indicated. We have standby letters of credit aggregating $2.9 million related to our self-insurance programs, which expire in fiscal 2010. We expect to renew these standby letters of credit until they are no longer required. O F F - B A L A N C E S H E E T A R R A N G E M E N T S 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. C R I T I C A L AC C O U N T I N G P O L I C I E S the preparation of financial statements in conformity with generally accepted accounting principles requires manage- ment to make estimates and assumptions that affect the a N N u a l r e P o r t 2 0 0 9 P 1 9 amounts reported in the financial statements and accom- panying 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 affect 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. 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 specific customer circumstances, credit conditions, and historical write-offs. 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. an impaired asset is written down to its estimated fair market value based on the best information available. estimated fair market value is gener- ally measured by discounting future cash flows. goodwill and intangible assets not subject to amortization are evalu- ated for impairment annually or sooner in accordance with SFaS No. 142. an impairment loss is recognized if the carrying amount, or for goodwill, the carrying amount of its reporting unit, is greater than its fair value. Income Taxes: our effective income tax rate is based on estimates of taxes which will ultimately be payable. Deferred taxes are recorded to give recognition to temporary dif- ferences 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 deduct- ible programs for certain liability, medical and workers’ com- pensation 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. Sales Incentives: We offer various sales incentive arrange- ments to our customers, which require customer perfor- mance or achievement of certain sales volume targets. in those circumstances when the incentive is paid in advance, we amortize the amount paid over the period of benefit or contractual sales volume. When the incentive is paid in arrears, we accrue the expected amount to be paid over the period of benefit or expected sales volume. the rec- ognition 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 reve- nues and actual amounts may vary from reported amounts. P 2 0 N a t i o N a l B e v e r a g e c o r P . Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) N E W AC C O U N T I N G S TA N DA R D S See Note 1 of Notes to consolidated Financial Statements for information about recently issued accounting standards. Q U A N T I TAT I V E A N D Q U A L I TAT I V E D I S C LO S U R E S A B O U T M A R K E T R I S K Commodities: We purchase various raw materials, including aluminum cans, plastic bottles, high fructose corn syrup, and various juice concentrates, the prices of which fluctuate based on commodity market conditions. our ability to recover increased costs through higher pricing may be lim- ited by the competitive environment in which we operate. Interest Rates: We had no debt related interest rate expo- sure during fiscal 2009. our investment portfolio is com- prised of highly liquid securities consisting primarily of short-term money market instruments, the yields of which fluctuate based largely on short-term treasury rates. if the yield of these instruments had changed by 100 basis points (1%), interest income for fiscal 2009 would have changed by approximately $470,000. F O RWA R D - LO O K I N G S TAT E M E N T S National Beverage and its representatives may from time to time make written or oral statements relating to future events or results relative to our financial, operational and business performance, achievements, objectives and strate- gies. these statements are “forward-looking” within the meaning of the Private Securities litigation reform act of 1995, and include statements contained in this report, filings with the Securities and exchange commission and other 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 com- petitive products; success in acquiring other beverage busi- nesses; success of new product and flavor introductions; fluctuations in the costs of raw materials and packaging supplies, and the ability to pass along any cost increases to our customers; our ability to increase prices for our products; labor strikes or work stoppages or other inter- ruptions or difficulties in the employment of labor; contin- ued retailer support for our products; changes in consumer preferences and our success in creating products geared toward consumers’ tastes; success of implementing business strategies; changes in business strategy or development plans; government regulations; unseasonably cold or wet weather conditions; and other factors referenced in this report and the company’s filings with the Securities and exchange commission. We disclaim an obligation to update any such factors or to publicly announce the results of any revisions to any forward-looking statements contained herein to reflect future events or developments. a N N u a l r e P o r t 2 0 0 9 P 2 1 Consolidated Balance Sheets as of May 2, 2009 and May 3, 2008 (In thousands, except share amounts) 2009 2008 A S S E T S current assets: cash and equivalents Marketable securities trade receivables—net of allowances of $445 (2009) and $266 (2008) inventories Deferred income taxes—net Prepaid and other assets total current assets Property, plant and equipment—net goodwill intangible assets—net other assets L I A B I L I T I E S A N D S H A R E H O L D E R S ’ E Q U I T Y current liabilities: accounts payable accrued liabilities