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OFFON

NATIONAL BEVERAGE CORP.

(FIZZ)
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NATIONAL BEVERAGE : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

06/30/2021 | 05:01pm EDT

OVERVIEW

National Beverage Corp. innovatively refreshes America with a distinctive portfolio of sparkling waters, juices, energy drinks (Power+ Brands) and, to a lesser extent, carbonated soft drinks. We believe our creative product designs, innovative packaging and imaginative flavors, along with our corporate culture and philosophy, make National Beverage unique as a stand-alone entity in the beverage industry.

National Beverage Corp., in recent years, has transformed to an innovative, healthier refreshment company. From our corporate philosophy, development of products and marketing to manufacturing, we are converting consumers to a 'Better for You' thirst quencher that compassionately cares for their nutritional health. We are committed to our quest to innovate for the joy, benefit and enjoyment of our consumers' healthier lifestyle!

National Beverage Corp. is uniquely positioned in three distinctive ways:



  (1) The retail industry is in revolution. In prior years, each retailer induced
      their consumer with a proprietary brand (especially soft drinks), but today
      understands that the well-informed, smart consumer is demanding that
      retailers provide recognizable brands that have earned their respective
      consumer standing on their merits.




  (2) Retail today is in the most competitively-indexed service industry, without
      exception. Innovation, plus the urgent time demands on the consumer,
      requires quick, expedient shopping. Home delivery is even more of a current
      shoppers' choice. Retailers cannot carry slower-moving items that home
      delivery will not support.




  (3) The new consumer is the most competent/knowledgeable product analyzer ever,
      and personal mental/physical lifestyles demand that healthier is their
      preferred choice. Calories must qualify as worthy; sugar being enemy #1 in
      the life of the Millennial and younger consumers.



Our strategy seeks the profitable growth of our products by (i) developing healthier beverages in response to the global shift in consumer buying habits and tailoring our beverage portfolio to the preferences of a diverse mix of 'crossover consumers' - a growing group desiring a healthier alternative to artificially sweetened and high-caloric beverages; (ii) emphasizing unique flavor development and variety throughout our brands that appeal to multiple demographic groups; (iii) maintaining points of difference through innovative marketing, packaging and consumer engagement and (iv) responding faster and more creatively to changing consumer trends than larger competitors who are burdened by legacy production and distribution complexity and costs.

Presently, our primary market focus is the United States and Canada. Certain of our products are also distributed on a limited basis in other countries and options to expand distribution to other regions are being considered. To service a diverse customer base that includes numerous national retailers, as well as thousands of smaller "up-and-down-the-street" accounts, we utilize a hybrid distribution system consisting of warehouse and direct-store delivery. The warehouse delivery system allows our retail partners to further maximize their assets by utilizing their ability to pick up product at our warehouses, further lowering their/our product costs.




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National Beverage Corp. is incorporated in Delaware and began trading as a public company on the NASDAQ Stock Market in 1991. In this report, the terms "we," "us," "our," "Company" and "National Beverage" mean National Beverage Corp. and its subsidiaries unless indicated otherwise.

Our operating results are affected by numerous factors, including fluctuations in the costs of raw materials, holiday and seasonal programming and weather conditions. While prior years witnessed more seasonality, higher sales are realized during the summer when outdoor activities are more prevalent.

Our highly innovative business, where new beverages are developed and produced for selective holidays and ceremonial dates, should not be analyzed on the common three-month (quarterly) periods, traditionally found acceptable. Today, costly development projects and seasonal weather periods plus promotional packaging often make quarter-to-quarter comparisons unworthy statistics that force companies to decision making that is not truly beneficial for investors and shareholders alike.

Traditional and typical are not a part of an innovator's vocabulary.




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RESULTS OF OPERATIONS

The following section generally discusses the fiscal years ended May 1, 2021 (Fiscal 2021) and May 2, 2020 (Fiscal 2020) items and year-to-year comparisons between Fiscal 2021 and Fiscal 2020. Discussions of fiscal year ended April 27, 2019 (Fiscal 2019) items and year-to-year comparisons between Fiscal 2020 and Fiscal 2019 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended May 2, 2020, which is available free of charge on our website at www.nationalbeverage.com. Fiscal 2021 and Fiscal 2019 consisted of 52 weeks while Fiscal 2020 consisted of 53 weeks.

Net Sales

Net sales for Fiscal 2021 increased 7.2% to $1,072 million compared to $1,000 million for Fiscal 2020 (which contained 53 weeks). The increase in sales resulted from a 7.1% increase in branded case volume and a minor increase in average selling price per case due primarily to changes in product mix. Power+ Brands volume increased 10.2% and branded carbonated soft drinks volume increased 1.0%.




