National Beverage Corp. — FY2013 Form 10-K
Reporting period: Fiscal year ended April 27, 2013 (52 weeks), compared with fiscal year ended April 28, 2012. This is an annual filing, not a standalone calendar-year 2012 fourth-quarter report; the filing also presents fiscal fourth-quarter results.
Business context
National Beverage develops, manufactures, markets and sells flavored beverages, primarily in the U.S. Its portfolio includes Shasta and Faygo soft drinks; LaCroix sparkling water; Rip It energy drinks; and juice, sports and other beverages. The company operates 12 manufacturing facilities and uses a mix of warehouse and direct-store delivery distribution.
Financial performance
| Metric | FY2013 | FY2012 | Change / context |
|---|---|---|---|
| Net sales | $662.0 million | $628.9 million | Up 5.3% |
| Gross profit | $217.3 million | $213.3 million | Gross margin 32.8%, down from 33.9% |
| SG&A | $146.2 million | $146.2 million | 22.1% of sales versus 23.2% |
| Income before tax | $70.5 million | $66.9 million | Up about 5.3% |
| Net income | $46.9 million | $44.0 million | Up 6.7% |
| Diluted EPS | $1.01 | $0.95 | Up $0.06 |
| Operating cash flow | $40.3 million | $37.7 million | Up $2.6 million |
| Capital expenditures | $9.7 million | $9.9 million | — |
Management attributed sales growth to case-volume increases of 5.4% for Power+ Brands and 6.4% for carbonated soft drinks, including Allied Brands. Average net selling price per case declined 0.8%, mainly due to product mix. Gross margin pressure was also attributed primarily to mix; cost of sales per case increased 0.8%. The effective tax rate was 33.4%, compared with 34.2%.
Fiscal fourth quarter: Net sales were $167.9 million versus $165.4 million; gross profit was $58.0 million versus $52.8 million; net income was $12.1 million versus $11.5 million; and diluted EPS was $0.26 versus $0.25.
Cash, debt and liquidity
At April 27, 2013, cash and equivalents were $18.3 million, working capital was $67.5 million, and the current ratio was 2.1:1. Cash decreased from $35.6 million a year earlier, primarily reflecting the $118.1 million special common dividend. Net cash used in financing was $48.0 million. The company said existing resources were sufficient for its needs over the next 12 months.
Borrowings were $50.0 million under $100 million of unsecured revolving facilities; $2.3 million was committed to standby letters of credit, leaving $47.7 million available. The weighted-average borrowing rate was 1.1%, and the company reported compliance with loan covenants. Shareholders’ equity declined to $70.3 million from $121.6 million.
Material changes, outlook and risks
- The company paid a special common dividend of $118.1 million, or $2.55 per share, in December 2012. It issued $20 million of Series D preferred stock in January 2013; net proceeds of $19.7 million were used to repay credit-facility borrowings. The preferred stock carries cumulative dividends and a $50-per-share liquidation preference.
- No formal earnings or sales guidance is provided. Management highlighted growth initiatives in differentiated flavors, health-oriented beverages and higher-margin convenience distribution; it also noted that sales are seasonal and typically strongest in summer.
- Key disclosed risks include shifting consumer preferences, intense competition, retailer bargaining power, volatile commodity and energy costs, limits on passing cost increases to customers, supply disruptions, weather, and regulation or taxes on beverages.
- Contractual obligations totaled $124.6 million, including $50.0 million of debt, $20.4 million of operating leases and $54.1 million of purchase commitments. A $5.9 million equipment residual-value guarantee was due to terminate in July 2013; management expected no loss.
- The Central States multi-employer pension plan was in the red zone, had an implemented rehabilitation plan and imposed a surcharge. The company also reported $4.3 million of unrecognized tax benefits; resolution could affect cash and tax expense.
- The company paid its chairman/CEO-owned management firm, Corporate Management Advisors, $6.6 million in FY2013 under a fee arrangement based on 1% of consolidated sales. Related-party fees payable were $3.1 million at year-end.
The independent auditor issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective as of April 27, 2013.
Important facts for investors to verify
- Whether volume growth can continue while product mix and per-case pricing weigh on gross margin.
- How the company plans to fund dividends, capital spending and operations while maintaining $50 million of revolving debt and available liquidity.
- The terms, cumulative dividend burden and potential conversion or redemption implications of Series D preferred stock.
- Exposure to aluminum and other commodity costs, including the impact of outstanding swaps and future pricing agreements.
- Developments in the Central States pension plan, uncertain tax positions and the equipment residual-value guarantee.
- The governance and ongoing economics of the related-party management agreement with CMA.