Notes to Consolidated Financial Statements
National Beverage Corp. develops, produces, 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.
1. significant accounting policies
Basis of Presentation
The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and rules and regulations of the Securities and Exchange Commission. The consolidated financial 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 2017, Fiscal 2016 and Fiscal 2015 consisted of 52 weeks.
Cash and Equivalents
Cash and equivalents are comprised of cash and highly liquid securities (consisting primarily of short-term money-market investments) with an original maturity of three months or less.
Derivative Financial Instruments
We use derivative financial instruments to partially mitigate our exposure to changes in raw material costs. All derivative financial instruments are recorded at fair value in our Consolidated Balance Sheets. We do not use derivative financial instruments for trading or speculative purposes. Credit risk related to derivative financial instruments is managed by requiring high credit standards for counterparties and frequent cash settlements. See Note 6.
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 the period. Diluted earnings per common share is calculated in a similar manner, but includes the dilutive effect of stock options amounting to 206,000 shares in Fiscal 2017, 219,000 shares in Fiscal 2016 and 206,000 shares in Fiscal 2015.
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 prices and credit worthiness. See Note 6.
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 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
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. At April 29, 2017 and April 30, 2016, other liabilities included accruals of $6.9 million and $5.8 million, respectively, for estimated non-current risk retention exposures, of which $5.4 million and $4.8 million were covered by insurance.
Intangible Assets
Intangible assets as of April 29, 2017 and April 30, 2016 consisted of non-amortizable trademarks
.
Inventories
Inventories are stated at the lower of first-in, first-out cost or market. Inventories at April 29, 2017 were comprised of finished goods of $35.0 million and raw materials of $18.4 million. Inventories at April 30, 2016 were comprised of finished goods of $29.1 million and raw materials of $18.8 million.
Marketing Costs
We are involved in a variety of marketing programs, including cooperative advertising programs with customers, to advertise and promote our products to consumers. Marketing costs are expensed when incurred, except for prepaid advertising and production costs which are expensed when the advertising takes place. Marketing costs, which are included in selling, general and administrative expenses, totaled $44.9 million in Fiscal 2017, $38.8 million in Fiscal 2016 and $42.4 million in Fiscal 2015.
New Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-09, “Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). This amendment addresses several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for our fiscal year beginning April 30, 2017. Adoption is not expected to have a material impact on our financial position, results of operations or cash flows.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases” (“ASU 2016-02”). ASU 2016-02 requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. ASU 2016-02 is effective for our fiscal year beginning April 28, 2019. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, “Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). ASU 2015-17 requires companies to classify all deferred tax liabilities and assets as noncurrent on the balance sheet. ASU 2015-17 is effective for our fiscal year beginning April 30, 2017. When implemented, current deferred tax asset will be reclassified to noncurrent in the consolidated balance sheet.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize revenue in an amount that reflects the consideration it expects to receive in exchange for goods or services. On August 12, 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year and is effective for our fiscal year beginning April 29, 2018. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements; however, adoption is not expected to have a material impact on our financial position, results of operations or cash flows.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Additions, replacements and betterments are capitalized, while maintenance and repairs that do not extend the useful life of an asset are expensed as incurred. Depreciation is recorded using the straight-line method over estimated useful lives of 7 to 30 years for buildings and improvements and 3 to 15 years for machinery and equipment. Leasehold improvements are amortized using the straight-line method over the shorter of the remaining lease term or the estimated useful life of the improvement. When assets are retired or otherwise disposed, the cost and accumulated depreciation are removed from the respective accounts and any related gain or loss is recognized.
Revenue Recognition
Revenue from product sales is 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.
Sales Incentives
We offer various sales incentive 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 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.
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 present such information.
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 $50.0 million in Fiscal 2017, $44.6 million in Fiscal 2016 and $44.4 million in Fiscal 2015. Although our classification is consistent with many beverage companies, our gross margin may not be comparable to companies that include shipping and handling costs in cost of sales.