Gross Profit

Gross profit for Fiscal 2021 was $421.6 million compared to $370.1 million for Fiscal 2020. The change in gross profit is due to increased volume and growth in higher margin Power+Brands coupled with a 3.7% reduction in cost per case. The cost per case decline resulted primarily from increased volume and lower raw material costs. Gross margin was 39.3% for Fiscal 2021 compared to 37.0% in Fiscal 2020.

Shipping and handling costs are included in selling, general and administrative expenses, the classification of which is consistent with many beverage companies. However, our gross margin may not be comparable to companies that include shipping and handling costs in cost of sales. See Note 1 of Notes to the Consolidated Financial Statements.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $193.8 million for Fiscal 2021, decreasing $10.6 million from Fiscal 2020. Selling, general and administrative expenses reflect reduced marketing and selling costs, partially offset by increased shipping and handling costs. As a percent of net sales, selling, general and administrative costs decreased to 18.1% in Fiscal 2021 from 20.4% in Fiscal 2020




Other Income - Net

Other income, net is primarily interest income of $.6 million for Fiscal 2021 and $3.9 million for Fiscal 2020. The change in interest income is due to lower investment yields and reduced average investment balances.

Income Taxes

Our effective tax rate was 23.7% for Fiscal 2021 and 23.3% for Fiscal 2020. The differences between the effective rate and the federal statutory rate were primarily due to the effects of state income taxes.




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LIQUIDITY AND FINANCIAL CONDITION

Liquidity and Capital Resources

At May 1, 2021, we maintained $100 million unsecured revolving credit facilities, under which no borrowings were outstanding and $2.5 million was reserved for standby letters of credit. Cash generated from operations is our principal source of funds. We believe that existing capital resources will be sufficient to meet our liquidity and capital requirements for the next twelve months. See Note 5 of Notes to the Consolidated Financial Statements.

Expenditures for property, plant and equipment amounted to $25.3 million for Fiscal 2021 primarily for capital projects to expand our production capacity, enhance packaging capabilities or improve efficiencies at our production facilities. We intend to continue production capacity and efficiency improvement projects in Fiscal 2022 and expect capital expenditures to be comparable to Fiscal 2021.

The Company paid special cash dividends on Common Stock of $279.9 million ($3.00 per share) on January 29, 2021.

The Board of Directors has authorized the Company to repurchase up to 3.2 million shares of common stock. During Fiscal 2021, the Company did not repurchase any shares. As of May 1, 2021, 1,313,144 shares had been purchased under the program and 1,886,856 shares were available for repurchase.

Pursuant to a management agreement, we incurred a fee to Corporate Management Advisors, Inc. (CMA) of $10.7 million for Fiscal 2021 and $10.0 million for Fiscal 2020. At May 1, 2021, management fees payable to CMA were $2.6 million. See Note 6 of Notes to the Consolidated Financial Statements.

Cash Flows

During Fiscal 2021, $193.8 million was provided by operating activities, $25.3 million was used in investing activities and $279.4 million was used in financing activities. Cash provided by operating activities increased $16.1 million primarily due to increased net income offset in part by increased working capital requirements. Cash used in investing activities increased due to capital expenditures, in order to support production efficiencies and volume growth. Cash used in financing activities primarily consists of $279.9 million ($3.00 per share) special cash dividend was paid on January 29, 2021.

Financial Position

During Fiscal 2021, our working capital declined to $219.8 million from $319.0 million at May 2, 2020. The decrease in working capital resulted from lower cash and equivalents due to the January 2021 cash dividend and higher accounts payable, partially offset by increased inventories and prepaid expenses. Trade receivables increased slightly and days sales outstanding was 30.1 days at May 1, 2021 compared to 29.5 days at May 2, 2020. Inventories increased $8.0 million or 12.6% as a result of increases in finished goods and raw materials, while annual inventory turns increased to 9.6 from 9.4 times. As of May 1, 2021, the current ratio was 2.5 to 1 compared to 3.3 to 1 at May 2, 2020.




