The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements
Notes to Consolidated Financial Statements
National Beverage Corp. develops, produces, markets and sells a distinctive portfolio of sparkling waters, juices, energy drinks and carbonated soft drinks primarily in the United States and Canada. 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. The fiscal year ended April 30, 2022 (Fiscal 2022) and fiscal year ended May 1, 2021 (Fiscal 2021) consisted of 52 weeks. The fiscal year ended May 2, 2020 (Fiscal 2020) consisted of 53 weeks.
Cash and Equivalents
Cash and equivalents are comprised of cash and highly liquid securities (consisting primarily of bank deposits and short-term government money-market investments).
Derivative Financial Instruments
Derivative financial instruments which are used to partially mitigate our exposure to changes in certain raw material costs are recorded at fair value. Derivative financial instruments are not used 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. The estimated fair values of derivative financial instruments are calculated based on market rates to settle the instruments.
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 276,000 shares in Fiscal 2022, 340,000 shares in Fiscal 2021, and 400,000 shares in Fiscal 2020.
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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. Goodwill and intangible assets not subject to amortization are evaluated for impairment annually or sooner if management believes such assets may be impaired. An impaired asset is written down to its estimated fair market value based on discounted future cash flows.
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
The Company maintains self-insured and deductible programs for certain liability, medical and workers’ compensation exposures. Accordingly, the Company accrues 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 30, 2022, and May 1, 2021, other liabilities included accruals of $5.9 million, for estimated non-current risk retention exposures, of which $4.6 million, was covered by insurance at both dates and included as a component of non-current other assets.
Intangible Assets
Intangible assets at April 30, 2022 and May 1, 2021 consisted of non-amortizable acquired trademarks.
Inventories
Inventories are stated at the lower of first-in, first-out cost or market. Adjustments, if required, to reduce the cost of inventory to market (net realizable value) are made for estimated excess, obsolete or impaired balances. Inventories at April 30, 2022 were comprised of finished goods of $58.6 million and raw materials of $44.7 million. Inventories at May 1, 2021 were comprised of finished goods of $43.3 million and raw materials of $28.2 million.
Marketing Costs
The Company utilizes 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 $47.6 million in Fiscal 2022, $43.4 million in Fiscal 2021 and $54.8 million in Fiscal 2020.
Property, Plant and Equipment
Property, plant and equipment is 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 5 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 is recognized 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. The Company estimates and reserves for bad debt exposure based on our experience with past due accounts, collectability and our analysis of customer data.
Various sales incentive arrangements are offered 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.
Segment Reporting
The Company operates 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.
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 $87.7 million in Fiscal 2022, $75.5 million in Fiscal 2021 and $69.8 million in Fiscal 2020. 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.
Trade Receivables
Trade receivables are recorded at net realizable value, which includes an estimated allowance for doubtful accounts. The Company extends 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. The Company continually monitors our exposure to credit losses and maintains allowances for anticipated losses based on our experience with past due accounts, collectability and our analysis of customer data. Actual future losses from uncollectible accounts could differ from the Company’s estimate. Changes in the allowance for doubtful accounts were as follows:
| | (In thousands) | |
| | Fiscal 2022 | | | Fiscal 2021 | | | Fiscal 2020 | |
Balance at beginning of year | | $ | 1,140 | | | $ | 1,350 | | | $ | 516 | |
Net (credit) charge to expense | | | (581 | ) | | | (138 | ) | | | 893 | |
Net charge-off | | | - | | | | (72 | ) | | | (59 | ) |
Balance at end of year | | $ | 559 | | | $ | 1,140 | | | $ | 1,350 | |
At April 30, 2022 and May 1, 2021, the Company had no customer that comprised more than 10% of trade receivables. No customer accounted for more than 10% of net sales during any of the last three fiscal years.