Stock-Based Compensation
Compensation expense for stock-based compensation awards is recognized over the vesting period based on the grant-date fair value estimated using the Black-Scholes model. See Note 8.
Trade Receivables
We record trade receivables at net realizable value, which includes an estimated allowance for doubtful accounts. We extend credit based on an evaluation of each customer’s financial condition, generally without requiring collateral. Exposure to credit losses varies by customer principally due to the financial condition of each customer. We monitor our exposure to credit losses and maintain allowances for anticipated losses based on specific customer circumstances, credit conditions and historical write-offs. Activity in the allowance for doubtful accounts was as follows:
|
|
(In thousands)
|
|
|
|
Fiscal
2017
|
|
|
Fiscal
2016
|
|
|
Fiscal
2015
|
|
Balance at beginning of year
|
|
$
|
484
|
|
|
$
|
330
|
|
|
$
|
399
|
|
Net charge to expense
|
|
|
74
|
|
|
|
232
|
|
|
|
117
|
|
Net charge-off
|
|
|
(90
|
)
|
|
|
(78
|
)
|
|
|
(186
|
)
|
Balance at end of year
|
|
$
|
468
|
|
|
$
|
484
|
|
|
$
|
330
|
|
As of April 29, 2017 and April 30, 2016, we did not have any customer that comprised more than 10% of trade receivables. No one customer accounted for more than 10% of net sales during any of the last three fiscal years.
Use of Estimates
The preparation of financial statements in conformity with 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.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of April 29, 2017 and April 30, 2016 consisted of the following:
|
|
(In thousands)
|
|
|
|
2017
|
|
|
2016
|
|
Land
|
|
$
|
9,500
|
|
|
$
|
9,500
|
|
Buildings and improvements
|
|
|
51,157
|
|
|
|
50,856
|
|
Machinery and equipment
|
|
|
172,257
|
|
|
|
162,195
|
|
Total
|
|
|
232,914
|
|
|
|
222,551
|
|
Less accumulated depreciation
|
|
|
(167,764
|
)
|
|
|
(160,619
|
)
|
Property, plant and equipment – net
|
|
$
|
65,150
|
|
|
$
|
61,932
|
|
Depreciation expense was $10.7 million for Fiscal 2017, $10.1 million for Fiscal 2016 and $10.2 million for Fiscal 2015.
3. ACCRUED LIABILITIES
Accrued liabilities as of April 29, 2017 and April 30, 2016 consisted of the following:
|
|
(In thousands)
|
|
|
|
2017
|
|
|
2016
|
|
Accrued compensation
|
|
$
|
9,967
|
|
|
$
|
9,217
|
|
Accrued promotions
|
|
|
8,403
|
|
|
|
5,888
|
|
Accrued insurance
|
|
|
2,938
|
|
|
|
2,786
|
|
Other
|
|
|
7,709
|
|
|
|
8,304
|
|
Total
|
|
$
|
29,017
|
|
|
$
|
26,195
|
|
4. DEBT
At April 29, 2017, a subsidiary 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 April 30, 2021 and any borrowings would currently bear interest at .9% above one-month LIBOR. There were no borrowings outstanding under the Credit Facilities at April 29, 2017 or April 30, 2016. At April 29, 2017, $2.2 million of the Credit Facilities was reserved for standby letters of credit and $97.8 million was available for borrowings.
The Credit Facilities require the subsidiary to maintain certain financial ratios, including debt to net worth and debt to EBITDA (as defined in the Credit Facilities), and contain other restrictions, none of which are expected to have a material effect on our operations or financial position. At April 29, 2017, we were in compliance with all loan covenants.
5.
CAPITAL STOCK AND TRANSACTIONS WITH RELATED PARTIES
The Company paid a special cash dividend on common stock of $69.9 million ($1.50 per share) on January 27, 2017.
On May 5, 2017, the Company declared a special cash dividend of $1.50 per share to shareholders of record on June 5, 2017. The cash dividend of $69.9 million will be paid on or before August 4, 2017.