income taxes payable total current liabilities Deferred income taxes—net other liabilities 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 common stock, $.01 par value—authorized 75,000,000 shares; issued 50,045,718 shares (2009) and 49,982,838 shares (2008); outstanding 46,012,934 shares (2009) and 45,950,054 shares (2008) additional paid-in capital retained earnings treasury stock—at cost: Preferred stock—150,000 shares common stock—4,032,784 shares total shareholders’ equity See accompanying Notes to Consolidated Financial Statements. $ 84,140 — 53,735 39,612 3,262 5,552 186,301 56,141 13,145 1,861 8,234 $ 51,497 3,000 49,186 38,754 2,895 12,009 157,341 57,639 13,145 1,899 9,098 $ 265,682 $ 239,122 $ 48,005 20,142 314 $ 49,803 17,965 177 68,461 16,517 10,692 67,945 16,624 9,928 150 150 500 27,153 160,209 500 26,508 135,467 (5,100) (12,900) (5,100) (12,900) 170,012 144,625 $ 265,682 $ 239,122 P 2 2 N a t i o N a l B e v e r a g e c o r P . Consolidated Statements of Income For the Fiscal Years ended May 2, 2009, May 3, 2008 and april 28, 2007 (In thousands, except per share amounts) Net sales cost of sales gross profit Selling, general and administrative expenses interest expense other income—net income before income taxes Provision for income taxes Net income Net income per share Basic Diluted average common shares outstanding Basic Diluted See accompanying Notes to Consolidated Financial Statements. 2009 2008 2007 $ 575,177 405,322 $ 566,001 393,420 $ 539,030 365,793 169,855 131,918 107 967 38,797 14,055 172,581 138,447 109 1,053 35,078 12,598 173,237 137,212 106 2,587 38,506 13,824 $ 24,742 $ 22,480 $ 24,682 $ $ .54 .54 $ $ .49 .49 $ $ .54 .54 45,999 46,191 45,894 46,109 45,763 46,073 Consolidated Statements of Shareholders’ Equity For the Fiscal Years ended May 2, 2009, May 3, 2008 and april 28, 2007 (In thousands) N U M B E R O F C O M M O N S H A R E S I S S U E D Beginning of year Stock options exercised 20% stock dividend end of year P R E F E R R E D S TO C K Beginning and end of year C O M M O N S TO C K Beginning of year Stock options exercised 20% stock dividend end of year A D D I T I O N A L PA I D - I N C A P I TA L Beginning of year Stock options exercised Stock-based compensation Stock-based tax benefits end of year R E TA I N E D E A R N I N G S Beginning of year Net income cash dividends paid FiN 48 adoption 20% stock dividend end of year T R E A S U RY S TO C K— P R E F E R R E D Beginning and end of year T R E A S U RY S TO C K— C O M M O N Beginning and end of year TOTA L S H A R E H O L D E R S ’ E Q U I T Y See accompanying Notes to Consolidated Financial Statements. a N N u a l r e P o r t 2 0 0 9 P 2 3 2009 2008 2007 49,982 63 — 49,538 444 — 41,511 443 7,584 50,045 49,982 49,538 $ 150 $ 150 $ 150 500 — — 500 496 4 — 500 415 5 76 496 26,508 245 340 60 24,847 329 311 1,021 23,033 319 318 1,177 27,153 26,508 24,847 135,467 24,742 — — — 149,868 22,480 (36,711) (170) — 125,262 24,682 — — (76) 160,209 135,467 149,868 (5,100) (5,100) (5,100) (12,900) (12,900) (12,900) $ 170,012 $ 144,625 $ 157,361 P 2 4 N a t i o N a l B e v e r a g e c o r P . Consolidated Statements of Cash Flows For the Fiscal Years ended May 2, 2009, May 3, 2008 and april 28, 2007 (In thousands) 2009 2008 2007 O P E R AT I N G AC T I V I T I E S : Net income adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Deferred income tax (benefit) provision loss on disposal of property, net Stock-based compensation changes in assets and liabilities: trade receivables inventories Prepaid and other assets accounts payable accrued and other liabilities $ 24,742 $ 22,480 $ 24,682 11,782 (474) 363 340 (4,549) (858) 2,774 (1,798) 3,507 11,584 1,254 196 311 2,790 5,308 (2,824) (4,530) (2,581) 11,650 (2,835) 9 318 (3,740) (9,633) (3,193) 16,292 (715) Net cash provided by operating activities 35,829 33,988 32,835 I N V E S T I N G AC T I V I T I E S : Marketable securities purchased Marketable securities sold additions to property, plant and equipment Proceeds from sale of property, plant and equipment Net cash used in investing activities F I N A N C I N G AC T I V I T I E S : common stock cash dividend Proceeds from stock options exercised Stock-based tax benefits Net cash provided by (used in) financing activities N E T I N C R E A S E ( D E C R E A S E ) I N C A S H A N D E Q U I VA L E N T S C A S H A N D E Q U I VA L E N T S — B E G I N N I N G O F Y E A R (109,450) 112,450 (6,658) 167 (302,195) 299,195 (9,725) 12 (524,980) 524,980 (10,975) 99 (3,491) (12,713) (10,876) — 245 60 305 (36,711) 333 1,021 (35,357) 32,643 51,497 (14,082) 65,579 — 324 1,177 1,501 23,460 42,119 C A S H A N D E Q U I VA L E N T S — E N D O F Y E A R $ 84,140 $ 51,497 $ 65,579 OT H E R C A S H F LOW I N F O R M AT I O N : interest paid income taxes paid See accompanying Notes to Consolidated Financial Statements. $ 107 11,114 $ 107 13,767 $ 106 13,325 a N N u a l r e P o r t 2 0 0 9 P 2 5 Notes to Consolidated Financial Statements National Beverage corp. develops, manufactures, markets and distributes a complete portfolio of multi-flavored soft drinks, juice drinks, water and specialty beverages through- out the united States. incorporated in Delaware in 1985, National Beverage corp. is a holding company for various operating subsidiaries. When used in this report, the terms “we,” “us,” “our,” “company” and “National Beverage” mean National Beverage corp. and its subsidiaries. 