Use of Estimates
The preparation of our financial statements in conformity with GAAP 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 at April 30, 2022 and May 1, 2021 consisted of the following:
| | (In thousands) | |
| | 2022 | | | | 20201 | |
Land | | $ | 9,835 | | | $ | 9,835 | |
Buildings and improvements | | | 65,697 | | | | 62,346 | |
Machinery and equipment | | | 277,163 | | | | 257,119 | |
Total | | | 352,695 | | | | 329,300 | |
Less accumulated depreciation | | | (208,437 | ) | | | (198,273 | ) |
Property, plant and equipment – net | | $ | 144,258 | | | $ | 131,027 | |
Depreciation expense was $15.8 million for Fiscal 2022, $14.8 million for Fiscal 2021 and $14.4 million for Fiscal 2020.
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Accrued liabilities at April 30, 2022 and May 1, 2021 consisted of the following:
| | (In thousands) | |
| | 2022 | | | 2021 | |
Accrued compensation | | $ | 12,079 | | | $ | 11,826 | |
Accrued promotions | | | 10,826 | | | | 13,361 | |
Accrued freight | | | 3,729 | | | | 3,653 | |
Accrued insurance | | | 2,778 | | | | 2,519 | |
Recycling deposits | | | 5,497 | | | | 7,522 | |
Other | | | 4,181 | | | | 4,670 | |
Total | | $ | 39,090 | | | $ | 43,551 | |
The Company has entered into various non-cancelable operating lease agreements for certain of our offices, buildings, machinery and equipment expiring at various dates through January 2029. The Company does not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. Lease agreements generally do not contain material residual value guarantees or material restrictive covenants. Operating lease cost was $14.5 million in Fiscal 2022 and $13.1 million in Fiscal 2021. The weighted-average remaining lease term and weighted average discount rate of operating leases was 4.0 years and 3.08%, respectively as of April 30, 2022 and 3.06 years and 3.38%, respectively as of May 1, 2021. Net cash provided by operations was impacted by $6.0 million for operating leases for the year ended April 30, 2022 and $11.1 million for the year ended May 1, 2021.
The following is a summary of future minimum lease payments and related liabilities for all non-cancelable operating leases as of April 30, 2022:
| | (In thousands) | |
Fiscal 2023 | | $ | 11,315 | |
Fiscal 2024 | | | 8,300 | |
Fiscal 2025 | | | 5,346 | |
Fiscal 2026 | | | 3,397 | |
Fiscal 2027 | | | 2,325 | |
Thereafter | | | 2,524 | |
Total minimum lease payments including interest | | | 33,207 | |
Less: Amounts representing interest | | | (1,961 | ) |
Present value of minimum lease payments | | | 31,246 | |
Less: Current portion of lease liabilities | | | (10,543 | ) |
Non-Current portion of operating lease liabilities | | $ | 20,703 | |
At April 30, 2022, a subsidiary of the Company maintained unsecured revolving credit facilities with banks aggregating $100 million (the Credit Facilities). The Credit Facilities expire from April 30, 2023 to October 28, 2024 and any borrowings would currently bear interest at 1.05% above the Secured Overnight Financing Rate (SOFR). There were no borrowings outstanding under the Credit Facilities at April 30, 2022 or May 1, 2021. At April 30, 2022, $2.5 million of the Credit Facilities was reserved for standby letters of credit and $97.5 million was available for borrowings.
On December 21, 2021, a subsidiary of the Company entered into an unsecured revolving term loan facility with a national bank aggregating $50 million (the “Loan Facility”). The Loan Facility expires December 31, 2023 and borrowings bear interest at .95% above the adjusted daily SOFR. Since closing the Loan Facility, $50 million was borrowed and $30 million remains outstanding at April 30, 2022. At April 30, 2022, the interest rate was 1.35%.
The Credit Facilities and Loan Facility 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 30, 2022, the Company was in compliance with all loan covenants.
6. | CAPITAL STOCK AND TRANSACTIONS WITH RELATED PARTIES |
The Company paid a special cash dividend on Common Stock of approximately $280 million on each of December 29, 2021 and January 29, 2021 at $3.00 per share.