On January 25, 2013, the Company sold 400,000 shares of Special Series D Preferred Stock, par value $1 per share (“Series D Preferred”) for an aggregate purchase price of $20 million. Series D Preferred had a liquidation preference of $50 per share and accrued dividends on this amount at an annual rate of 3% through April 30, 2014 and, thereafter, at an annual rate equal to 370 basis points above the 3- Month LIBOR rate. Dividends were cumulative and payable quarterly. There were no accrued dividends at April 29, 2017 and at April 30, 2016. The Series D Preferred was nonvoting and redeemable at the option of the Company beginning May 1, 2014 at $50 per share. In addition, the Company has 150,000 shares of Series C Preferred Stock, par value $1 per share, which are held as treasury stock and, therefore, such shares have no liquidation value.
On May 2, 2014, the Company redeemed 160,000 shares of Series D Preferred, representing 40% of the amount outstanding, for an aggregate price of $8 million plus accrued dividends. In connection therewith, the Company accreted and charged to retained earnings $118,000 of original issuance costs, which was deducted from income available to common shareholders for earnings per share calculation. In conjunction with the partial redemption, the annual dividend rate on the outstanding Series D Preferred was reduced to 2.5% for the twelve month period beginning May 1, 2014. In evaluating the impact of the rate change, the Company determined that the related fair value change was immaterial and that no adjustment was required.
On August 1, 2014, the Company redeemed 120,000 shares of Series D Preferred, representing 50% of the amount outstanding, for an aggregate price of $6 million plus accrued dividends. In connection therewith, the Company accreted and charged to retained earnings $89,000 of original issuance costs, which was deducted from income available to common shareholders for earnings per share calculation.
On May 1, 2015, the Company and the holders of the Series D Preferred agreed to extend the 2.5% annual dividend rate on the outstanding Series D Preferred through April 30, 2016. In evaluating the impact of the rate change, the Company determined that the related fair value change was immaterial and that no adjustment was required.
On April 29, 2016, the Company redeemed the final remaining 120,000 shares of Series D Preferred for an aggregate price of $6 million plus accrued dividends. In connection therewith, the Company accreted and charged to retained earnings $89,000 of original issuance costs, which was deducted from income available to common shareholders for earnings per share calculation.
The Company is authorized under its stock buyback program to repurchase 1.6 million shares of Common Stock. As of April 29, 2017, 502,060 shares were purchased under the program and 1,097,940 shares were available for purchase. No shares of Common Stock have been repurchased during the last three fiscal years.
The Company is a party to a management agreement with Corporate Management Advisors, Inc. (“CMA”), a corporation owned by our Chairman and Chief Executive Officer. This agreement was originated in 1991 for the efficient use of management of two public companies at the time. In 1994, one of those public entities, through a merger, no longer was managed in this manner. Under the terms of the agreement, CMA provides, subject to the direction and supervision of the Board of Directors of the Company, (i) senior corporate functions (including supervision of the Company’s financial, legal, executive recruitment, internal audit and management information systems departments) as well as the services of a Chief Executive Officer and Chief Financial Officer, and (ii) services in connection with acquisitions, dispositions and financings by the Company, including identifying and profiling acquisition candidates, negotiating and structuring potential transactions and arranging financing for any such transaction. CMA, through its personnel, also provides, to the extent possible, the stimulus and creativity to develop an innovative and dynamic persona for the Company, its products and corporate image. In order to fulfill its obligations under the management agreement, CMA employs numerous individuals, whom, acting as a unit, provide 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 further 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 $4.5 billion (or 10,000%) since the inception of this agreement, no incentive compensation has been paid. We incurred management fees to CMA of $8.3 million for Fiscal 2017, $7.0 million for Fiscal 2016 and $6.5 million for Fiscal 2015. Included in accounts payable were amounts due CMA of $2.1 million at April 29, 2017 and $1.8 million at April 30, 2016.
6.
