National Beverage Corp.
Annual Report 2015

Plain-text annual report

NATIONAL BEVERAGE CORP. 2015 ANNUAL REPORT “Imaginat ion is t he beginning of creat ion. You imagine what you desire, you will what you imagine and, at last, you create what you will.” George Bernard Shaw “Those whose imagination . . . hastened the NATURALLY CREATIVE, DYNAMICALLY future, named our civilization.” INNOVATIVE AND . . . MINDSET! FUELING MOMENTUM . . . Each time I come to this breeding place of creativity, with its seagulls, rising tides and aromas of seaweed and brine, time passage seems to ease the mind into peaceful reflections. But, the truth be told, no one in challenge mode ever masterfully succeeds unless both adrenaline glands are in high gear! Certainly, that is as absolute as the spirit from which all things are passionately ignited – here at National Beverage. Our Company is in a stage of metamorphic transition, evolving while creating momentum. This particular report will reflect and portray some of that evolution showcasing brand transformation. Ultimately, this evolution will generate our true value while significantly improving the health of our society! What a gratifying bouquet of goodness for everyone . . . Team National, our healthy consumers and healthy shareholders. From the beginning of time, public companies were judged by their ability to make money; today that is changing. We at National Beverage began to write in our earnings releases, eons ago, that we wanted to be judged differently, but quarterly earnings’ protocol – leveraged sounder strategies. It takes years to research and develop; with costs having to be reflected immediately. Some of these regulations must advance . . . as well. “Imaginat ion is t he beginning of creat ion. You imagine what you desire, you will Today our Company has more aggressively taken the position to positively affect our consumer, our industry, the health of our society and, yes, certainly our devoted shareholders. If every reader was thoroughly informed, our size would be viewed as a superior advantage at this time in our industry. Why? Because opportunity does not use a timepiece – its control is oriented to conditions and circumstances. So, vision and gut instincts far surpass the clock for us opportunity seekers. There is an atom at the core of this Company; its essence and function is creativity – all forms! What neons that difference is – that atom has been confirmed by the culmination of distinctive innovation. Operationally, we are on course to effectuate a change in our industry as no other company can . . . and our ‘new mindset’ more than amplifies our ability to profoundly change the health of America! What an incredible side effect! National Beverage and that beautiful butterfly on this cover have a more exciting life as a result of this evolution . . . what you imagine and, at last, you create what you will.” George Bernard Shaw FY2016 is our ‘break-out’ year. Each and every month, momentum is fueled through innovation, magnifying distribution, controlled launching of theme extensions, healthier beverages and the luring into our fold . . . ‘cola converts’ – an immeasurable segment of the soft-drink industry. Quite paradoxically and extremely advantageous, there are several conditions aligning! America is aging and that is giving rise to health costs. This is provoking our society to seek better lifestyles and become more health conscious, thus driving the demand for healthier beverages. Our Company, with its healthier brands, has a timing advantage plus a creative and innovative edge. The large beverage and snack food companies are so labored with their unyielding, bureaucratic calories that our agility and speed to market with LaCroix, Shasta sparkling waters and Everfresh juice products – give National Beverage an additional advantage. As a Company, we are reminded of our ‘mindset’ and the accompanying abilities necessary to fulfill our leadership role in the health and wellness segment. LaCroix, with its theme concept and Shasta’s famous flavors (now in 0-calorie, 0-sweetener, 0-sodium and wholesome-as-ever tasting sparkling waters) are dynamically stimulating the marketplace. We have worked extremely hard to create this place of segment leadership. Just believe . . . if we, who produce for ‘stomachs’, are conscious enough while conscience-guided to use our billboards and factories to give wholesome choices . . . isn’t that our patriotic purpose? I know so . . . “Operationally sound; Strategically near perfect,” our major shareholder was quoted speaking to an industry reporter recently. “Is it true” he was asked “that within National is a billion-dollar brand?” Professional as ever, he was heard to say: “As a well-seasoned corporate operator, covering nearly a half century and respecting the unspoken code within which public companies are governed . . . “Imaginat ion is t he beginning I recently read a couple of articles about National Beverage Corp., one by Bloomberg and the other by Seeking Alpha. Both articles were clearly well written; they express the authors’ opinions on value that I should not – and I suggest you read them,” he responded. of creat ion. You imagine what you desire, you will The last stage of a butterfly’s metamorphosis is to fly those beautiful wings. As you can see by our cover . . . we are in sync with that all-natural butterfly. what you imagine and, So, thank you dear friend; first for your trust and, next – certainly a big hug for these joyous feelings of loyalty that your gracious purchase or investment conveys . . . at last, you create what you will.” Nick A. Caporella Chairman and Chief Executive Officer George Bernard Shaw P.S. There is one other mystery to our creativity that no one will ever be able to duplicate – the ability to insert into our packaging a command . . . ‘Jump into the cart or hands of the first consumer you see!’ “Those whose imagination . . . hastened the future, named our civilization.” Evolution . . . ‘Innocent’ No More Ordinary . . . 0-Calorie 0-Sweetener 0-Sodium . . . Tomorrow Is Now! 6 NATIONAL BEVERAGE CORP. ‘Sparkling Collectibles’ Galler y of FIZZ 2015 ANNUAL REPORT 7 A Unique Mind Lives Here . . . Gloriously Inventive Too! Joy – Fun – Novel Rich in Flavor Always Tender – Refreshing, YES! Full of Laughter and Oh So Good . . . Taste Our Smiles! 8 NATIONAL BEVERAGE CORP. Imagination’s Vision . . . Then Ar t Happens! 2015 ANNUAL REPORT 9 Courage To Innovate . . . Cúrate Means . . . ‘Cure yourself’ with its Beauty. Treat yourself with its Joy. Cherish your health with its – Innocence! . . . Taste The Promise! 10 NATIONAL BEVERAGE CORP. The Ar t of Work . . . A Work of Ar t! ‘THE ORIGINAL CÚRATE FAMILY’ 2015 ANNUAL REPORT 11 12 NATIONAL BEVERAGE CORP. Precious Transparency Petitions Respect . . . “ To develop a complete mind: Study the science of art; Study the art of science. Learn how to see. Realize that everything connects – to everything else. ” Leonardo da Vinci SELECTED FINANCIAL DATA (In thousands, except per share and footnote amounts) SUMMARY OF OPERATIONS: Net sales Cost of sales Gross profit Selling, general and administrative expenses Interest expense Other (income) expense—net Income before income taxes Provision for income taxes Net income PER SHARE DATA: Basic earnings per common share(1) Diluted earnings per common share(1) Closing stock price Dividends paid on common stock(2) BALANCE SHEET DATA: Cash and equivalents(2) Working capital(2) Property, plant and equipment—net Total assets(2) Long-term debt Deferred income tax liability Shareholders’ equity(2) Dividends paid on common stock(2) Fiscal Year Ended May 2, 2015 May 3, 2014(3) April 27, 2013 April 28, 2012 April 30, 2011 $ 645,825 426,685 $ 641,135 423,480 $ 662,007 444,757 $ 628,886 415,629 $ 600,193 381,539 219,140 145,157 371 (1,101) 74,713 25,402 217,655 153,220 660 666 63,109 19,474 217,250 146,223 403 173 70,451 23,531 213,257 146,169 107 85 66,896 22,903 218,654 155,885 99 20 62,650 21,896 $ 49,311 $ 43,635 $ 46,920 $ 43,993 $ 40,754 $ 1.06 1.05 22.42 — $ .93 .92 19.21 — $ 1.01 1.01 14.57 2.55 $ .95 .95 14.68 — $ .88 .88 13.92 2.30 $ 52,456 101,478 60,182 247,750 10,000 15,245 147,782 — $ 29,932 78,618 59,494 222,841 30,000 13,873 106,201 $ 18,267 67,504 57,307 208,642 50,000 14,327 70,316 — 118,139 $ 35,626 69,818 56,729 222,988 — 14,214 121,636 $ 7,372 30,930 55,337 182,810 — 14,548 80,336 — 106,314 (1) Basic earnings per common share is computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per common share includes the dilutive effect of stock options. (2) The Company paid special cash dividends on Common Stock of $118.1 million ($2.55 per share) on December 27, 2012 and $106.3 million ($2.30 per share) on February 14, 2011. (3) Fiscal 2014 consisted of 53 weeks. 