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 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, who, acting as a unit, provide management, administrative and creative functions for the Company.
CMA and the Company are joint owners of a corporate aircraft and pursuant to a joint ownership agreement, each party agreed to pay certain expenses associated with the use of the aircraft. During the past three years, the joint operating costs have averaged approximately $970 thousand per year and the Company’s lease payments for its ownership interest have averaged approximately $550 thousand per year.
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 or its personnel. The Board of Directors on various occasions contemplated incentive compensation to CMA, however, since the inception of this agreement, no incentive compensation has been paid. We incurred management fees to CMA of $11.4 million for Fiscal 2022, $10.7 million for Fiscal 2021 and $10.0 million for Fiscal 2020. Included in current liabilities were amounts due CMA of $4.0 million at April 30, 2022 and $3.8 million at May 1, 2021.
7. | DERIVATIVE FINANCIAL INSTRUMENTS |
From time to time, the Company enters 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 cash flow hedges. Accordingly, gains or losses 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 following summarizes the gains (losses) recognized in the consolidated statements of income and AOCI:
| | (In thousands) | |
| | Fiscal | | | Fiscal | | | Fiscal | |
| | 2022 | | | 2021 | | | 2020 | |
Recognized in AOCI- | | | | | | | | | | | | |
Gain (loss) before income taxes | | $ | 15,105 | | | $ | 12,973 | | | $ | (9,613 | ) |
Less income tax provision (benefit) | | | 3,613 | | | | 3,103 | | | | (2,299 | ) |
Net | | | 11,492 | | | | 9,870 | | | | (7,314 | ) |
Reclassified from AOCI to cost of sales- | | | | | | | | | | | | |
Gain (loss) before income taxes | | | 10,001 | | | | 2,550 | | | | (4,786 | ) |
Less income tax provision (benefit) | | | 2,391 | | | | 610 | | | | (1,145 | ) |
Net | | | 7,610 | | | | 1,940 | | | | (3,641 | ) |
Net change to AOCI | | $ | 3,882 | | | $ | 7,930 | | | $ | (3,673 | ) |
As of April 30, 2022, the notional amount of our outstanding aluminum swap contracts was $57.7 million and, assuming no change in the commodity prices, $8.7 million of unrealized gain before tax will be reclassified from AOCI and recognized as a reduction of cost of sales over the next 12 months.
As of April 30, 2022, the fair value of the derivative asset was $8.8 million, which was included in prepaid and other assets. As of May 1, 2021, the fair value of the derivative asset was $3.6 million, which was included in prepaid and other assets. 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 for income taxes consisted of the following:
| | (In thousands) | |
| | Fiscal | | | Fiscal | | | Fiscal | |
| | 2022 | | | 2021 | | | 2020 | |
Current | | $ | 42,555 | | | $ | 51,520 | | | $ | 40,647 | |
Deferred | | | 6,529 | | | | 2,471 | | | | (1,164 | ) |
Total | | $ | 49,084 | | | $ | 53,991 | | | $ | 39,483 | |
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 30, 2022 and May 1, 2021 consisted of the following:
| | (In thousands) | |
| | 2022 | | | 2021 | |
Deferred tax assets: | | | | | | | | |
Accrued expenses and other | | $ | 3,306 | | | $ | 3,347 | |
Inventory and amortizable assets | | | 325 | | | | 544 | |
Total deferred tax assets | | | 3,631 | | | | 3,891 | |
Deferred tax liabilities: | | | | | | | | |
Property | | | 23,863 | | | | 18,814 | |
Intangibles and other | | | 3,591 | | | | 2,371 | |
Total deferred tax liabilities | | | 27,454 | | | | 21,185 | |
Net deferred tax liabilities | | $ | 23,823 | | | $ | 17,294 | |
The reconciliation of the statutory federal income tax rate to our effective tax rate is as follows:
| | Fiscal | | | Fiscal | | | Fiscal | |
| | 2022 | | | 2021 | | | 2020 | |
Statutory federal income tax rate | | | 21.0% | | | | 21.0% | | | | 21.0% | |
State income taxes, net of federal benefit | | | 2.9 | | | | 2.9 | | | | 2.9 | |
