FIZZ 10-Q Quarter ended Oct. 31, 2015

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended October 31, 2015

Commission file number 1-14170

NATIONAL BEVERAGE CORP.

(Exact name of registrant as specified in its charter)

8100 SW Tenth Street, Suite 4000, Fort Lauderdale, FL 33324

(Address of principal executive offices including zip code)

(954) 581-0922

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (✔) No (  )

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes (✔) No (  )

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer (  ) Accelerated filer (✔) Non-accelerated filer (  ) Smaller reporting company (  )

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (  ) No (✔)

The number of shares of registrant’s common stock outstanding as of December 4, 2015 was 46,433,135.

NATIONAL BEVERAGE CORP.

QUARTERLY REPORT ON FORM 10-Q

INDEX

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

See accompanying Notes to Consolidated Financial Statements.

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

(In thousands, except per share amounts)

See accompanying Notes to Consolidated Financial Statements.

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)

See accompanying Notes to Consolidated Financial Statements.

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

See accompanying Notes to Consolidated Financial Statements.

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

See accompanying Notes to Consolidated Financial Statements.

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

National Beverage Corp. develops, manufactures, markets and sells a diverse portfolio of flavored beverage products primarily in North America. Incorporated in Delaware in 1985, National Beverage Corp. is a holding company for various operating subsidiaries. When used in this report, the terms “we,” “us,” “our,” “Company” and “National Beverage” mean National Beverage Corp. and its subsidiaries.

Overview

National Beverage Corp. is an acknowledged leader in the development, manufacturing, marketing and sale of a diverse portfolio of flavored beverage products. Our primary market focus is the United States, but our products are also distributed in Canada, Mexico, the Caribbean, Latin America, the Pacific Rim, Asia and Europe. A holding company for various operating subsidiaries, National Beverage Corp. was incorporated in Delaware in 1985 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 brands consist of (i) beverages geared toward the active and health-conscious consumer (“Power+ Brands”), including sparkling waters, energy drinks and shots, juices, and enhanced beverages, and (ii) Carbonated Soft Drinks in a variety of flavors including regular, sugar-free and reduced-calorie options. In addition, we produce soft drinks for certain retailers (“Allied Brands”) that endorse the “Strategic Alliance” concept of having our brands and Allied Brands marketed to effectuate enhanced growth of both. We employ a philosophy that emphasizes vertical integration; our manufacturing model integrates the procurement of raw materials and production of concentrates with the manufacture of finished products in our twelve manufacturing facilities. To service a diverse customer base that includes numerous national retailers as well as thousands of smaller “up-and-down-the-street” accounts, we have developed a hybrid distribution system that promotes and utilizes customer warehouse distribution facilities and our own direct-store delivery fleet plus the direct-store delivery systems of independent distributors and wholesalers.

We consider ourselves to be a leader in the development and sale of flavored beverage products. The National Beverage Corp. brand portfolio contains a wide variety of beverages to meet consumer needs in a multitude of market segments. Our portfolio of Power+ Brands is targeted to consumers seeking healthier and functional alternatives to complement their active lifestyles, and includes LaCroix®, LaCroix Cúrate™ and LaCroix NiCola™ sparkling water products; Rip It® energy drinks and shots; and Everfresh® and Everfresh Premier Varietals™, 100% juice and juice-based products. Our carbonated soft drink flavor development spans more than 125 years originating with our flagship brands, Shasta® and Faygo®.

Our strategy emphasizes the growth of our products by (i) expanding our focus on healthier and functional beverages tailored toward healthy, active lifestyles, (ii) offering a beverage portfolio of proprietary flavors with distinctive packaging and broad demographic appeal, (iii) supporting the franchise value of regional brands, (iv) appealing to the “quality-value” expectations of the family consumer, and (v) responding to demographic trends by developing innovative products designed to expand distribution.

The majority of our sales are seasonal with the highest volume typically realized during the summer months. As a result, our operating results from one fiscal quarter to the next may not be comparable. Additionally, our operating results are affected by numerous factors, including fluctuations in the costs of raw materials, changes in consumer preference for beverage products, competitive pricing in the marketplace and weather conditions.

RESULTS OF OPERATIONS

Three Months Ended October 31, 2015 ( second quarter of fiscal 2016 ) compared to Three Months Ended November 1, 2014 ( second quarter of fiscal 2015 )

Net sales for the second quarter of fiscal 2016 increased 9.2% to $178.7 million compared to $163.6 million for the second quarter of fiscal 2015. The higher sales resulted from a 9.6% increase in case volume, which includes 25.3% growth of our Power+ Brands and 2.6% increase in branded carbonated soft drinks. The average selling price was approximately the same for both quarters.

Gross profit for the second quarter of fiscal 2016 increased 5% to $60.6 million compared to $57.7 million for the second quarter of fiscal 2015. The increase in gross profit is primarily due to higher sales, partially offset by an increase in cost of sales per case of 1.8%. The increase in cost of sales per case was due to changes in product mix, which also resulted in a gross margin decline to 33.9%.

Selling, general and administrative expenses were $37.2 million or 20.8% of net sales for the second quarter of fiscal 2016 compared to $38 million or 23.2% of net sales for the second quarter of fiscal 2015. The decline in expenses was primarily due to lower marketing costs.