1. S I G N I F I C A N T AC C O U N T I N G P O L I C I E S Basis of Presentation: our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united States. the consolidated financial statements include the accounts of National Beverage corp. and all subsidiaries. all significant inter- company transactions and accounts have been eliminated. our fiscal year ends the Saturday closest to april 30th and, as a result, an additional week is added every five or six years. Fiscal 2008 consisted of 53 weeks while fiscal 2009 and 2007 consisted of 52 weeks. certain amounts in the prior years’ consolidated financial statements have been revised to conform to the current year presentation. Cash and Equivalents: cash and equivalents are comprised of cash and highly liquid securities (consisting primarily of short-term money-market investments) with an original maturity of three months or less. Fair Value of Financial Instruments: the fair values of market- able securities are estimated based on market rates. the carrying amounts of trade receivables and accounts payable reflected in the balance sheets approximate their fair values due to their short-term nature. 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. an impaired asset is written down to its estimated fair market value based on the best information available. estimated fair market value is gener- ally measured by discounting future cash flows. goodwill and intangible assets not subject to amortization are eval- uated for impairment annually or sooner in accordance with SFaS No. 142. an impairment loss is recognized if the carrying amount, or for goodwill, the carrying amount of its reporting unit, is greater than its fair value. Income Taxes: our effective income tax rate is based on estimates of taxes which will ultimately be payable. Deferred taxes are recorded to give recognition to temporary dif- ferences between the tax bases of assets or liabilities and their reported amounts in the financial statements. valua- tion 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. at the beginning of fiscal 2008, we adopted the Finan- cial accounting Standards Board’s (“FaSB”) interpretation Number 48, “accounting for uncertainty in income taxes” (“FiN 48”). FiN 48 clarified the accounting for uncertainty in an enterprise’s financial statements by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. See Note 7. P 2 6 N a t i o N a l B e v e r a g e c o r P . Notes to Consolidated Financial Statements (continued) Insurance Programs: We maintain self-insured and deduct- ible 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. Intangible Assets: intangible assets as of May 2, 2009 and May 3, 2008 consisted primarily of nonamortizable trade- marks aggregating $1,861,000 and $1,899,000, respectively. Inventories: inventories are stated at the lower of first-in, first-out cost or market. inventories at May 2, 2009 are comprised of finished goods of $22,168,000 and raw mate- rials of $17,444,000. inventories at May 3, 2008 are com- prised of finished goods of $20,913,000 and raw materials of $17,841,000. Marketable Securities: Marketable securities are income yielding securities that generally can be readily converted into cash. all of our marketable securities are classified as trading securities and are reported as current assets at their estimated fair market values. Fair value is based on quoted prices of similar assets in active markets. valuation of these items does entail significant amount of judgment and the inputs that are significant to the fair value measure- ment are level 2 in the fair value hierarchy as defined in SFaS 157, Fair Value Measurements. accordingly, the fair value may not represent actual value of the securities that could have been realized and do not include expenses that could be incurred in an actual sale or settlement. Marketing Costs: We are involved in a variety of marketing programs, including cooperative advertising programs with customers, to advertise and promote our products to consumers. Marketing costs are expensed when incurred, except for prepaid advertising and production costs which are expensed when the advertising takes place. Marketing costs, which are included in selling, general and adminis- trative expenses, were $34.9 million in fiscal 2009, $39.5 million in fiscal 2008, and $42.4 million in fiscal 2007. Net Income Per Share: Basic net income per share is com- puted by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is calculated in a similar man- ner, but includes the dilutive effect of stock options, which amounted to 192,000 shares in fiscal 2009, 215,000 shares in fiscal 2008, and 310,000 shares in fiscal 2007. options to purchase 33,000 shares in fiscal 2009, 344,000 shares in fis- cal 2008, and 1,000 shares in fiscal 2007 were not included in the calculation of diluted net income per share because these options were antidilutive. New Accounting Standards: in September 2006, the FaSB issued Statement of Financial Standards (“SFaS”) 157, Fair Value Measurements (SFaS 157), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFaS 157 was effective at the beginning of fiscal 2009 for all financial assets and liabilities and for nonfinancial assets and liabilities measured at fair value on a recurring basis. a N N u a l r e P o r t 2 0 0 9 P 2 7 the adoption of SFaS 157 did not have a material impact on our consolidated financial statements. For all other nonfinancial assets and liabilities, SFaS 157 is effective at the beginning of fiscal 2010 and we do not believe that the adoption will materially impact our consolidated financial statements. in February 2007, the FaSB issued SFaS 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFaS 159), which permits entities to choose to measure many financial instruments and certain other items at fair value. SFaS 159 was effective at the beginning of our 2009 fiscal year. We did not apply the fair value option to any of our financial