Other differences | | | ( .3) | | | | (.2) | | | | (.6) | |
Effective income tax rate | | | 23.6% | | | | 23.7% | | | | 23.3% | |
As of April 30, 2022, the gross amount of unrecognized tax benefits was $2.1 million and $8 thousand was recognized as tax expense in Fiscal 2022. If the Company is to prevail on all uncertain tax positions, the net effect would be to reduce our tax expense by approximately $1.9 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 | |
| | 2022 | | | 2021 | | | 2020 | |
Beginning balance | | $ | 2,055 | | | $ | 1,974 | | | $ | 1,868 | |
Increases due to current period tax positions | | | 114 | | | | 150 | | | | 120 | |
Decreases due to lapse of statute of limitations and audit resolutions | | | (90 | ) | | | (69 | ) | | | (14 | ) |
Ending balance | | $ | 2,079 | | | $ | 2,055 | | | $ | 1,974 | |
Accrued interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense. As of April 30, 2022, unrecognized tax benefits included accrued interest of $248 thousand of which approximately $10 thousand was recognized as tax expense in Fiscal 2022.
Annual income tax returns are filed in the United States and in various state and local jurisdictions. A number of years may elapse before an uncertain tax position, for which the Company has unrecognized tax benefits, are resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax positions, the Company believes that unrecognized tax benefits reflect the most probable outcome. The Company adjusts 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 years subsequent to Fiscal 2016 are subject to examination. Generally, the income tax returns for the various state jurisdictions are subject to examination for years ending after Fiscal 2015.
The Company has been named in certain legal proceedings, including those containing derivative and class action allegations. The Company is vigorously defending all legal proceedings and believes litigation will not have a material adverse effect on the Company’s financial position, cash flows or results of operations.
10. | STOCK-BASED COMPENSATION |
Our stock-based compensation program is a broad-based program designed to attract and retain personnel while also aligning participants’ 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 9,600,000 shares of common stock, (ii) stock appreciation rights, dividend equivalents, other stock-based awards in amounts up to 9,600,000 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 3,360,000 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 3,600,000 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 100,000 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 480,000 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 12,000 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.
Stock options are accounted for 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. Stock options for 30,000 shares were granted in Fiscal 2022 and 266,500 shares in Fiscal 2021. No stock options were issued in Fiscal 2020. The weighted average Black-Scholes fair value assumptions for stock options granted were as follows: weighted average expected life of 6.5 years for Fiscal 2022 and 7.2 years for Fiscal 2021; weighted average expected volatility of 20.74% for Fiscal 2022 and 19.36% for Fiscal 2021; weighted average risk free interest rates of 1.22% for Fiscal 2022 and 3.85% for Fiscal 2021; and expected dividend yield of 2.48% for Fiscal 2022 and 1.3% for Fiscal 2021. 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.
The following is a summary of stock option activity for Fiscal 2022:
| | Number of Shares | | | Price (a) | |
Options outstanding, beginning of year | | | 561,100 | | | $ | 17.74 | |
Granted | | | 30,000 | | | | 44.73 | |
Exercised | | | (36,500 | ) | | | 9.19 | |
Cancelled | | | (18,000 | ) | | | 33.01 | |
Options outstanding, end of year | | | 536,600 | | | | 18.97 | |
Options exercisable, end of year | | | 303,740 | | | | 4.46 | |
(a) Weighted average exercise price.
Stock-based compensation expense was $695,000 for Fiscal 2022, $462,000 for Fiscal 2021 and $126,000 for Fiscal 2020.