DERIVATIVE FINANCIAL INSTRUMENTS
From time to time, we enter into aluminum swap contracts to partially mitigate our exposure to changes in the cost of aluminum cans. Such financial instruments are designated and accounted for as a cash flow hedge. Accordingly, gains or losses attributable to the effective portion of the cash flow hedge are reported in Accumulated Other Comprehensive Income (Loss) (“AOCI”) and reclassified into cost of sales in the period in which the hedged transaction affects earnings. The ineffective portion of the change in fair value of our cash flow hedge was immaterial. The following summarizes the gains (losses) recognized in the Consolidated Statements of Income and AOCI relative to the cash flow hedge for Fiscal 2017, Fiscal 2016 and Fiscal 2015:
|
|
(In thousands)
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Recognized in AOCI-
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(984
|
)
|
|
$
|
(5,743
|
)
|
|
$
|
(3,488
|
)
|
Less income tax benefit
|
|
|
( 365
|
)
|
|
|
( 2,131
|
)
|
|
|
( 1,294
|
)
|
Net
|
|
|
(619
|
)
|
|
|
(3,612
|
)
|
|
|
(2,194
|
)
|
Reclassified from AOCI to cost of sales-
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain before income taxes
|
|
|
(2,749
|
)
|
|
|
(6,987
|
)
|
|
|
248
|
|
Less income tax (benefit) provision
|
|
|
(1,020
|
)
|
|
|
(2,592
|
)
|
|
|
92
|
|
Net
|
|
|
(1,729
|
)
|
|
|
(4,395
|
)
|
|
|
156
|
|
Net change to AOCI
|
|
$
|
1,110
|
|
|
$
|
783
|
|
|
$
|
(2,350
|
)
|
As of April 29, 2017, the notional amount of our outstanding aluminum swap contracts was $56.7 million and, assuming no change in the commodity prices, $246,000 of unrealized loss before tax will be reclassified from AOCI and recognized in earnings over the next 12 months. See Note 1.
As of April 29, 2017, the fair value of the derivative asset, derivative liability and derivative long-term liability was $602,000, $848,000 and $476,000, which was included in prepaid and other assets, accrued liabilities and other liabilities, respectively. As of April 30, 2016, the fair value of the derivative liability was $2.5 million, which was included in accrued liabilities. Such valuation does not entail a significant amount of judgment and the inputs that are significant to the fair value measurement are Level 2 as defined by the fair value hierarchy as they are observable market based inputs or unobservable inputs that are corroborated by market data.
The provision (benefit) for income taxes consisted of the following:
|
|
(In thousands)
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Current
|
|
$
|
54,422
|
|
|
$
|
32,806
|
|
|
$
|
24,326
|
|
Deferred
|
|
|
1,358
|
|
|
|
(1,299
|
)
|
|
|
1,076
|
|
Total
|
|
$
|
55,780
|
|
|
$
|
31,507
|
|
|
$
|
25,402
|
|
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. Deferred tax assets and liabilities as of April 29, 2017 and April 30, 2016 consisted of the following:
|
|
(In thousands)
|
|
|
|
2017
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued expenses and other
|
|
$
|
4,740
|
|
|
$
|
5,655
|
|
Inventory and amortizable assets
|
|
|
538
|
|
|
|
538
|
|
Total deferred tax assets
|
|
|
5,278
|
|
|
|
6,193
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property
|
|
|
15,157
|
|
|
|
14,049
|
|
Intangibles and other
|
|
|
2,208
|
|
|
|
2,164
|
|
Total deferred tax liabilities
|
|
|
17,365
|
|
|
|
16,213
|
|
Net deferred tax liabilities
|
|
$
|
12,087
|
|
|
$
|
10,020
|
|
Current deferred tax assets – net
|
|
$
|
3,906
|
|
|
$
|
4,454
|
|
Noncurrent deferred tax liabilities – net
|
|
$
|
15,993
|
|
|
$
|
14,474
|
|
The reconciliation of the statutory federal income tax rate to our effective tax rate is as follows:
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal benefit
|
|
|
2.2
|
|
|
|
2.2
|
|
|
|
2.3
|
|
Domestic manufacturing deduction benefit
|
|
|
(3.0
|
)
|
|
|
(3.0
|
)
|
|
|
(3.0
|
)
|
Other differences
|
|
|
.1
|
|
|
|
(.2
|
)
|
|
|
(.3
|
)
|
Effective income tax rate
|
|
|
34.3
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
As of April 29, 2017, the gross amount of unrecognized tax benefits was $1.7 million and $66,000 was recognized as a tax benefit in Fiscal 2017. If we were to prevail on all uncertain tax positions, the net effect would be to reduce our tax expense by approximately $1.2 million. A reconciliation of the changes in the gross amount of unrecognized tax benefits, which amounts are included in other liabilities in the accompanying consolidated balance sheets, is as follows:
|
|
(In thousands)
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Beginning balance
|
|
$
|
1,678
|
|
|
$
|
1,801
|
|
|
$
|
2,123
|
|
Increases due to current period tax positions
|
|
|
150
|
|
|
|
145
|
|
|
|
122
|
|
Decreases due to lapse of statute of limitations and audit resolutions
|
|
|
(85
|
)
|
|
|
(268
|
)
|
|
|
(444
|
)
|
Ending balance
|
|
$
|
1,743
|
|
|
$
|
1,678
|
|
|
$
|
1,801
|
|
We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of April 29, 2017, unrecognized tax benefits included accrued interest of $239,000, of which approximately $12,000 was recognized as a tax benefit in Fiscal 2017.
We file annual income tax returns in the United States and in various state and local jurisdictions. A number of years may elapse before an uncertain tax position, for which we have unrecognized tax benefits, is resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our unrecognized tax benefits reflect the most probable outcome. We adjust these unrecognized tax benefits, as well as the related interest, in light of changing facts and circumstances. The resolution of any particular uncertain tax position could require the use of cash and an adjustment to our provision for income taxes in the period of resolution. Federal income tax returns for fiscal years subsequent to 2013 are subject to examination. Generally, the income tax returns for the 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 with the interests of the shareholders.
The 1991 Omnibus Incentive Plan (the “Omnibus Plan”) provides for compensatory awards consisting of (i) stock options or stock awards for up to 4,800,000 shares of common stock, (ii) stock appreciation rights, 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 is limited to 1,680,000 during any year. Awards may be granted for no cash consideration or such minimal cash consideration as may be required by law. Options generally have an exercise price equal to the fair market value of our common stock on the date of grant, vest over a five-year period and expire after ten years.
The Special Stock Option Plan provides for the issuance of stock options to purchase up to an aggregate of 1,800,000 shares of common stock. Options may be granted for such consideration as determined by the Board of Directors. The vesting schedule and exercise price of these options are tied to the recipient’s ownership level of common stock and the terms generally allow for the reduction in exercise price upon each vesting period. Also, the Board of Directors authorized the issuance of options to purchase up to 50,000 shares of common stock to be issued at the direction of the Chairman.
The Key Employee Equity Partnership Program (“KEEP Program”) provides for the granting of stock options to purchase up to 240,000 shares of common stock to key employees, consultants, directors and officers. Participants who purchase shares of stock in the open market receive grants of stock options equal to 50% of the number of shares purchased, up to a maximum of 6,000 shares in any two-year period. Options under the KEEP Program are 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 grant. The fair value of stock options is amortized to expense over the vesting period. No stock options were granted in Fiscal 2017, 3,500 shares were granted in Fiscal 2016 and 276,800 shares in Fiscal 2015. The weighted average Black-Scholes fair value assumptions for stock options granted are as follows: weighted average expected life of 8.0 years for Fiscal 2016 and 7.4 years for Fiscal 2015; weighted average expected volatility of 29.0% for Fiscal 2016 and 32.8% for Fiscal 2015; weighted average risk free interest rates of 2.1% for Fiscal 2016 and 2.2% for Fiscal 2015; and expected dividend yield of 3.3% for Fiscal 2016 and 4.6% for Fiscal 2015. The expected life of stock options was estimated based on historical experience. The expected volatility was estimated based on historical stock prices for a period consistent with the expected life of stock options. The risk free interest rate was based on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of stock options. Forfeitures were estimated based on historical experience and ranged in values up to 16% for Fiscal 2017 and Fiscal 2016.