instruments; therefore, SFaS 159 did not have an impact on our consolidated financial statements. in December 2007, the FaSB issued SFaS 141 (revised 2007), Business Combinations (SFaS 141r), and SFaS 160, Noncontrolling Interests in Consolidated Financial Statements (SFaS 160), to improve, simplify, and converge internation- ally the accounting for business combinations and the report- ing of noncontrolling interests in consolidated financial statements. the provisions of SFaS 141r and SFaS 160 are effective as of the beginning of our 2010 fiscal year. We are currently evaluating the impact of adopting SFaS 141r and SFaS 160 on our consolidated financial statements. Property, Plant and Equipment: Property, plant and equip- ment are recorded at cost. additions, replacements and betterments are capitalized, while maintenance and repairs that do not extend the useful life of an asset are expensed as incurred. Depreciation is recorded using the straight- line method over estimated useful lives of 7 to 30 years for buildings and improvements, and 3 to 15 years for machinery and equipment. leasehold improvements are amortized using the straight-line method over the shorter of the remaining lease term or the estimated useful life of the improvement. When assets are retired or otherwise disposed, the cost and accumulated depreciation are removed from the respective accounts and any related gain or loss is recognized. Revenue Recognition: revenue from product sales is recog- nized when title and risk of loss passes to the customer, which generally occurs upon delivery. our policy is not to allow the return of products once they have been accepted by the customer. However, on occasion, we have accepted returns or issued credit to customers, primarily for damaged goods. the amounts have been immaterial and, accordingly, we do not provide a specific valuation allowance for sales returns. Sales Incentives: We offer various sales incentive arrange- ments to our customers which require customer perfor- mance or achievement of certain sales volume targets. in those circumstances when the incentive is paid in advance, we amortize the amount paid over the period of benefit or contractual sales volume. When the incentive is paid in arrears, we accrue the expected amount to be paid over the period of benefit or expected sales volume. the rec- ognition 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 revenues and actual amounts may vary from reported amounts. P 2 8 N a t i o N a l B e v e r a g e c o r P . Notes to Consolidated Financial Statements (continued) Segment Reporting: We operate as a single operating seg- ment for purposes of presenting financial information and evaluating performance. as such, the accompanying consoli- dated financial statements present financial information in a format that is consistent with the internal financial informa- tion used by management. We do not accumulate revenues by product classification and, therefore, it is impractical to present such information. Shipping and Handling Costs: Shipping and handling costs are reported in selling, general and administrative expenses in the accompanying statements of income. Such costs aggregated $44.1 million in fiscal 2009, $45.3 million in fiscal 2008, and $43.2 million in fiscal 2007. although our classification is consistent with many beverage companies, our gross margin may not be comparable to companies that include shipping and handling costs in cost of sales. Stock-Based Compensation: compensation expense for stock-based compensation awards is recognized based on the grant-date fair value estimated in accordance with the provisions of SFaS No. 123r “Share-Based Payments.” See Note 8. Trade Receivables: We record trade receivables at net real- izable value, which includes an appropriate allowance for doubtful accounts. We extend credit based on an evalua- tion of each customer’s financial condition, generally with- out 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 specific customer circumstances, credit conditions, and historical write-offs. activity in the allowance for doubtful accounts was as follows: (In thousands) 2009 2008 2007 Balance at beginning of year $ 266 $ 325 $ 562 Net charge (credit) to expense Net recovery (charge-off) 221 (42) 91 (244) (150) 7 Balance at end of year $ 445 $ 266 $ 325 as of May 2, 2009 and May 3, 2008, we did not have any customer that comprised more than 10% of trade receivables. No one customer accounted for more than 10% of net sales during any of the last three fiscal years. Use of Estimates: the preparation of financial statements in conformity with 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 anticipated future actions, actual results may vary from reported amounts. 2 . P RO P E RT Y, P L A N T A N D E Q U I P M E N T Property, plant and equipment as of May 2, 2009 and May 3, 2008 consisted of the following: (In thousands) land Buildings and improvements Machinery and equipment total less accumulated depreciation 2009 2008 $ 9,779 $ 8,954 44,224 123,911 41,697 124,797 177,914 175,448 (121,773) (117,809) Property, plant and equipment—net $ 56,141 $ 57,639 a N N u a l r e P o r t 2 0 0 9 P 2 9 Depreciation expense was $9,456,000 for fiscal 2009, 5 . C A P I TA L S TO C K A N D T R A N S AC T I O N S W I T H $9,247,000 for fiscal 2008, and $9,525,000 for fiscal 2007. R E L AT E D PA RT I E S 3 . AC C R U E D L I A B I L I T I E S accrued liabilities as of May 2, 2009 and May 3, 2008 consisted of the following: (In thousands) accrued promotions accrued compensation accrued insurance other total 2009 2008 $ 6,757 $ 5,340 6,646 2,117 4,622 5,065 2,783 4,777 $ 20,142 $ 17,965 4 . D E B T at May 2, 