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CONTRACTUAL OBLIGATIONS


Contractual obligations at May 1, 2021 are payable as follows:



                                               (In thousands)
                                     1 Year       2 to 3      3 to 5       More Than
                        Total       Or less       Years        Years        5 Years
Operating leases       $ 46,614     $ 15,729     $ 18,286     $ 8,288     $     4,311
Purchase commitments     19,976       19,706          270           -               -
Total                  $ 66,590     $ 35,435     $ 18,556     $ 8,288     $     4,311





We contribute to certain pension plans under collective bargaining agreements and to a discretionary profit sharing plan. Annual contributions were $3.7 million for Fiscal 2021, $3.6 million for Fiscal 2020 and $3.8 million for Fiscal 2019. See Note 11 of Notes to Consolidated Financial Statements.

We maintain self-insured and deductible programs for certain liability, medical and workers' compensation exposures. Other long-term liabilities include known claims and estimated incurred but not reported claims not otherwise covered by insurance based on actuarial assumptions and historical claims experience. Since the timing and amount of claim payments vary significantly, we are not able to reasonably estimate future payments for specific periods and therefore such payments have not been included in the table above. Standby letters of credit aggregating $2.5 million have been issued in connection with our self-insurance programs. These standby letters of credit expire through April 2022 and are expected to be renewed.

OFF-BALANCE SHEET ARRANGEMENTS AND ESTIMATES

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition.



CRITICAL ACCOUNTING POLICIES


The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. We believe that the critical accounting policies described in the following paragraphs comprise the most significant estimates and assumptions used in the preparation of our consolidated financial statements. For these policies, we caution that future events rarely develop exactly as estimated and the best estimates routinely require adjustment.

Credit Risk

We sell products to a variety of customers and extend credit based on an evaluation of each customer's financial condition, generally without requiring collateral. Exposure to credit losses varies by customer principally due to the financial condition of each customer. We monitor our exposure to credit losses and maintain allowances for anticipated losses based on our experience with past due accounts, collectability and our analysis of customer data.




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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 value based on the best information available. Estimated fair value is generally measured by discounting future cash flows. Goodwill and intangible assets not subject to amortization are evaluated for impairment annually or sooner if we believe such assets may be impaired. 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

The Company's effective income tax rate is based on estimates of taxes which will ultimately be payable. Deferred taxes are recorded to give recognition to temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements. Valuation allowances are established to reduce the carrying amounts of deferred tax assets when it is deemed, more likely than not, that the benefit of deferred tax assets will not be realized.




Insurance Programs

We maintain self-insured and deductible programs for certain liability, medical and workers' compensation exposures. Accordingly, we accrue for known claims and estimated incurred but not reported claims not otherwise covered by insurance based on actuarial assumptions and historical claims experience.

Revenue Recognition

We recognize revenue upon delivery to our customers, based on written sales terms that do not allow a right of return except in rare instances. Our products are typically sold on credit; however smaller direct-store delivery accounts may be sold on a cash basis. Our credit terms normally require payment within 30 days of delivery and may allow discounts for early payment. We estimate and reserve for bad debt exposure based on our experience with past due accounts, collectability and our analysis of customer data.

We offer various sales incentive arrangements to our customers that require customer performance or achievement of certain sales volume targets. Sales incentives are accrued over the period of benefit or expected sales. When the incentive is paid in advance, the aggregate incentive is recorded as a prepaid and amortized over the period of benefit. The recognition of these incentives involves the use of judgment related to performance and sales volume estimates that are made based on historical experience and other factors. Sales incentives are accounted for as a reduction of sales and actual amounts ultimately realized may vary from accrued amounts. Such differences are recorded once determined and have historically not been significant.




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FORWARD-LOOKING STATEMENTS


National Beverage Corp. and its representatives may make written or oral statements relating to future events or results relative to our financial, operational and business performance, achievements, objectives and strategies. These statements are "forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995 and include statements contained in this report and other filings with the Securities and Exchange Commission and in reports to our stockholders. Certain statements including, without limitation, statements containing the words "believes," "anticipates," "intends," "plans," "expects," and "estimates" constitute "forward-looking statements" and involve known and unknown risk, uncertainties and other factors that may cause the actual results, performance or achievements of our Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following: general economic and business conditions, pricing of competitive products, success of new product and flavor introductions, fluctuations in the costs and availability of raw materials and packaging supplies, ability to pass along cost increases to our customers, labor strikes or work stoppages or other interruptions in the employment of labor, continued retailer support for our products, changes in brand image, consumer demand and preferences and our success in creating products geared toward consumers' tastes, success in implementing business strategies, changes in business strategy or development plans, government regulations, taxes or fees imposed on the sale of our products, unfavorable weather conditions and other factors referenced in this report, filings with the Securities and Exchange Commission and other reports to our stockholders. We disclaim 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.

© Edgar Online, source Glimpses

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