The following is a summary of stock option activity for Fiscal 2017:
|
|
Number of
Shares
|
|
|
Price
(a)
|
|
Options outstanding, beginning of year
|
|
|
418,895
|
|
|
$
|
12.44
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(27,400
|
)
|
|
|
13.31
|
|
Cancelled
|
|
|
(7,900
|
)
|
|
|
16.01
|
|
Options outstanding, end of year
|
|
|
383,595
|
|
|
|
11.47
|
|
Options exercisable, end of year
|
|
|
215,803
|
|
|
|
9.64
|
|
_______________________________
(a)
Weighted average exercise price.
Stock-based compensation expense was $208,000 for Fiscal 2017, $228,000 for Fiscal 2016 and $307,000 for Fiscal 2015. The total fair value of shares vested was $362,000 for Fiscal 2017, $652,000 for Fiscal 2016 and $371,000 for Fiscal 2015. The total intrinsic value for stock options exercised was $1,506,000 for Fiscal 2017, $5,161,000 for Fiscal 2016 and $917,000 for Fiscal 2015. Net cash proceeds from the exercise of stock options were $365,000 for Fiscal 2017, $848,000 for Fiscal 2016 and $228,000 for Fiscal 2015. Stock based income tax benefits aggregated $495,000 for Fiscal 2017, $1,528,000 for Fiscal 2016 and $240,000 for Fiscal 2015. The weighted average fair value for stock options granted was $20.09 for Fiscal 2016 and $8.30 for Fiscal 2015.
As of April 29, 2017, unrecognized compensation expense related to the unvested portion of our stock options was $425,000, which is expected to be recognized over a weighted average period of 3.9 years. The weighted average remaining contractual term and the aggregate intrinsic value for options outstanding as of April 29, 2017 was 5.5 years and $29.6 million, respectively. The weighted average remaining contractual term and the aggregate intrinsic value for options exercisable as of April 29, 2017 was 4.7 years and $17 million, respectively.
We have a stock purchase plan which provides for the purchase of up to 1,536,000 shares of common stock by employees who (i) have been employed for at least two years, (ii) are not part-time employees and (iii) are not owners of five percent or more of our common stock. As of April 29, 2017, no shares have been issued under the plan.
9.
PENSION PLANS
The Company contributes to certain pension plans under collective bargaining agreements and to a discretionary profit sharing plan. Annual contributions (including contributions to multi-employer plans reflected below) were $3.1 million for Fiscal 2017, $2.9 million for Fiscal 2016 and $2.7 million for Fiscal 2015.
The Company participates in three multi-employer defined benefit pension plans with respect to certain collective bargaining agreements. If the Company chooses to stop participating in the multi-employer plan or if other employers choose to withdraw to the extent that a mass withdrawal occurs, the Company could be required to pay the plan a withdrawal liability based on the underfunded status of the plan. During Fiscal 2017, a subsidiary of the Company reached a settlement with respect to a notification of withdrawal liability by one of the multi-employer pension plans not considered significant. The settlement did not have a material effect on its financial position or results of operations.
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 2017 and Fiscal 2016 is for the plans’ years ending December 31, 2015 and 2014, respectively.
|
|
PPA Zone Status
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
|
|
|
Surcharge
|
|
Pension Fund
|
|
2017
|
|
|
2016
|
|
|
FIP/RP Status
|
|
|
Imposed
|
|
Central States, Southeast and Southwest
Areas Pension Plan (EIN no. 36-6044243)
(the “CSSS Fund”)
|
|
Red
|
|
|
Red
|
|
|
Implemented
|
|
|
Yes
|
|
Western Conference of Teamsters Pension
Trust Fund (EIN no. 91-6145047)
(the “WCT Fund”)
|
|
Green
|
|
|
Green
|
|
|
Not applicable
|
|
|
No
|
|
For the plan years ended December 31, 2015 and December 31, 2014, the Company was not listed in the Form 5500 Annual Returns as providing more than 5% of the total contributions for the above plans. The collective bargaining agreements for employees in the CSSS Fund and the WCT Fund expire on October 18, 2021 and May 14, 2021, respectively
.