14 NATIONAL BEVERAGE CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We consider ourselves to be a leader in the National Beverage Corp. is an acknowledged leader in development and sale of flavored beverage products. the development, manufacturing, marketing and sale The National Beverage Corp. brand portfolio contains of a diverse portfolio of flavored beverage products. a wide variety of beverages to meet consumer needs Our primary market focus is the United States, but our in a multitude of market segments. Our portfolio of products are also distributed in Canada, Mexico, the Power+ Brands is targeted to consumers seeking Caribbean, Latin America, the Pacific Rim, Asia and healthier and functional alternatives to complement Europe. A holding company for various operating their active lifestyles, and includes LaCroix®, LaCroix subsidiaries, National Beverage Corp. was incorporated Cúrate™ and LaCroix NiCola™ sparkling water in Delaware in 1985 and began trading as a public products; Rip It® energy drinks and shots; and company on the NASDAQ Stock Market in 1991. In this Everfresh® and Everfresh Premier Varietals™, 100% report, the terms “we,” “us,” “our,” “Company” and juice and juice-based products. Our carbonated “National Beverage” mean National Beverage Corp. soft drink flavor development spans more than 125 and its subsidiaries unless indicated otherwise. years originating with our flagship brands, Shasta® Our brands consist of (i) beverages geared toward and Faygo®. the active and health-conscious consumer (“Power+ Our strategy emphasizes the growth of our Brands”), including sparkling waters, energy drinks and products by (i) expanding our focus on healthier and shots, juices, and enhanced beverages, and (ii) functional beverages tailored toward healthy, active Carbonated Soft Drinks in a variety of flavors including lifestyles, (ii) offering a beverage portfolio of proprietary regular, sugar-free and reduced-calorie options. In flavors with distinctive packaging and broad addition, we produce soft drinks for certain retailers demographic appeal, (iii) supporting the franchise (“Allied Brands”) that endorse the “Strategic Alliance” value of regional brands, (iv) appealing to the “quality- concept of having our brands and Allied Brands value” expectations of the family consumer, and (v) marketed to effectuate enhanced growth of both. responding to demographic trends by developing We employ a philosophy that emphasizes vertical innovative products designed to expand distribution. integration; our manufacturing model integrates the The majority of our sales are seasonal with the procurement of raw materials and production of highest volume typically realized during the summer concentrates with the manufacture of finished products months. As a result, our operating results from one in our twelve manufacturing facilities. To service a fiscal quarter to the next may not be comparable. diverse customer base that includes numerous national Additionally, our operating results are affected by retailers as well as thousands of smaller “up-and- numerous factors, including fluctuations in the costs down-the-street” accounts, we have developed a of raw materials, changes in consumer preference hybrid distribution system that promotes and utilizes for beverage products, competitive pricing in the customer warehouse distribution facilities and our own marketplace and weather conditions. direct-store delivery fleet plus the direct-store delivery systems of independent distributors and wholesalers. 2015 ANNUAL REPORT 15 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS Net Sales Net sales for the fiscal year ended May 2, 2015 (“Fiscal 2015”) increased .7% to $645.8 million as compared to $641.1 million for the fiscal year ended May 3, 2014 (“Fiscal 2014”). The higher sales resulted from a 1.1% increase in case volume partially offset by a .4% decline in average selling price per unit. The Shipping and handling costs are included in selling, general and administrative expenses, the classification of which is consistent with many beverage companies. However, our gross margin may not be comparable to companies that include shipping and handling costs in cost of sales. See Note 1 of Notes to Consolidated Financial Statements. increase in case volume reflects a 2.9% increase Selling, General and Administrative Expenses in branded volume, including a 15.3% case volume Selling, general and administrative expenses were growth for our Power+ Brands, partially offset by a $145.2 million or 22.5% of net sales for Fiscal 2015 decline in Allied Brands. The decline in selling price per compared to $153.2 million or 23.9% of net sales for unit is related to changes in product mix. Fiscal 2014. Fiscal 2015 expenses reflect lower selling Net sales for the fiscal year ended May 3, 2014 and marketing costs. decreased 3.2% to $641.1 million as compared to Selling, general and administrative expenses were $662.0 million for the fiscal year ended April 27, 2013 $153.2 million or 23.9% of net sales for Fiscal 2014 (“Fiscal 2013”). The lower sales resulted from a 7.5% compared to $146.2 million or 22.1% of net sales for volume decline in Carbonated Soft Drinks, principally Fiscal 2013. Fiscal 2014 expenses reflect higher selling due to extended periods of unfavorable weather and marketing costs, primarily due to increased conditions and industry-wide consumption decline. advertising expenses. This volume decline was partially offset by case volume growth of 8.2% for our Power+ Brands. Average net selling price per case was approximately the same for both years. Interest Expense and Other (Income) Expense— Net Interest expense is comprised of interest on borrowings and fees related to maintaining lines of credit. The Company paid a special cash dividend of Gross Profit Gross profit approximated 33.9% of net $118.1 million ($2.55 per common share) on December sales for Fiscal 2015 and Fiscal 2014. Cost of sales 27, 2012 from available cash and borrowings under our per unit declined .3% primarily due to product mix credit facilities. Due to repayments on borrowings, changes. interest expense decreased to $371,000 in Fiscal 2015 Gross profit was 33.9% of net sales for Fiscal from $660,000 in Fiscal 2014 and $403,000 in Fiscal 2014, which represents a 1.1% margin improvement 2013. Other expense is net of interest income of compared to Fiscal 2013. The gross margin $30,000 for Fiscal 2015, $15,000 for Fiscal 2014 and improvement is primarily due to favorable product mix $37,000 for Fiscal 2013. The change in interest income changes and lower raw material costs. Cost of sales for Fiscal 2015, Fiscal 2014 and Fiscal 2013 is due to decreased 1.7% on a per case basis. changes in average invested balances. Other income for Fiscal 2015 includes a $1.3 million gain on sale of property. 16 NATIONAL BEVERAGE CORP. Income Taxes Our effective tax rate was approximately Preferred, representing 50% of the amount outstanding, 34% for Fiscal 2015, 30.9% for Fiscal 2014 and for an aggregate price of $6 million. See Note 5 of 33.4% for Fiscal 2013. The difference between the Notes to Consolidated Financial Statements. effective rate and the federal statutory rate of 35% was The Company paid special cash dividends on primarily due to the effects of state income taxes, common stock of $118.1 million ($2.55 per share) on the manufacturing deduction and, for Fiscal 2014, December 27, 2012. adjustment of unrecognized tax benefits related to the Pursuant to a management agreement, we incurred resolution of certain open tax years. See Note 7 of a fee to Corporate Management Advisors, Inc. (“CMA”) Notes to Consolidated Financial Statements. of $6.5 million for Fiscal 2015, $6.4 million for Fiscal 2014 and $6.6 million for Fiscal 2013. At May 2, LIQUIDIT Y AND FINANCIAL CONDITION 2015, management fees payable to CMA were $1.6 Liquidity and Capital Resources Our principal source of funds is cash generated from operations million. See Note 5 of Notes to Consolidated Financial Statements. and borrowings available under our credit facilities. At Cash Flows During Fiscal 2015, $58.0 million was May 2, 2015, we maintained $100 million unsecured provided by operating activities, $9.7 million was used revolving credit facilities, of which $10 million of in investing activities and $25.8 million was used in borrowings were outstanding and $2.2 million were financing activities. Cash provided by operating reserved for standby letters of credit. We believe that activities increased $5.6 million primarily due to existing capital resources will be sufficient to meet increased earnings. Cash used in investing activities our liquidity and capital requirements for the next decreased $2.3 million reflecting lower capital twelve months. See Note 4 of Notes to Consolidated expenditures and proceeds of $1.9 million from the Financial Statements. sale of property. Cash used in financing activities was We continually evaluate capital projects to expand $25.8 million which included a $6 million redemption of our production capacity, enhance packaging capabilities preferred stock and $20 million in principal repayments or improve efficiencies at our manufacturing facilities. under credit facilities. Expenditures for property, plant and equipment During Fiscal 2014, $52.4 million was provided by amounted to $11.6 million for Fiscal 2015. There were operating activities, $12.1 million was used in investing no material capital expenditure commitments at activities and $28.7 million was used in financing May 2, 2015. activities. Cash provided by operating activities On January 25, 2013, the Company sold 400,000 increased $12.1 million primarily due to changes in shares of Special Series D Preferred Stock (“Series D working capital. Cash used in investing activities Preferred”), par