Interest expense decreased to $62,000 for the second quarter of fiscal 2016, primarily due to a decline in average borrowings outstanding under credit facilities. Other expense includes interest income of $16,000 for the second quarter of fiscal 2016 and $7,000 for the second quarter of fiscal 2015.

The Company’s effective income tax rate, based upon estimated annual income tax rates, was 34.2% for the second quarter of fiscal 2016 and 34.0% for the second quarter of fiscal 2015. The difference between the effective rate and the federal statutory rate of 35% was primarily due to the effect of state income taxes and the manufacturing deduction.

Six Months Ended October 31, 2015 ( first six months of fiscal 2016 ) compared to Six Months Ended November 1, 2014 ( first six months of fiscal 2015 )

Net sales for the first six months of fiscal 2016 increased 7.6% to $364.1 million compared to $338.2 million for the six months of fiscal 2015. The higher sales resulted from a 6.6% increase in case volume and a 1% increase in average selling price. The volume increase includes 26.4% growth of our Power+ Brands partially offset by a decline in branded carbonated soft drinks and Allied Brands. The increase in average selling price is related to changes in product mix.

Gross profit for the first six months of fiscal 2016 increased 5.1% to $123.5 million compared to $117.6 million for the first six months of fiscal 2015. The increase in gross profit is primarily due to higher sales, partially offset by an increase in cost of sales per case of 2.2%. The increase in cost of sales per case was due to changes in product mix, which also resulted in a gross margin decline to 33.9%.

Selling, general & administrative expenses were $74.1 million or 20.3% of net sales for the first six months of fiscal 2016 compared to $75.6 million or 22.4% of net sales for the first six months of fiscal 2015. The decrease in expenses was primarily due to lower marketing costs.

Interest expense decreased to $113,000 for the first six months of fiscal 2016, primarily due to a decline in average borrowings outstanding under credit facilities. Other income includes a $1.3 million gain on sale of property in the first quarter of fiscal 2015.

The Company’s effective income tax rate, based upon estimated annual income tax rates, was 34.2% for the first six months of fiscal 2016 and 34.0% for the first six months of fiscal 2015. The difference between the effective rate and the federal statutory rate of 35% was primarily due to the effect of state income taxes and the manufacturing deduction.

LIQUIDITY AND FINANCIAL CONDITION

Liquidity and Capital Resources

Our principal source of funds is cash generated from operations and borrowings available under our credit facilities. At October 31, 2015, we maintained $100 million unsecured revolving credit facilities of which $2.2 million was reserved for standby letters of credit. We believe that existing capital resources will be sufficient to meet our liquidity and capital requirements for the next twelve months.

Cash Flows

The Company’s cash position for the first six months of fiscal 2016 increased $23.3 million from May 2, 2015, which compares to an increase of $12.4 million for the first six months of fiscal 2015.

Net cash provided by operating activities for the first six months of fiscal 2016 amounted to $37.2 million compared to $31.2 million for the first six months of fiscal 2015. For the first six months of fiscal 2016, cash flow was principally provided by net income of $32.4 million and depreciation and amortization aggregating $6.1 million, offset in part by an increase in inventory.

Net cash used in investing activities for the first six months of fiscal 2016 reflects capital expenditures of $4.4 million, compared to capital expenditures of $4.6 million for the first six months of fiscal 2015. The first six months of fiscal 2015 includes proceeds of $1.8 million from sale of property.

Net cash used in financing activities for the first six months of fiscal 2016 amounted to $9.4 million, which included $10 million in principal repayments under credit facilities. In the first six months of fiscal 2015, the Company redeemed 120,000 shares of Series D Preferred for an aggregate price of $6 million and repaid $10 million in principal repayments under credit facilities.

Financial Position

During the first six months of fiscal 2016, working capital increased $21.9 million to $123.3 million. The increase in working capital resulted primarily from higher cash and inventories, partially offset by lower receivables and higher accrued liabilities balances. Trade receivables decreased $2.7 million and days sales outstanding improved from 33.1 days at May 2, 2015 to 29.2 days at October 31, 2015. Inventories increased approximately $5.8 million as a result of the Company maintaining higher stock levels to support increases in sales and new product introductions. The current ratio was 2.8 to 1 at October 31, 2015 and 2.5 to 1 at May 2, 2015.

There have been no material changes in market risks from those reported in our Annual Report on Form 10-K for the fiscal year ended May 2, 2015.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective to ensure information required to be disclosed by us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in SEC rules and (2) accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q (the “Form 10-Q”) constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following: general economic and business conditions, pricing of competitive products, success in acquiring other beverage businesses, success of new product and flavor introductions, fluctuations in the costs of raw materials, our ability to increase selling prices, continued retailer support for our products, changes in consumer preferences, success of implementing business strategies, changes in business strategy or development plans, government regulations, regional weather conditions and other factors referenced in this Form 10-Q. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained in our Annual Report on Form 10-K for the fiscal year ended May 2, 2015 and other filings with the Securities and Exchange Commission. We disclaim an obligation to update any such factors or to publicly announce the results of any revisions to any forward-looking statements contained herein to reflect future events or developments.

There have been no material changes in risk factors from those reported in our Annual Report on Form 10-K for the fiscal year ended May 2, 2015.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: December 10, 2015

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