2009, a subsidiary of the company maintained unsecured revolving credit facilities with banks aggregating $75 million (the “credit Facilities”). the credit Facilities expire through December 2013 and currently bear interest at rates ranging from .3% to .6% above liBor or, at our election, .5% below the banks’ reference rates. at May 2, 2009, $2.9 million of the credit Facilities was used for standby letters of credit and $72.1 million was available for borrowings. the credit Facilities require the subsidiary to maintain certain financial ratios and contain other restrictions, none of which are expected to have a material impact on our operations or financial position. Significant financial ratios and restrictions include: fixed charge coverage; net worth ratio; and limitations on incurrence of debt. at May 2, 2009, we were in compliance with all loan covenants and approximately $25 million of retained earnings were restricted from distribution. on June 22, 2007, the company distributed a 20% stock dividend to shareholders, increasing outstanding shares by 7.6 million. on august 17, 2007, the company paid a special cash dividend of $.80 per share, aggregating $36.7 million. Net income per share, average common shares outstanding and share amounts have been restated to give retroactive effect to the 20% stock dividend. in January 1998, the Board of Directors authorized the purchase of up to 800,000 shares of National Beverage common stock of which 502,060 shares have been pur- chased. there were no shares purchased during the three fiscal years ended May 2, 2009. the company is a party to a management agreement with corporate Management advisors, inc. (“cMa”), a corporation owned by our chairman and chief executive officer. under the terms of the agreement, cMa provides (i) senior corporate functions (including supervision of the company’s financial, legal, executive recruitment, internal audit and management information systems departments) as well as the services of a chief executive officer, and (ii) services in connection with acquisitions, dispositions and financings by the company, including identifying and profiling acquisition candidates, negotiating and structuring potential transactions and arranging financing for any such transaction. cMa, through its personnel, also provides, to the extent possible, the stimulus and creativity to develop an innovative and dynamic persona for the company, its products and corporate image. the management agree- ment further provides that cMa will receive an annual base fee equal to one percent of the consolidated net sales of the company plus incentive compensation based on certain factors to be determined by the compensation P 3 0 N a t i o N a l B e v e r a g e c o r P . Notes to Consolidated Financial Statements (continued) committee of our Board of Directors. in order to fulfill its obligations under the management agreement, the Man- agement company employs numerous individuals, whom, acting as a unit, provide management, administrative and creative functions for the company. We incurred fees to cMa of $5.8 million for fiscal 2009, $5.7 million for fiscal 2008, and $5.4 million for fiscal 2007. No incentive com- pensation has been incurred or approved under the man- agement agreement since its inception. included in accounts payable at May 2, 2009 and May 3, 2008 were amounts due cMa of $2.8 million and $2.7 million, respectively. 6 . OT H E R I N C O M E other income consisted of the following: 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 state- ments. 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. Deferred tax assets and liabilities as of May 2, 2009 and May 3, 2008 consisted of the following: (In thousands) Deferred tax assets: 2009 2008 accrued expenses and other inventory and amortizable assets $ 4,830 $ 4,704 439 359 total deferred tax assets 5,269 5,063 (In thousands) interest income 2009 2008 2007 $ 865 $ 1,218 $ 1,701 Deferred tax liabilities: Property intangibles and other gain on customer contract gain on legal settlement regarding leased property loss on disposal of property, net other income (loss), net 202 728 (363) (465) — — (196) 31 895 — (9) — total $ 967 $ 1,053 $ 2,587 7. I N C O M E TA X E S the provision for income taxes consisted of the following: 18,504 18,703 20 89 18,524 18,792 total deferred tax liabilities Net deferred tax liabilities $ 13,255 $ 13,729 current deferred tax assets—net $ 3,262 $ 2,895 Noncurrent deferred tax liabilities—net $ 16,517 $ 16,624 the reconciliation of the statutory federal income tax rate to our effective tax rate is as follows: 2009 2008 2007 (In thousands) current Deferred total 2009 2008 2007 Statutory federal income tax rate 35.0% 35.0% 35.0% $ 14,529 $ 11,344 $ 16,659 (474) 1,254 (2,835) $ 14,055 $ 12,598 $ 13,824 State income taxes, net of federal benefit other differences 2.4 (1.2) 2.8 (1.9) 3.0 (2.1) effective income tax rate 36.2% 35.9% 35.9% a N N u a l r e P o r t 2 0 0 9 P 3 1 We adopted FiN 48 at the beginning of fiscal 2008. as a result of the implementation of FiN 48, we recorded a $703,000 increase in liabilities for uncertain tax positions, a $533,000 decrease in deferred tax liability and a $170,000 decrease to retained earnings. as of May 2, 2009, the gross amount of unrecognized tax benefits was approximately $3.7 million, of which approximately $496,000 was recog- nized as tax expense in fiscal 2009. if we were to prevail on all uncertain tax positions, the net effect would be to reduce our tax expense by approximately $3.0 million. a reconciliation of the changes in the gross amount of unrecognized tax benefits, which amounts are included in “other liabilities” in the accompanying