The Company’s contributions for all multi-employer pension plans for the last three fiscal years are as follow:
|
|
(In thousands)
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
Pension Fund
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
CSSS Fund
|
|
$
|
1,262
|
|
|
$
|
1,172
|
|
|
$
|
1,103
|
|
WCT Fund
|
|
|
477
|
|
|
|
485
|
|
|
|
637
|
|
Other multi-employer pension funds
|
|
|
201
|
|
|
|
448
|
|
|
|
306
|
|
Total
|
|
$
|
1,940
|
|
|
$
|
2,105
|
|
|
$
|
2,046
|
|
10.
|
COMMITMENTS AND CONTINGENCIES
|
We lease buildings, machinery and equipment under various non-cancelable operating lease agreements expiring at various dates through 2026. Certain of these leases contain scheduled rent increases and/or renewal options. Contractual rent increases are taken into account when calculating the minimum lease payment and recognized on a straight-line basis over the lease term. Rent expense under operating lease agreements totaled $12.0 million for Fiscal 2017, $9.2 million for Fiscal 2016 and $8.2 million for Fiscal 2015.
Our minimum lease payments under non-cancelable operating leases as of April 29, 2017 were as follows:
|
|
(In thousands)
|
|
Fiscal 2018
|
|
$
|
8,216
|
|
Fiscal 2019
|
|
|
7,546
|
|
Fiscal 2020
|
|
|
6,168
|
|
Fiscal 2021
|
|
|
3,520
|
|
Fiscal 2022
|
|
|
1,904
|
|
Thereafter
|
|
|
2,922
|
|
Total minimum lease payments
|
|
$
|
30,276
|
|
As of April 29, 2017, we guaranteed the residual value of certain leased equipment in the amount of $2.5 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 does not expect to incur a loss on such guarantee.
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 April 29, 2017, we had purchase commitments for raw materials of $12.7 million through 2021.
As of April 29, 2017, we had purchase commitments for plant and equipment of $2.6 million for Fiscal 2018.
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 of operations.
11.
QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
(In thousands, except per share amounts)
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
Fiscal 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
217,108
|
|
|
$
|
203,180
|
|
|
$
|
194,564
|
|
|
$
|
212,066
|
|
Gross profit
|
|
|
85,494
|
|
|
|
78,717
|
|
|
|
75,920
|
|
|
|
85,946
|
|
Net income
|
|
|
28,995
|
|
|
|
24,604
|
|
|
|
24,285
|
|
|
|
29,161
|
|
Earnings per common share – basic
|
|
$
|
.62
|
|
|
$
|
.53
|
|
|
$
|
.52
|
|
|
$
|
.63
|
|
Earnings per common share – diluted
|
|
$
|
.62
|
|
|
$
|
.53
|
|
|
$
|
.52
|
|
|
$
|
.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
185,386
|
|
|
$
|
178,678
|
|
|
$
|
161,687
|
|
|
$
|
179,034
|
|
Gross profit
|
|
|
62,899
|
|
|
|
60,621
|
|
|
|
52,552
|
|
|
|
65,365
|
|
Net income
|
|
|
17,113
|
|
|
|
15,312
|
|
|
|
11,236
|
|
|
|
17,537
|
|
Earnings per common share – basic
|
|
$
|
.37
|
|
|
$
|
.33
|
|
|
$
|
.24
|
|
|
$
|
.37
|
|
Earnings per common share – diluted
|
|
$
|
.37
|
|
|
$
|
.33
|
|
|
$
|
.24
|
|
|
$
|
.37
|
|
12.
SUBSEQUENT EVENT
On May 5, 2017, the Company declared a special cash dividend of $1.50 per share to shareholders of record on June 5, 2017. The cash dividend of $69.9 million will be paid on or before August 4, 2017.