value $1 per share for an aggregate increased $2.4 million reflecting higher capital purchase price of $20 million. On May 2, 2014, the expenditures in Fiscal 2014. Cash used in financing Company redeemed 160,000 shares of Series D activities was $28.7 million reflecting an $8 million Preferred, representing 40% of the amount outstanding, redemption of preferred stock and $20 million in for an aggregate price of $8 million. On August 1, 2014, principal repayments under credit facilities. The Company redeemed 120,000 shares of Series D 2015 ANNUAL REPORT 17 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Financial Position During Fiscal 2015, our working During Fiscal 2014, our working capital increased capital increased $22.9 million to $101.5 million $11.1 million to $78.6 million primarily due to cash primarily due to cash generated from operating generated from operating activities. Trade receivables activities. Trade receivables increased $1.7 million due decreased $5.9 million due to lower sales activity and to higher sales activity and days sales outstanding days sales outstanding remain unchanged at 34.7 improved from 34.7 days to 33.1 days. Inventories days. Inventories increased $4.7 million primarily due decreased $1.0 million and annual inventory turns to higher quantities related to new products and to improved from 9.4 to 10.2 times. At May 2, 2015, the support more frequent customer promotions. At May current ratio was 2.5 to 1 as compared to 2.2 to 1 at 3, 2014, the current ratio was 2.2 to 1 as compared May 3, 2014. to 2.1 to 1 at April 27, 2013. CONTRACTUAL OBLIGATIONS Contractual obligations at May 2, 2015 are payable as follows: (In thousands) Long-term debt Operating leases Purchase commitments Total Total $10,000 22,194 53,990 Less Than 1 Year 1 to 3 Years 3 to 5 Years More Than 5 Years $ — $10,000 8,409 — 5,399 53,990 $ — 5,980 — $ — 2,406 — $86,184 $59,389 $18,409 $ 5,980 $2,406 As of May 2, 2015, we guaranteed the residual claims and estimated incurred but not reported value of certain leased equipment in the amount of claims not otherwise covered by insurance, based on $4.9 million. If the proceeds from the sale of such actuarial assumptions and historical claims experience. equipment are less than the balance required by the Since the timing and amount of claim payments vary lease when the lease terminates on August 1, 2017, the significantly, we are not able to reasonably estimate Company shall be required to pay the difference up to future payments for specific periods and therefore such guaranteed amount. The Company expects to have not been included in the table above. Standby have no loss on such guarantee. letters of credit aggregating $2.2 million have been We contribute to certain pension plans under issued in connection with our self-insurance programs. collective bargaining agreements and to a discretionary These standby letters of credit expire through March profit sharing plan. Total contributions were $2.7 million 2016 and are expected to be renewed. for Fiscal 2015, $2.7 million for Fiscal 2014 and $2.6 million for Fiscal 2013. See Note 9 of Notes to OFF-BALANCE SHEET ARRANGEMENTS Consolidated Financial Statements. We do not have any off-balance sheet arrangements We maintain self-insured and deductible programs that have, or are reasonably likely to have, a current or for certain liability, medical and workers’ compensation future material effect on our financial condition. exposures. Other long-term liabilities include known 18 NATIONAL BEVERAGE CORP. CRITICAL ACCOUNTING POLICIES impairment annually or sooner if we believe such The preparation of financial statements in conformity assets may be impaired. An impairment loss is with generally accepted accounting principles requires recognized if the carrying amount or, for goodwill, the management to make estimates and assumptions that carrying amount of its reporting unit, is greater than its affect the amounts reported in the financial statements fair value. and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. We believe that the critical accounting policies described in the following paragraphs comprise the most significant estimates and assumptions used in the preparation of our consolidated financial statements. For these policies, we caution that future events rarely develop exactly as estimated and the best estimates routinely require adjustment. 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 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 differences between the tax bases of assets or liabilities and their reported amounts in the financial statements. Valuation allowances are established to reduce the carrying amounts of deferred tax assets when it is deemed, more likely than not, that the benefit of deferred tax assets will not be realized. Insurance Programs We maintain self-insured and deductible programs for certain liability, medical and workers’ compensation exposures. Accordingly, we accrue for known claims and estimated incurred but not reported claims not otherwise covered by insurance based on actuarial assumptions and historical claims experience. losses and maintain allowances for anticipated losses Sales Incentives We offer various sales incentive based on specific customer circumstances, credit arrangements to our customers that require customer 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 generally measured by discounting future cash flows. Goodwill and intangible assets not subject to amortization are evaluated for performance or achievement of certain sales volume targets. When the incentive is paid in advance, we amortize the amount paid over the period of benefit or contractual sales volume; otherwise, we accrue the expected amount to be paid over the period of benefit or expected sales volume. The recognition of these incentives involves the use of judgment related to performance and sales volume estimates that are made based on historical experience and other factors. Sales incentives are accounted for as a reduction of sales and actual amounts ultimately realized may vary from accrued amounts. 2015 ANNUAL REPORT 19 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) FORWARD-LOOKING STATEMENTS and other reports to our stockholders. We disclaim an National Beverage and its representatives may make obligation to update any such factors or to publicly written or oral statements relating to future events or announce the results of any revisions to any forward- results relative to our financial, operational and looking statements contained herein to reflect future business performance, achievements, objectives and events or developments. strategies. These statements are “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995 and include statements contained in this report and other filings with the Securities and Exchange Commission and in reports to our stockholders. Certain statements including, without limitation, statements containing the words “believes,” “anticipates,” “intends,” “plans,” “expects,” and “estimates” constitute “forward-looking statements” and involve known and unknown risk, uncertainties and other factors that may cause the actual results, performance or achievements of our Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following: general economic and business conditions, pricing of competitive products, QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Commodities We purchase various raw materials, including aluminum cans, plastic bottles, high fructose corn syrup, corrugated packaging and juice concentrates, the prices of which fluctuate based on commodity market conditions. Our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. At times, we manage our exposure to this risk through the use of supplier pricing agreements that enable us to establish the purchase prices for certain commodities. Additionally, we use derivative financial instruments to partially mitigate our exposure to changes in certain raw material costs. success in acquiring other beverage businesses, Interest Rates At May 2, 2015, the Company had $10 success of new product and flavor introductions, million in borrowings outstanding under its credit fluctuations in the costs of raw materials and facilities with a weighted average interest rate of 1.0%. packaging supplies, ability to pass along cost increases Interest rate hedging products are not currently used to our customers, labor strikes or work stoppages or to mitigate risk from interest fluctuations. If the interest other interruptions in the employment of labor, rate on our debt changed by 100 basis points (1%), our continued retailer support for our products, changes in interest expense for Fiscal 2015 would have changed consumer preferences and our success in creating by approximately $200,000. products geared toward consumers’ tastes, success in implementing business strategies, changes in business strategy or development plans, government regulations, taxes or fees imposed on the sale of our products, unseasonably cold, wet weather conditions or droughts and other factors referenced in this report, filings with the Securities and Exchange Commission 20 NATIONAL BEVERAGE CORP. CONSOLIDATED BALANCE SHEETS (In thousands, except share data) ASSETS Current assets: Cash and equivalents Trade receivables—net Inventories Deferred income taxes—net Prepaid and other assets Total current assets Property, plant and equipment—net Goodwill Intangible assets Other assets Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable Accrued liabilities Income taxes payable Total current liabilities Long-term debt Deferred income taxes—net Other liabilities Shareholders’ equity: Preferred stock, $1 par value—1,000,000 shares authorized Series C—150,000 shares issued Series D—120,000 shares (2015) and 240,000 shares (2014) issued, aggregate liquidation preference of $6,000 (2015) and $12,000 (2014) Common stock, $.01 par value—75,000,000 shares authorized; 50,418,019 shares (2015) and 50,367,799 shares (2014) issued Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock—at cost: Series C preferred stock—150,000 shares Common stock—4,032,784 shares Total shareholders’ equity Total liabilities and shareholders’ equity See accompanying Notes to Consolidated Financial Statements. May 2, 2015 May 3, 2014 $ 52,456 59,951 42,924 4,348 8,050 167,729 60,182 13,145 1,615 5,079 $ 29,932 58,205 43,914 2,685 8,405 143,141 59,494 13,145 1,615 5,446 $ 247,750 $ 222,841 $ 44,896 21,257 98 $ 45,606 18,873 44 66,251 10,000 15,245 8,472 64,523 30,000 13,873 8,244 150 120 150 240 504 37,759 129,773 (2,524) 504 42,775 80,737 (205) (5,100) (12,900) (5,100) (12,900) 147,782 106,201 $ 247,750 $ 222,841 2015 ANNUAL REPORT 21 CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) Net sales Cost of sales Gross profit Selling, general and administrative expenses Interest expense Other (income) expense—net Income before income taxes Provision for income taxes Net income Less preferred dividends and accretion Fiscal Year Ended May 2, 2015 May 3, 2014 April 27, 2013 $ 645,825 426,685 $ 641,135 423,480 $ 662,007 444,757 219,140 145,157 371 (1,101) 74,713 25,402 49,311 (275) 217,655 153,220 660 666 63,109 19,474 43,635 (726) 217,250 146,223 403 173 70,451 23,531 46,920 (153) Earnings available to common shareholders $ 49,036 $ 42,909 $ 46,767 Earnings per common share: Basic Diluted Weighted average common shares outstanding: Basic Diluted See accompanying Notes to Consolidated Financial Statements. $ $ 1.06 1.05 $ $ .93 .92 $ $ 1.01 1.01 46,353 46,559 46,331 46,519 46,310 46,482 22 NATIONAL BEVERAGE CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Net income Other comprehensive income (loss), net of tax: Cash flow hedges Other Total Comprehensive income See accompanying Notes to Consolidated Financial Statements. Fiscal Year Ended May 2, 2015 May 3, 2014 April 27, 2013 $49,311 $43,635 $46,920 (2,350) 31 (2,319) 610 149 759 (295) (27) (322) $46,992 $44,394 $46,598 2015 ANNUAL REPORT 23 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUIT Y (In thousands) Shares Amount Shares Amount Shares Amount Fiscal Year Ended May 2, 2015 May 3, 2014 April 27, 2013 SERIES C PREFERRED STOCK Beginning and end of year SERIES D PREFERRED STOCK Beginning of year Series D preferred (redeemed) issued End of year COMMON STOCK Beginning of year Stock options exercised End of year ADDITIONAL PAID-IN CAPITAL Beginning of year Series D preferred (redeemed) issued Stock options exercised Stock-based compensation Other End of year RETAINED EARNINGS Beginning of year Net income Common stock dividends Preferred stock dividends & accretion End of year ACCUMULATED OTHER COMPREHENSIVE LOSS Beginning of year Cash flow hedges Other End of year 150 $ 150 150 $ 150 150 $ 150 240 (120) 120 50,368 50 50,418 240 (120) 120 400 (160) 240 400 (160) 240 — 400 400 504 — 50,362 6 504 — 50,322 40 504 50,368 504 50,362 42,775 (5,791) 228 307 240 37,759 80,737 49,311 — (275) 129,773 (205) (2,350) 31 (2,524) 50,398 (7,722) 47 95 (43) 42,775 37,828 43,635 — (726) 80,737 (964) 610 149 (205) — 400 400 503 1 504 30,425 19,304 238 230 201 50,398 109,200 46,920 (118,139) (153) 37,828 (642) (295) (27) (964) TREASURY STOCK—SERIES C PREFERRED Beginning and end of year TREASURY STOCK—COMMON Beginning and end of year 150 (5,100) 150 (5,100) 150 (5,100) 4,033 (12,900) 4,033 (12,900) 4,033 (12,900) TOTAL SHAREHOLDERS’ EQUITY $ 147,782 $ 106,201 $ 70,316 See accompanying Notes to Consolidated Financial Statements. 24 NATIONAL BEVERAGE CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization Deferred income tax provision (Gain) 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 Fiscal Year Ended May 2, 2015 May 3, 2014 April 27, 2013 $ 49,311 $ 43,635 $ 46,920 11,580 1,076 (1,188) 307 (1,746) 990 (605) (710) (995) 11,708 79 51 95 5,864 (4,680) (2,548) 1,345 (3,167) 11,002 172 63 230 (2,478) 1,628 (2,466) (10,614) (4,193) Net cash provided by operating activities 58,020 52,382 40,264 INVESTING ACTIVITIES: Additions to property, plant and equipment Proceeds from sale of property, plant and equipment Net cash used in investing activities FINANCING ACTIVITIES: Dividends paid on common stock Dividends paid on preferred stock (Repayments) borrowings under credit facilities, net (Redemption) issuance of preferred stock Proceeds from stock options exercised Other Net cash used in financing activities NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS CASH AND EQUIVALENTS—BEGINNING OF YEAR (11,630) 1,905 (12,124) 62 (9,725) (12,062) (9,693) 77 (9,616) — (239) (20,000) (6,000) 228 240 — (118,139) (12) 50,000 19,704 239 201 (659) (20,000) (8,000) 47 (43) (25,771) (28,655) (48,007) 22,524 29,932 11,665 18,267 (17,359) 35,626 CASH AND EQUIVALENTS—END OF YEAR $ 52,456 $ 29,932 $ 18,267 OTHER CASH FLOW INFORMATION: Interest paid Income taxes paid See accompanying Notes to Consolidated Financial Statements. $ 380 $ 723 $ 341 $ 24,745 $ 23,079 $ 24,327 2015 ANNUAL REPORT 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS National Beverage Corp. develops, manufactures, Consolidated Balance Sheets. We do not use derivative markets and sells a diverse portfolio of flavored financial instruments for trading or speculative beverage products primarily in North America. purposes. Credit risk related to derivative financial Incorporated in Delaware in 1985, National Beverage instruments is managed by requiring high credit Corp. is a holding company for various operating standards for counterparties and frequent cash subsidiaries. When used in this report, the terms “we,” settlements. See Note 6. “us,” “our,” “Company” and “National Beverage” mean National Beverage Corp. and its subsidiaries. 1. SIGNIFICANT ACCOUNTING POLICIES Earnings Per Common Share Basic earnings per common share is computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding during Basis of Presentation The consolidated financial the period. Diluted earnings per common share is statements have been prepared in accordance with calculated in a similar manner, but includes the dilutive United States generally accepted accounting principles effect of stock options amounting to 206,000 shares in (“GAAP”) and rules and regulations of the Securities Fiscal 2015, 188,000 shares in Fiscal 2014 and 172,000 and Exchange Commission. The consolidated financial shares in Fiscal 2013. statements include the accounts of National Beverage Corp. and all subsidiaries. All significant intercompany transactions and accounts have been eliminated. Our fiscal year ends the Saturday closest to April 30 and, as a result, an additional week is added every five or six years. Fiscal 2015 and Fiscal 2013 consisted of 52 weeks while Fiscal 2014 consisted of 53 weeks. Fair Value The fair value of long-term debt approximates its carrying value due to its variable interest rate and lack of prepayment penalty. The estimated fair values of derivative financial instruments are calculated based on market rates to settle the instruments. These values represent the estimated amounts we would receive upon sale, taking into consideration current market Cash and Equivalents Cash and equivalents are prices and credit worthiness. See Note 6. comprised of cash and highly liquid securities (consisting primarily of short-term money-market investments) with an original maturity of three months or less. 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 Derivative Financial Instruments We use derivative events or changes in circumstances indicate that the financial instruments to partially mitigate our exposure carrying amount of an asset may not be recoverable. to changes in raw material costs. All derivative financial An impaired asset is written down to its estimated instruments are recorded at fair value in our fair value based on the best information available. 