consolidated balance sheets, is as follows: (In thousands) Beginning balance increases due to current period 2009 2008 $ 3,166 $ 2,694 tax positions 533 630 Decreases due to lapse of statute of limitations ending balance (37) (158) $ 3,662 $ 3,166 We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. as of May 2, 2009, unrecognized tax benefits included accrued interest of $491,000, of which approximately $98,000 was recognized as tax expense in fiscal 2009. We file annual income tax returns in the united States and in various state and local jurisdictions. a number of years may elapse before an uncertain tax position, for which we have unrecognized tax benefits, is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our unrecognized tax benefits reflect the most probable outcome. We adjust these unrecognized tax benefits, as well as the related interest, in light of changing facts and circumstances. the resolution of any particular uncertain tax position could require the use of cash and an adjustment to our provision for income taxes in the period of resolution. the internal revenue Service has concluded its examination of our federal income tax returns through fiscal 2004 and income tax returns for subsequent fiscal years are subject to exam- ination. generally, the income tax returns for the various state jurisdictions are subject to examination for fiscal years ending after fiscal 2004. 8 . S TO C K- B A S E D C O M P E N S AT I O N our stock-based compensation program is a broad-based program designed to attract and retain employees while also aligning employees’ interests with the interests of the stockholders. the 1991 omnibus incentive Plan (the “omnibus Plan”) provides for compensatory awards consisting of (i) stock options or stock awards for up to 4,800,000 shares of common stock, (ii) stock appreciation rights, divi- dend equivalents, other stock-based awards in amounts up to 4,800,000 shares of common stock and (iii) perfor- mance awards consisting of any combination of the above. P 3 2 N a t i o N a l B e v e r a g e c o r P . Notes to Consolidated Financial Statements (continued) the omnibus Plan is designed to provide an incentive to the officers (including those who are also directors) and certain other key employees and consultants by making available to them an opportunity to acquire a proprietary interest or to increase such interest in National Beverage. the number of shares or options which may be issued under stock-based awards to an individual is limited to 1,680,000 during any year. awards may be granted for no cash consideration or such minimal cash consideration as may be required by law. options generally vest over a five-year period and expire after ten years. the Special Stock option Plan provides for the issu- ance of stock options to purchase up to an aggregate of 1,800,000 shares of common stock. options may be granted for such consideration as determined by the Board of Directors. the Board of Directors also authorized the issuance of options to purchase up to 120,000 shares of common stock to be issued at the direction of the chairman. the Key employee equity Partnership Program (“KeeP Program”) provides for the granting of stock options to purchase up to 240,000 shares of common stock to key employees, consultants, directors and officers. Participants who purchase shares of stock in the open market receive grants of stock options equal to 50% of the number of shares purchased, up to a maximum of 6,000 shares in any two-year period. options under the KeeP Program are automatically forfeited in the event of the sale of shares originally acquired by the participant. options are granted at an initial exercise price of 60% of the purchase price paid for the shares acquired and the exercise price reduces to the stock par value at the end of the six-year vesting period. We account for our employee stock options under the fair value method of accounting using a Black-Scholes valuation model to measure stock option expense at the date of grant. generally, stock option grants have an exer- cise price equal to the fair market value of our common stock on the date of grant and have a 10-year term. the fair value of stock options is amortized to expense over the vesting period. there were no stock options or other stock-based awards granted in fiscal 2009 under any of our plans. the weighted average Black-Scholes fair value assumptions for stock options granted in prior years are as follows: weighted average expected life of 7.6 years for fiscal 2008 and 8 years for 2007; weighted average expected volatility of 36.3% for fiscal 2008 and 33.2% for 2007; weighted average risk free interest rates of 4.6% for fiscal 2008 and 5% for 2007; and no expected dividend payments. the expected life of stock options was estimated based on historical experience. the expected volatility was estimated based on historical stock prices for a period consistent with the expected life of stock options. the risk free interest rate was based on the u.S. treasury constant maturity interest rate whose term is consistent with the expected life of stock options. Forfeitures were estimated based on historical experience. a N N u a l r e P o r t 2 0 0 9 P 3 3 the following is a summary of stock option activity for For fiscal 2009, net cash proceeds from the exercise of fiscal 2009: options outstanding, beginning of year exercised cancelled Shares Price (a) 676,919 (62,880) (18,756) $4.47 3.91 4.74 options outstanding, end of year 595,283 3.87 options exercisable, end of year 377,268 3.17 (a) Weighted average exercise price. Stock-based compensation expense for fiscal 2009, fiscal 2008 and fiscal 2007 was $340,000, $311,000 and $318,000, respectively. the total fair value of shares vested for fiscal 2009, fiscal 2008 and fiscal 2007 was $304,000, $292,000 and $258,000, respectively. the total intrinsic value for stock options exercised during fiscal 2009, fiscal 2008 and fiscal 2007 was $217,000, $1.2 million and $1.1 million, respectively. the weighted average fair value for stock options granted in fiscal 2008 and fiscal 2007 was $7.02 and $13.84, respectively. as of May 2, 2009, unrecognized compensation expense related to the unvested portion of our stock options was $908,000, which is expected to be recognized over a weighted average period of 2.8 years. the weighted average remaining contractual term and the aggregate intrinsic value for options outstanding as of May 2, 2009 was 4.2 years and $3.9 million, respectively. the weighted average remaining contractual term and the aggregate intrinsic value for options exercisable as of May 2, 2009 was 3.3 years and $2.8 million, respectively. stock options were $245,000 and stock based income tax benefits aggregated $60,000. We have a stock purchase plan which provides for the purchase of up to 1,536,000 shares of common stock by employees who (i) have been employed for at least two years, (ii) are not part-time employees and (iii) are not owners of five percent or more of National Beverage common stock. as of May 2, 2009, no shares have been issued under the plan. 9. C O M M I T M E N T S A N D C O N T I N G E N C I E S We lease buildings, machinery and equipment under vari- ous non-cancelable operating lease agreements expiring at various dates through 2019. certain of these leases contain scheduled rent increases and/or renewal options. contractual rent increases are taken into account when calculating the minimum lease payment and recognized on a straight-line basis over the lease term. rent expense under operating lease agreements totaled approximately $7.7 million for fiscal 2009, $8.3 million for fiscal 2008 and $8.2 million for fiscal 2007. our minimum lease payments under non-cancelable operating leases as of May 2, 2009 are as follows: (In thousands) Fiscal 2010 Fiscal 2011 Fiscal 2012 Fiscal 2013 Fiscal 2014 thereafter total minimum lease payments $ 5,335 3,609 2,938 1,809 955 3,022 $17,668 P 3 4 N a t i o N a l B e v e r a g e c o r P . Notes to Consolidated Financial Statements (continued) We have guaranteed the residual value of certain leased equipment in the amount of $11.3 million. No liability has been recorded as management believes that the net realizable value of such equipment will be in excess of the guaranteed amount when the lease terminates in July 2012 and that the fair market value of the guarantee is immaterial. the company contributes to certain pension plans under collective bargaining agreements based on hours worked and to a discretionary profit sharing plan, neither of which have any long-term contractual funding require- ments. contributions were $2.3 million for fiscal 2009 and $2.2 million for fiscal 2008 and 2007. 10 . Q U A RT E R LY F I N A N C I A L DATA ( U N AU D I T E D ) We enter into various agreements with suppliers for the purchase of raw materials, the terms of which may include variable or fixed pricing and minimum purchase quantities. as of May 2, 2009, we had purchase commit- ments for raw materials of $42.3 million. From time to time, we are a party to various litigation matters arising in the ordinary course of business. in our opinion, the ultimate disposition of such matters will not have a material adverse effect on our consolidated financial position or results of operations. (In thousands, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal 2009 Net sales gross profit Net income Net income per share—basic Net income per share—diluted Fiscal 2008 (1) Net sales gross profit Net income Net income per share—basic Net income per share—diluted $152,927 $144,375 $129,430 $148,445 46,064 7,751 $ .17 $ .17 42,509 6,483 $ .14 $ .14 37,122 3,654 $ .08 $ .08 44,160 6,854 $ .15 $ .15 $ 151,764 $ 143,528 $ 123,182 $ 147,527 46,391 7,185 $ .16 $ .16 44,525 6,477 $ .14 $ .14 37,669 3,254 $ .07 $ .07 43,996 5,564 $ .12 $ .12 (1) Fiscal 2008 fourth quarter included fourteen weeks while other quarters included thirteen weeks. a N N u a l r e P o r t 2 0 0 9 P 3 5 Report of Independent Registered Public Accounting Firm to the Board of Directors and Shareholders National Beverage corp. We have audited the accompanying balance sheets of National Beverage corp. as of May 2, 2009 and May 3, 2008, and the related statements of income, stockholders’ equity, and cash flows for each of the years in the three-year period ended May 2, 2009. these financial statements are the responsibility of the company’s management. our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public company accounting oversight Board (united States). those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. an audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. an audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. in our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of National Beverage corp. as of May 2, 2009 and May 3, 2008, and the results of its operations and its cash flows for each of the years in the three-year period ended May 2, 2009, in conformity with u.S. generally accepted accounting principles. Mcgladrey & Pullen, llP Ft. lauderdale, Florida July 16, 2009 P 3 6 N a t i o N a l B e v e r a g e c o r P . 