26 NATIONAL BEVERAGE CORP. Estimated fair value is generally measured by Inventories Inventories are stated at the lower of discounting future cash flows. Goodwill and intangible first-in, first-out cost or market. Inventories at May 2, assets not subject to amortization are evaluated for 2015 were comprised of finished goods of $24.9 impairment annually or sooner if we believe such million and raw materials of $18.0 million. Inventories at assets may be impaired. An impairment loss is May 3, 2014 were comprised of finished goods of recognized if the carrying amount or, for goodwill, $27.2 million and raw materials of $16.7 million. the carrying amount of its reporting unit, is greater than its fair value. Marketing Costs We are involved in a variety of marketing programs, including cooperative advertising Income Taxes Our effective income tax rate is based programs with customers, to advertise and promote on estimates of taxes which will ultimately be payable. our products to consumers. Marketing costs are Deferred taxes are recorded to give recognition to expensed when incurred, except for prepaid advertising temporary differences between the tax bases of assets and production costs which are expensed when the or liabilities and their reported amounts in the financial advertising takes place. Marketing costs, which are statements. Valuation allowances are established to included in selling, general and administrative reduce the carrying amounts of deferred tax assets expenses, totaled $42.4 million in Fiscal 2015, $50.2 when it is deemed, more likely than not, that the benefit million in Fiscal 2014 and $44.6 million in Fiscal 2013. of deferred tax assets will not be realized. New Accounting Pronouncement In May 2014, the Insurance Programs We maintain self-insured and FASB issued Accounting Standards Update No. 2014- deductible programs for certain liability, medical and 09, “Revenue from Contracts with Customers (Topic workers’ compensation exposures. Accordingly, we 606)” (“ASU 2014-09”). ASU 2014-09 requires an entity accrue for known claims and estimated incurred but to recognize revenue in an amount that reflects the not reported claims not otherwise covered by insurance consideration to which the entity expects to receive in based on actuarial assumptions and historical claims exchange for goods or services. ASU 2014-09 is experience. At May 2, 2015 and May 3, 2014, other effective for our fiscal year beginning April 30, 2017. liabilities included accruals of $5.9 million and $6.1 We are currently evaluating the potential impact of million, respectively, for estimated non-current risk adopting this guidance on our consolidated financial retention exposures, of which $4.7 million and $5.1 statements. million were covered by insurance. Intangible Assets Intangible assets as of May 2, 2015 and May 3, 2014 consisted of non-amortizable trademarks. 2015 ANNUAL REPORT 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Property, Plant and Equipment Property, plant or expected sales volume. The recognition of these and equipment are recorded at cost. Additions, incentives involves the use of judgment related to replacements and betterments are capitalized, while performance and sales volume estimates that are maintenance and repairs that do not extend the useful made based on historical experience and other factors. life of an asset are expensed as incurred. Depreciation Sales incentives are accounted for as a reduction of is recorded using the straight-line method over sales and actual amounts ultimately realized may vary estimated useful lives of 7 to 30 years for buildings and from accrued amounts. 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. Segment Reporting We operate as a single operating segment for purposes of presenting financial information and evaluating performance. As such, the accompanying consolidated financial statements present financial information in a format that is consistent with the internal financial information used by management. We do not accumulate revenues by product classification and, therefore, it is impractical to Revenue Recognition Revenue from product sales is present such information. recognized when title and risk of loss pass 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. Shipping and Handling Costs Shipping and handling costs are reported in selling, general and administrative expenses in the accompanying consolidated statements of income. Such costs aggregated $44.4 million in Fiscal 2015 and Fiscal 2014 and $44.2 million in Fiscal 2013. Although our classification is consistent with many beverage companies, our gross margin may not be comparable to companies that include shipping Sales Incentives We offer various sales incentive and handling costs in cost of sales. arrangements to our customers that require customer performance or achievement of certain sales volume targets. When the incentive is paid in advance, we amortize the amount paid over the period of benefit or contractual sales volume; otherwise, we accrue the expected amount to be paid over the period of benefit Stock-Based Compensation Compensation expense for stock-based compensation awards is recognized over the vesting period based on the grant-date fair value estimated using the Black-Scholes model. See Note 8. 28 NATIONAL BEVERAGE CORP. Trade Receivables We record trade receivables at 2. PROPERT Y, PLANT AND EQUIPMENT net realizable value, which includes an appropriate Property, plant and equipment as of May 2, 2015 and allowance for doubtful accounts. We extend credit May 3, 2014 consisted of the following: 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. Activity in the allowance for doubtful accounts was as follows: (In thousands) Balance at beginning of year Net charge to expense Net charge-off Fiscal 2015 Fiscal 2014 Fiscal 2013 $ 399 117 (186) $ 454 95 (150) $399 96 (41) (In thousands) Land Buildings and improvements Machinery and equipment 2015 2014 $ 9,500 50,405 156,702 $ 9,779 51,494 148,699 Total Less accumulated depreciation 216,607 (156,425) 209,972 (150,478) Property, plant and equipment—net $ 60,182 $ 59,494 Depreciation expense was $10.2 million for Fiscal 2015, $9.8 million for Fiscal 2014 and $9.0 million for Fiscal 2013. 3. ACCRUED LIABILITIES Balance at end of year $ 330 $ 399 $454 Accrued liabilities as of May 2, 2015 and May 3, 2014 consisted of the following: As of May 2, 2015 and May 3, 2014, we did not (In thousands) 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. Accrued compensation Accrued promotions Accrued insurance Other Total 4. DEBT Use of Estimates The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and anticipated future actions, actual results may vary from reported amounts. 2015 2014 $ 7,473 3,801 1,651 8,332 $ 7,049 3,812 2,238 5,774 $ 21,257 $ 18,873 At May 2, 2015, a subsidiar y of the Company maintained unsecured revolving credit facilities with banks aggregating $100 million (the “Credit Facilities”). The Credit Facilities expire from October 10, 2017 to June 18, 2018 and current borrowings bear interest at .9% above one-month LIBOR (1.0% at May 2, 2015). 2015 ANNUAL REPORT 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Borrowings outstanding under the Credit Facilities On May 2, 2014, the Company redeemed 160,000 were $10 million at May 2, 2015 and $30 million at May shares of Series D Preferred, representing 40% of the 3, 2014. At May 2, 2015, $2.2 million of the Credit amount outstanding, for an aggregate price of $8 Facilities were reserved for standby letters of credit million plus accrued dividends. In connection therewith, and $87.8 million were available for borrowings. the Company accreted and charged to retained The Credit Facilities require the subsidiary to earnings $118,000 of original issuance costs, which maintain certain financial ratios, principally debt to net was deducted from income available to common worth and debt to EBITDA (as defined in the Credit shareholders for earnings per share calculation. In Facilities), and contain other restrictions, none of which conjunction with the partial redemption, the annual are expected to have a material effect on our operations dividend rate on the outstanding Series D Preferred or financial position. At May 2, 2015, we were in was reduced to 2.5% for the twelve month period compliance with all loan covenants. beginning May 1, 2014. In evaluating the impact of 5. CAPITAL STOCK AND TRANSACTIONS WITH RELATED PARTIES the rate change, the Company determined that the related fair value change was immaterial and that no adjustment was required. The Company paid special cash dividends on common On August 1, 2014, the Company redeemed stock of $118.1 million ($2.55 per share) on December 120,000 shares of Series D Preferred, representing 27, 2012. 50% of the amount outstanding, for an aggregate price On January 25, 2013, the Company sold 400,000 of $6 million plus accrued dividends. In connection shares of Special Series D Preferred Stock, par value therewith, the Company accreted and charged to $1 per share (“Series D Preferred”) for an aggregate retained earnings $89,000 of original issuance costs, purchase price of $20 million. Series D Preferred has a which was deducted from income available to common liquidation preference of $50 per share and accrues shareholders for earnings per share calculation. dividends on this amount at an annual rate of 3% On May 1, 2015, the Company and the holders of through April 30, 2014 and, thereafter, at an annual the Series D Preferred agreed to extend the 2.5% rate equal to 370 basis points above the 3-Month annual dividend rate on the outstanding Series D LIBOR. Dividends are cumulative and payable quarterly. Preferred through April 30, 2016. In evaluating the Accrued dividends at May 2, 2015 and May 3, 2014 impact of the rate change, the Company determined were $37,000 and $90,000, respectively. The Series D that the related fair value change was immaterial and Preferred is nonvoting and redeemable at the option of that no adjustment was required. the Company beginning May 1, 2014 at $50 per share. In April 2012, the Board of Directors authorized an The net proceeds of $19.7 million were used to repay increase in the Company’s Stock Buyback Program borrowings under the Credit Facilities. In addition, the from 800,000 to 1.6 million shares of common stock. Company has 150,000 shares of Series C Preferred As of May 2, 2015, 502,060 shares were purchased Stock, par value $1 per share, which are held as under the program and 1,097,940 shares were available treasury stock and, therefore, such shares have no for purchase. There were no shares purchased during liquidation value. the last three fiscal years. 30 NATIONAL BEVERAGE CORP. The Company is a par ty to a management agreement, no incentive compensation has been paid. agreement with Corporate Management Advisors, Inc. We incurred management fees to CMA of $6.5 million (“CMA”), a corporation owned by our Chairman and for Fiscal 2015, $6.4 million for Fiscal 2014 and $6.6 Chief Executive Officer. This agreement was originated million for Fiscal 2013. Included in accounts payable in 1991 for the efficient use of management of two were amounts due CMA of $1.6 million at May 2, 2015 public companies at the time. In 1994, one of those and at May 3, 2014. public entities, through a merger, no longer was managed in this manner. Under the terms of the 6. DERIVATIVE FINANCIAL INSTRUMENTS agreement, CMA provides, subject to the direction and From time to time, we enter into aluminum swap supervision of the Board of Directors of the Company, contracts to partially mitigate our exposure to changes (i) senior corporate functions (including supervision of in the cost of aluminum cans. Such financial the Company’s financial, legal, executive recruitment, instruments are designated and accounted for as a internal audit and management information systems cash flow hedge. Accordingly, gains or losses departments) as well as the services of a Chief attributable to the effective portion of the cash Executive Officer and Chief Financial Officer, and flow hedge are reported in Accumulated Other (ii) services in connection with acquisitions, dispositions Comprehensive Income (Loss) (“AOCI”) and reclassified and financings by the Company, including identifying into earnings through cost of sales in the period in and profiling acquisition candidates, negotiating which the hedged transaction affects earnings. The and structuring potential transactions and arranging ineffective portion of the change in fair value of financing for any such transaction. CMA, through its our cash flow hedge was immaterial. The following personnel, also provides, to the extent possible, the summarizes the gains (losses) recognized in the stimulus and creativity to develop an innovative and Consolidated Statements of Income and AOCI relative dynamic persona for the Company, its products to the cash flow hedge for Fiscal 2015, Fiscal 2014 and corporate image. In order to fulfill its obligations and Fiscal 2013: under the management agreement, CMA employs numerous individuals, who, acting as a unit, provide (In thousands) Fiscal 2015 Fiscal 2014 Fiscal 2013 management, administrative and creative functions for the Company. The management agreement provides that the Company will pay CMA an annual base fee equal to one percent of the consolidated net sales of the Company, and fur ther provides that the Compensation and Stock Option Committee and the Board of Directors may from time to time award additional incentive compensation to CMA. The Board of Directors on numerous occasions contemplated incentive compensation and, while shareholder value has increased over 2,000% since the inception of this Recognized in AOCI: Loss before income taxes Less income tax benefit $ (3,488) $ (1,059) $ (2,521) (935) (1,294) (393) Net (2,194) (666) (1,586) Reclassified from AOCI to cost of sales: Gain (loss) before income taxes Less income tax provision (benefit) Net 248 (2,028) (2,060) 92 (752) (769) 156 (1,276) (1,291) Net change to AOCI $ (2,350) $ 610 $ (295) 2015 ANNUAL REPORT 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As of May 2, 2015, the notional amount of our of deferred tax assets will not be realized. Deferred tax outstanding aluminum swap contracts was $38.0 assets and liabilities as of May 2, 2015 and May 3, million and, assuming no change in the commodity 2014 consisted of the following: prices, $3.0 million of unrealized loss before tax will (In thousands) be reclassified from AOCI and recognized in earnings over the next 12 months. See Note 1. Deferred tax assets: Accrued expenses and other As of May 2, 2015, the fair value of the derivative Inventory and amortizable assets 2015 2014 $ 5,281 417 $ 4,126 400 liability and derivative long-term liability was $3.0 Total deferred tax assets 5,698 4,526 million and $751,000, which was included in accrued liabilities and other liabilities, respectively. As of May 3, 2014, the fair value of the derivative asset was $5,000, Deferred tax liabilities: Property Intangibles and other 16,497 98 15,616 98 which was included in prepaid and other assets. Such Total deferred tax liabilities 16,595 15,714 valuation does not entail a significant amount of Net deferred tax liabilities $ 10,897 $ 11,188 judgment and the inputs that are significant to the fair Current deferred tax assets—net $ 4,348 $ 2,685 value measurement are Level 2 as defined by the fair Noncurrent deferred tax liabilities—net $ 15,245 $ 13,873 value hierarchy as they are observable market based inputs or unobservable inputs that are corroborated by The reconciliation of the statutory federal income market data. 7. INCOME TAXES tax rate to our effective tax rate is as follows: Fiscal 2015 Fiscal 2014 Fiscal 2013 The provision for income taxes consisted of the Statutory federal income following: (In thousands) Current Deferred Total Fiscal 2015 Fiscal 2014 Fiscal 2013 $24,326 1,076 $19,395 79 $23,359 172 $25,402 $19,474 $23,531 Deferred taxes are recorded to give recognition to temporary differences between the tax bases of assets tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit Manufacturing deduction benefit Adjustment of unrecognized tax benefit Other differences 2.3 2.3 1.6 (3.0) (3.0) (3.1) (.2) (.1) (3.3) (.1) (.2) .1 Effective income tax rate 34.0% 30.9% 33.4% or liabilities and their reported amounts in the financial During April 2014, the Company reached an statements. Valuation allowances are established to agreement with the Internal Revenue Service with reduce the carrying amounts of deferred tax assets respect to its review of the Company’s federal income when it is deemed more likely than not that the benefit tax returns for the three years ended April 2013. No 32 NATIONAL BEVERAGE CORP. material adjustments were proposed and, accordingly, is resolved. While it is often difficult to predict the final the Company adjusted the related unrecognized tax outcome or the timing of resolution of any particular benefits during the fourth quarter of Fiscal 2014. uncertain tax position, we believe that our unrecognized As of May 2, 2015, the gross amount of tax benefits reflect the most probable outcome. unrecognized tax benefits was $1.8 million and We adjust these unrecognized tax benefits, as well $191,000 was recognized as a tax benefit in Fiscal as the related interest, in light of changing facts 2015. If we were to prevail on all uncertain tax positions, and circumstances. The resolution of any particular the net effect would be to reduce our tax expense by uncertain tax position could require the use of cash approximately $1.2 million. A reconciliation of the and an adjustment to our provision for income taxes changes in the gross amount of unrecognized tax in the period of resolution. Federal income tax returns benefits, which amounts are included in other liabilities for fiscal years subsequent to 2013 are subject to in the accompanying consolidated balance sheets, is examination. Generally, the income tax returns for the as follows: (In thousands) Beginning balance Increases due to current period tax positions Decreases due to lapse of statute of limitations and audit resolutions Fiscal 2015 Fiscal 2014 Fiscal 2013 $ 2,123 $ 4,349 $ 4,548 122 268 415 various state jurisdictions are subject to examination for fiscal years ending after fiscal 2010. 8. STOCK-BASED COMPENSATION Our stock-based compensation program is a broad- based program designed to attract and retain employees while also aligning employees’ interests (444) (2,494)* (614) with the interests of the shareholders. Ending balance $ 1,801 $ 2,123 $ 4,349 The 1991 Omnibus Incentive Plan (the “Omnibus * Includes $1,907 related to the Internal Revenue Service review of the Company’s federal income tax returns for the three years ended April 2013 noted above. Plan”) provides for compensatory awards consisting of (i) stock options or stock awards for up to 4,800,000 We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of May 2, 2015, unrecognized tax benefits included accrued interest of $269,000, of which approximately $82,000 was recognized as a tax benefit in Fiscal 2015. 