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.” Prior to June 12, 2007, the common Stock was listed on the american Stock exchange under the symbol “FiZ.” the following table shows the range of high and low prices per share of the common Stock for the fiscal quarters indicated: First Quarter Second Quarter third Quarter Fourth Quarter Fiscal 2009 Fiscal 2008 High Low High low $ 8.10 $ 10.10 $ 9.63 $ 11.23 $ 6.72 $ 6.60 $ 6.61 $ 7.17 $ 14.65 $ 10.59 $ 8.65 $ 8.25 $ 9.40 $ 7.95 $ 6.76 $ 7.01 in January 1998, the Board of Directors authorized the 300 purchase of up to 800,000 shares of National Beverage common stock of which 502,060 shares have been pur- 250 chased. there were no shares purchased during the last three fiscal years. 200 50 150 P E R F O R M A N C E G R A P H the following graph shows a comparison of the five-year 100 cumulative returns of an investment of $100 cash on May 1, 2004 in (i) our common stock, (ii) the NaSDaQ composite index and (iii) a company constructed peer group consisting of coca-cola enterprises, inc., coca-cola 4/29/06 5/02/09 Bottling company consolidated, cott corporation and Pepsiamericas, inc. the graph assumes that all dividends have been reinvested. 4/28/07 4/30/05 3/30/08 5/1/04 0 of the estimated 5,000 holders of our common Stock, including those whose securities are held in the names of various dealers and/or clearing agencies, there were approximately 700 shareholders of record at July 2, 2009, according to records maintained by our transfer agent. on May 25, 2007, the company declared a 20% stock dividend payable on June 22, 2007 to shareholders of record on June 4, 2007. the stock prices above have been restated to give retroactive effect to the 20% stock dividend. on august 17, 2007, the company paid a special cash dividend of $.80 per share, aggregating $36.7 million. on January 27, 2006, the company paid a special cash dividend of $1.00 per share ($.83 per share adjusted for the 20% stock dividend), aggregating $38 million. See Note 4 of Notes to consolidated Financial Statements for certain restrictions on the payment of dividends. $300 $250 $200 $150 $100 $50 0 5/01/04 4/30/05 4/29/06 4/28/07 5/03/08 5/02/09 National Beverage Corp. NASDAQ Composite Index Peer Group Only A n n u A l R e p o R t 2 0 0 9 Corporate Data D i r e C To r S Nick A. Caporella Chairman of the Board & Chief executive officer National Beverage Corp. Joseph G. Caporella President National Beverage Corp. Cecil D. Conlee* Founding Partner CGr Advisors Samuel C. Hathorn, Jr.* retired Chief executive officer Trendmaker Development Co. Joseph P. Klock, Jr., esq.* Partner rasco, Klock, reininger, Perez, esquenazi, Vigil & Nieto *Member Audit Committee C o r P o r AT e M A N AG e M e N T Nick A. Caporella Chairman of the Board & Chief executive officer Joseph G. Caporella President edward F. Knecht executive Vice President— Procurement George r. Bracken Senior Vice President—Finance Dean A. McCoy Senior Vice President & Chief Accounting officer raymond J. Notarantonio executive Director—iT Brent r. Bott Senior Director— Consumer Marketing m o c . s r o n n o c - n a r r u c . w w w / . c n i , s r o n n o c & n a r r u c y b d e n g i s e d Gregory J. Kwederis Senior Director— Beverage Analyst John F. Hlebica Vice President Shasta Beverages int’l., inc. richard S. Berkes Director—risk Management Vanessa C. Walker Director— Strategic Brand Management Gregory P. Cook Controller S u B S i D i A ry M A N AG e M e N T edward F. Knecht President Shasta Sweetener Corp. PACo, inc. Sanford e. Salzberg President Shasta, inc. Michael J. Bahr executive Vice President Shasta West, inc. Alan A. Chittaro executive Vice President Faygo Beverages, inc. Alan D. Domzalski executive Vice President Sundance Beverage Company Brian M. Gaggin executive Vice President National retail Brands, inc. Charles A. Maier executive Vice President Foodservice Shasta Sales, inc. John S. Munroe executive Vice President National BevPak Dennis L. Thompson executive Vice President BevCo Sales, inc. Worth B. Shuman iii Vice President Military Sales Martin J. rose General Manager Shasta Vending S u B S i D i A r i e S BevCo Sales, inc. Beverage Corporation international, inc. Big Shot Beverages, inc. everfresh Beverages, inc. Faygo Beverages, inc. Home Juice Corp. National retail Brands, inc. NewBevCo, inc. NutraFizz Products Corp. PACo, inc. Shasta Beverages, inc. Shasta Beverages int’l., inc. Shasta Sales, inc. Shasta Sweetener Corp. Shasta West, inc. Sundance Beverage Company C o r P o r AT e o F F i C e S 8100 Southwest Tenth Street Fort Lauderdale, FL 33324 954-581-0922 A N N u A L M e e T i N G The Annual Meeting of Share- holders will be held on Friday, october 2, 2009 at 2:00 p.m. local time at the Hyatt regency orlando international Airport, 9300 Airport Boulevard, orlando, Florida 32827 F i N A N C i A L A N D oT H e r i N F o r M AT i o N Copies of National Beverage Corp.’s Annual report, Annual report on Form 10-K and sup- plemental quarterly financial data are available free of charge on our website or contact our Shareholder relations depart- ment at the Company’s corporate address or at 877-NBC-FiZZ (877-622-3499). earnings and other financial results, corporate news and other Company information are available on National Beverage’s website at www.nationalbeverage.com S To C K e xC H A N G e L i S T i N G Common Stock is listed on the NASDAQ Global Select Market—symbol FIZZ. T r A N S F e r AG e N T A N D r e G i S T r A r BNy Mellon Shareowner Services P.o. Box 358015 Pittsburgh, PA 15252-8015 888-313-1476 www.bnymellon.com/ shareowner/isd i N D e P e N D e N T r e G i S T e r e D P u B L i C AC C o u N T i N G F i r M McGladrey & Pullen, LLP Ft. Lauderdale, FL 8100 Southwest Tenth Street :: Fort Lauderdale, Florida 33324 954.581.0922 :: www.nationalbeverage.com 

Continue reading text version or see original annual report in PDF format above