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, shares of common stock, (ii) stock appreciation rights, dividend equivalents, other stock-based awards in amounts up to 4,800,000 shares of common stock and (iii) performance awards consisting of any combination of the above. The Omnibus Plan is designed to provide an incentive to officers 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 2015 ANNUAL REPORT 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) is limited to 1,680,000 during any year. Awards may be grant. The fair value of stock options is amortized to granted for no cash consideration or such minimal expense over the vesting period. Stock options granted cash consideration as may be required by law. Options were 276,800 shares in Fiscal 2015, 5,245 shares in generally have an exercise price equal to the fair market Fiscal 2014 and 2,000 shares in Fiscal 2013. The value of our common stock on the date of grant, vest weighted average Black-Scholes fair value assumptions over a five-year period and expire after ten years. for stock options granted are as follows: weighted The Special Stock Option Plan provides for the average expected life of 7.4 years for Fiscal 2015, 8 issuance of stock options to purchase up to an years for Fiscal 2014 and 8 years for Fiscal 2013; aggregate of 1,800,000 shares of common stock. weighted average expected volatility of 32.8% for Fiscal Options may be granted for such consideration as 2015, 35.8% for Fiscal 2014 and 38.1% for Fiscal 2013; determined by the Board of Directors. The vesting weighted average risk free interest rates of 2.2% for schedule and exercise price of these options are tied Fiscal 2015, 1.9% for Fiscal 2014 and 1.6% for Fiscal to the recipient’s ownership level of common stock 2013; and expected dividend yield of 4.6% for Fiscal and the terms generally allow for the reduction in 2015, 4.6% for Fiscal 2014 and 5.0% for Fiscal 2013. exercise price upon each vesting period. Also, the The expected life of stock options was estimated Board of Directors authorized the issuance of options based on historical experience. The expected volatility to purchase up to 50,000 shares of common stock to was estimated based on historical stock prices for a be issued at the direction of the Chairman. period consistent with the expected life of stock The Key Employee Equity Partnership Program options. The risk free interest rate was based on the (“KEEP Program”) provides for the granting of stock U.S. Treasury constant maturity interest rate whose options to purchase up to 240,000 shares of common term is consistent with the expected life of stock stock to key employees, consultants, directors and options. Forfeitures were estimated based on historical officers. Participants who purchase shares of stock in experience and ranged from 0% to 16% for Fiscal the open market receive grants of stock options equal 2015, Fiscal 2014 and Fiscal 2013. to 50% of the number of shares purchased, up to a The following is a summary of stock option activity maximum of 6,000 shares in any two-year period. for Fiscal 2015: Options under the KEEP Program are forfeited in the event of the sale of shares used to acquire such options. 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 stock options under the fair value method of accounting using a Black-Scholes valuation model to estimate the stock option fair value at date of Number of Shares Price(a) Options outstanding, beginning of year Granted Exercised Cancelled 404,355 276,800 (50,220) (17,800) $ 6.67 17.84 4.55 16.26 Options outstanding, end of year 613,135 $ 11.23 Options exercisable, end of year 265,437 $ 5.93 (a) Weighted average exercise price. 34 NATIONAL BEVERAGE CORP. Stock-based compensation expense was $307,000 We have a stock purchase plan which provides for for Fiscal 2015, $95,000 for Fiscal 2014 and $230,000 the purchase of up to 1,536,000 shares of common for Fiscal 2013. The total fair value of shares vested stock by employees who (i) have been employed for at was $371,000 for Fiscal 2015, $90,000 for Fiscal 2014 least two years, (ii) are not part-time employees and and $453,000 for Fiscal 2013. The total intrinsic value (iii) are not owners of five percent or more of our for stock options exercised was $917,000 for Fiscal common stock. As of May 2, 2015, no shares have 2015, $76,000 for Fiscal 2014 and $406,000 for Fiscal been issued under the plan. 2013. Net cash proceeds from the exercise of stock options were $228,000 for Fiscal 2015, $47,000 for 9. PENSION PLANS Fiscal 2014 and $239,000 for Fiscal 2013. Stock based The Company contributes to certain pension plans income tax benefits aggregated $240,000 for Fiscal under collective bargaining agreements and to a 2015, $17,000 for Fiscal 2014 and $201,000 for Fiscal discretionary profit sharing plan. Total contributions 2013. The weighted average fair value for stock options (including contributions to multi-employer plans granted was $8.30 for Fiscal 2015, $12.50 for Fiscal reflected below) were $2.7 million for Fiscal 2015, $2.7 2014 and $8.76 for Fiscal 2013. million for Fiscal 2014 and $2.6 million for Fiscal 2013. As of May 2, 2015, unrecognized compensation The Company participates in various multi- expense related to the unvested portion of our stock employer defined benefit pension plans covering options was $872,000, which is expected to be certain employees whose employment is covered recognized over a weighted average period of 5.7 under collective bargaining agreements. If the years. The weighted average remaining contractual Company chooses to stop participating in the multi- term and the aggregate intrinsic value for options employer plan or if other employers choose to withdraw outstanding as of May 2, 2015 was 4.3 years and $6.9 to the extent that a mass withdrawal occurs, the million, respectively. The weighted average remaining Company could be required to pay the plan a contractual term and the aggregate intrinsic value for withdrawal liability based on the underfunded status options exercisable as of May 2, 2015 was 2.7 years of the plan. and $4.4 million, respectively. Summarized below is certain information regarding the Company’s participation in significant multi-employer pension plans including the financial improvement plan or rehabilitation plan status (“FIP/RP Status”) and the zone status under the Pension Protection Act (“PPA”). The most recent PPA zone status available in Fiscal 2015 and Fiscal 2014 is for the plans’ years ending December 31, 2013 and 2012, respectively. Pension Fund PPA Zone Status Fiscal 2015 Fiscal 2014 FIP/RP Status Surcharge Imposed Central States, Southeast and Southwest Areas Pension Plan (EIN no. 36-6044243) (the “CSSS Fund”) Red Red Implemented Western Conference of Teamsters Pension Trust Fund (EIN no. 91-6145047) (the “WCT Fund”) Green Green Not applicable No No 2015 ANNUAL REPORT 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the plan years ended December 31, 2013 and payment and recognized on a straight-line basis over December 31, 2012, the Company was not listed in the the lease term. Rent expense under operating lease Form 5500 Annual Returns as providing more than agreements totaled approximately $8.2 million for 5% of the total contributions for the above plans. The Fiscal 2015, $7.9 million for Fiscal 2014 and $8.9 million collective bargaining agreements expire on October for Fiscal 2013. 18, 2016 for the CSSS Fund and May 14, 2016 for the Our minimum lease payments under non- WCT Fund. cancelable operating leases as of May 2, 2015 were The Company’s contributions for all multi-employer as follows: pension plans for the last three fiscal years are $ 5,399 4,620 3,789 3,341 2,639 2,406 $ 22,194 as follow: (In thousands) Pension Fund CSSS Fund WCT Fund Other multi-employer pension funds Fiscal 2015 $1,103 637 Fiscal 2014 Fiscal 2013 $1,079 476 $1,051 471 (In thousands) Fiscal 2016 Fiscal 2017 Fiscal 2018 Fiscal 2019 Fiscal 2020 Thereafter 306 295 262 Total minimum lease payments Total $2,046 $1,850 $1,784 The trustees of one of the multi-employer pension plans that is not considered individually significant have notified a subsidiary of the Company that a mass withdrawal has occurred and have provided the subsidiary with a notice of withdrawal liability. The Company disputes various aspects of the withdrawal As of May 2, 2015, we guaranteed the residual value of certain leased equipment in the amount of $4.9 million. If the proceeds from the sale of such equipment are less than the balance required by the lease when the lease terminates on August 1, 2017, the Company shall be required to pay the difference up to such guaranteed amount. The Company expects to liability calculations and intends to challenge them have no loss on such guarantee. in accordance with applicable Federal laws. The Company anticipates that the amount of its liability, if any, will not have a material effect on its financial position or results of operations. 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, 2015, we had purchase commitments for raw materials of $54.0 10. COMMITMENTS AND CONTINGENCIES million for Fiscal 2016. We lease buildings, machinery and equipment under various non-cancelable operating lease agreements expiring at various dates through 2023. Certain of these leases contain scheduled rent increases and/or renewal options. Contractual rent increases are taken From time to time, we are a party to various litigation matters and claims arising in the ordinary course of business. We do not expect the ultimate disposition of such matters to have a material adverse effect on our consolidated financial position or results into account when calculating the minimum lease of operations. 36 NATIONAL BEVERAGE CORP. 11. QUARTERLY FINANCIAL DATA (UNAUDITED) (In thousands, except per share amounts) FISCAL 2015 Net sales Gross profit Net income Earnings per common share—basic Earnings per common share—diluted FISCAL 2014(1) Net sales Gross profit Net income Earnings per common share—basic Earnings per common share—diluted First Quarter Second Quarter Third Quarter Fourth Quarter $ 174,637 59,842 15,363 .33 .33 $ $ $ 163,575 57,732 12,958 .28 .28 $ $ $ 143,021 46,090 8,808 .19 .19 $ $ $ 164,592 55,476 12,182 .26 .26 $ $ $ 172,353 58,749 12,070 .26 .26 $ $ $ 167,666 58,830 12,497 .27 .27 $ $ $ 136,774 44,688 7,136 .15 .15 $ $ $ 164,342 55,388 11,932 .25 .25 $ $ (1) The fourth quarter of Fiscal 2014 consisted of 14 weeks while other quarters consisted of 13 weeks. 2015 ANNUAL REPORT 37 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of National Beverage Corp. We have audited the accompanying consolidated balance sheets of National Beverage Corp. as of May 2, 2015 and May 3, 2014 and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended May 2, 2015. We also have audited National Beverage Corp.’s internal control over financial reporting as of May 2, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. National Beverage Corp.’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 38 NATIONAL BEVERAGE CORP. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Beverage Corp. as of May 2, 2015 and May 3, 2014 and the results of their operations and their cash flows for each of the years in the three-year period ended May 2, 2015, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, National Beverage Corp. maintained, in all material respects, effective internal control over financial reporting as of May 2, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. McGladrey LLP West Palm Beach, Florida July 16, 2015 MARKET FOR REGISTRANT’S COMMON EQUIT Y, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUIT Y SECURITIES The common stock of National Beverage Corp., par dividends on this amount at an annual rate of 3% value $.01 per share, (“Common Stock”) is listed on through April 30, 2014 and, thereafter, at an annual The NASDAQ Global Select Market under the symbol rate equal to 370 basis points above the 3-Month “FIZZ”. The following table shows the range of high LIBOR. Dividends are cumulative and payable quarterly. and low prices per share of the Common Stock for the The Series D Preferred is nonvoting and redeemable at fiscal quarters indicated: Fiscal Year Ended May 2, 2015 Low High May 3, 2014 Low High First Quarter Second Quarter Third Quarter Fourth Quarter $19.97 $25.50 $27.32 $25.00 $15.42 $17.58 $21.00 $21.00 $18.66 $18.96 $21.71 $22.26 $14.48 $15.63 $18.06 $18.58 the option of the Company since May 1, 2014 at $50 per share. Upon a change of control, as such term is defined in the Certificate of Designation of the Special Series D Preferred Stock, the holder shall have the right to convert the Series D Preferred into shares of Common Stock at a conversion price equal to the tender price per share offered to the holders of the Common Stock. The net proceeds of $19.7 million At July 6, 2015, there were approximately 8,000 were used to repay borrowings under the Credit holders of our Common Stock, the majority of which Facilities. The Series D Preferred was issued by the hold their shares in the names of various dealers and/ Company pursuant to the exemption from registration or clearing agencies. provided by Section 4(2) of the Securities Act of 1933. The Company paid special cash dividends on On May 2, 2014, the Company redeemed 160,000 Common Stock of $118.1 million ($2.55 per share) on shares of Series D Preferred, representing 40% of the December 27, 2012. amount outstanding, for an aggregate price of $8 In April 2012, the Board of Directors authorized an million plus accrued dividends. In conjunction with the increase in the Company’s Stock Buyback Program partial redemption, the annual dividend rate on the from 800,000 to 1.6 million shares of Common Stock. outstanding Series D Preferred was reduced to 2.5% As of May 2, 2015, 502,060 shares were purchased for the twelve-month period beginning May 1, 2014. under the program and 1,097,940 shares were available On May 1, 2015, the Company and the holders of the for purchase. There were no shares of Common Stock Series D Preferred agreed to extend the 2.5% annual purchased during the last three fiscal years. dividend rate on the outstanding Series D Preferred On January 25, 2013, the Company sold 400,000 through April 30, 2016. shares of Special Series D Preferred Stock, par value On August 1, 2014, the Company redeemed $1 per share (“Series D Preferred”) for an aggregate 120,000 shares of Series D Preferred, representing purchase price of $20 million. Series D Preferred has a 50% of the amount outstanding, for an aggregate price liquidation preference of $50 per share and accrues of $6 million plus accrued dividends. 2015 ANNUAL REPORT 39 PERFORMANCE GRAPH The following graph shows a comparison of the five-year cumulative returns of an investment of $100 cash on May 1, 2010, assuming reinvestment of dividends, in (i) Common Stock, (ii) the NASDAQ Composite Index and (iii) a Company-constructed peer group consisting of Coca-Cola Bottling Company Consolidated and Cott Corporation. Based on the cumulative total return below, an investment in our Common Stock on May 1, 2010 provided a compounded annual return of approximately 21.5% as of May 2, 2015. Comparison of 5-Year Cumulative Total Return among National Beverage Corp., the NASDAQ Composite Index, and a Peer Group $280 $260 $240 $220 $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 0 5/1/10 4/30/11 4/28/12 4/27/13 5/3/14 5/2/15 National Beverage NASDAQ Composite Peer Group National Beverage Corp. NASDAQ Composite Peer Group 5/1/10 4/30/11 4/28/12 4/27/13 5/3/14 5/2/15 $100.00 100.00 100.00 $140.51 117.84 116.43 $148.18 127.17 95.35 $172.25 137.74 128.54 $227.11 175.48 125.48 $265.06 215.51 155.57 280 260 240 220 200 180 160 140 120 100 80 60 40 20 0 5/01/10 4/30/11 4/28/12 4/27/13 5/03/14 5/21/15 40 NATIONAL BEVERAGE CORP. CORPORATE DATA D I R E C T O R S S U B S I D I A R Y M A N AG E M E N T Michael J. Bahr Executive Vice President Shasta West James C.T. Bolton Executive Vice President PACO, Inc. Alan A. Chittaro Executive Vice President Faygo Beverages, Inc. Alan D. Domzalski Executive Vice President Sundance Beverage Company James H. Erwin III Executive Vice President–Sales Shasta Beverages, Inc. Stephen E. Flis Executive Vice President Shasta Sweetener, Inc. Arthur D. Hanrehan Executive Vice President National BevPak James M. Jones Executive Vice President Shasta Foodservice John F. Hlebica Vice President Shasta Beverages International Chad M. Palma Vice President BevCo Sales Worth B. Shuman III Vice President Military Sales 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. Stanley M. Sheridan* Retired President Faygo Beverages, Inc. *Member Audit Committee CO 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 George R. Bracken Executive Vice President–Finance Gregory P. Cook Vice President–Controller & Chief Accounting Officer Brent R. Bott Executive Director– Consumer Marketing Gregory J. Kwederis Executive Director– Beverage Analyst Timothy C. Barker Senior Director–Strategic IT Vanessa C. Walker Senior Director–Strategic Brand Management Dominic H. Angelina Director–Internal Audit Richard S. Berkes Director–Risk Management Glenn G. Bryan Director–Tax 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 n g i s e D t r o p e R l a u n n A S U B S I D I A R I E S BevCo Sales, Inc. Beverage Corporation Intl., Inc. Big Shot Beverages, Inc. Everfresh Beverages, Inc. Faygo Beverages, Inc. Home Juice Corp. National Beverage Vending Company National Retail Brands, Inc. NewBevCo, Inc. NutraFizz Products Corp. PACO, Inc. Shasta Beverages, Inc. Shasta Beverages Intl., Inc. Shasta Sales, Inc. Shasta Sweetener Corp. Shasta West, Inc. Sundance Beverage Company CO 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 UA L M E E T I N G The Annual Meeting of Shareholders will be held on Friday, October 2, 2015 at 2:00 p.m. local time at the Hyatt Regency Orlando International Airport, 9300 Jeff Fuqua Boulevard, Orlando, FL 32827. F I N A N C I A L A N D O T 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 supplemental quarterly financial data are available free of charge on our website or by contacting our Shareholder Relations department at the Company’s corporate address or 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 T O CK E XCH 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 Computershare 250 Royall Street Canton, MA 02021 888-313-1476 www.computershare.com/ investor 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 ACCO U N T I N G F I R M McGladrey LLP West Palm Beach, FL National Beverage Corp., 8100 Southwest Tenth Street, Fort Lauderdale, Florida 33324 954.581.0922 www.nationalbeverage.com 

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