The total intrinsic value for stock options exercised was $1.4 million for Fiscal 2022, $1.9 million for Fiscal 2021 and $4.9 million for Fiscal 2020. Net cash proceeds from the exercise of stock options were $335,000 for Fiscal 2022, $491,000 for Fiscal 2021 and $740,000 for Fiscal 2020. Stock based income tax benefits aggregated $283,000 for Fiscal 2022, $382,000 for Fiscal 2021, and $974,000 for Fiscal 2020. The weighted average fair value for stock options granted was $44.73 for Fiscal 2022.
As of April 30, 2022, unrecognized compensation expense related to the unvested portion of stock options was $3.0 million, which is expected to be recognized over a remaining weighted average period of 6.2 years. The weighted average remaining contractual term and the aggregate intrinsic value for options outstanding as of April 30, 2022 was 4.2 years and $10.8 million, respectively. The weighted average remaining contractual term and the aggregate intrinsic value for options exercisable as of May 1, 2021 was 4.9 years and $16.9 million, respectively.
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 $4.0 million for Fiscal 2022, $3.7 million for Fiscal 2021 and $3.6 million for Fiscal 2020.
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.
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 2022 and Fiscal 2021 is for the plans’ years ending December 31, 2020 and 2019, respectively.
| | PPA Zone Status | | | | | | | |
Pension Fund | | Fiscal 2022 | | | Fiscal 2021 | | | FIP/RP Status | | | Surcharge 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, 2020 and December 31, 2019, 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, 2026 and May 14, 2024, 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 | | 2022 | | | 2021 | | | 2020 | |
CSSS Fund | | $ | 1,462 | | | $ | 1,469 | | | $ | 1,424 | |
WCT Fund | | | 817 | | | | 746 | | | | 799 | |
Other multi-employer pension funds | | | 181 | | | | 166 | | | | 185 | |
Total | | $ | 2,460 | | | $ | 2,381 | | | $ | 2,408 | |
12. | COMMITMENTS AND CONTINGENCIES |
The Company enters 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 30, 2022, the Company had purchase commitments for raw materials of $19.7 million through 2025.
As of April 30, 2022, the Company had purchase commitments for plant and equipment of $4.1 million anticipated to be completed in Fiscal 2024.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of National Beverage Corp.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of National Beverage Corp. (the Company) as of April 30, 2022, and May 1, 2021, and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended April 30, 2022, and the related notes (collectively, the financial statements). We also have audited the Company’s internal control over financial reporting as of April 30, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of April 30, 2022 and May 1, 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended April 30, 2022, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 30, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
Basis for Opinions
The Company'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 the Company's financial statements and an opinion on the company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Self-Insurance Accruals
As described in Note 1 to the consolidated financial statements, the Company maintains self-insured and deductible programs for workers’ compensation exposures. The Company accrues for known claims and estimated incurred but not reported claims not otherwise covered by insurance based on actuarial assumptions and historical claims experience. While a third party actuary is employed to advise the Company, estimating workers’ compensation exposure is inherently uncertain, as estimates are generally derived using a variety of actuarial estimation techniques that are dependent upon assumptions and expectations about future events, many of which are difficult to quantify. As of April 30, 2022 and May 1, 2021, other liabilities included accruals of $5.9 million and $5.9 million, respectively, for estimated non-current risk retention exposures, of which $4.6 million was covered by insurance at both dates.
We identified the evaluation of the Company’s self-insurance accruals as a critical audit matter due to the significant judgments made by management in estimating the workers’ compensation liability. Auditing management’s judgments used in estimating the value of the workers’ compensation liability involved a high degree of auditor judgment and increased audit effort, including the use of our actuarial specialist.
Our audit procedures related to the Company’s self-insurance accrual assessment included the following, among others:
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We obtained an understanding of the relevant controls related to the Company’s workers’ compensation liability, and tested such controls for design and operating effectiveness, including controls related to management’s review of the significant assumptions. |
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We tested the underlying data, including historical claims and payroll data, which served as the basis for the assumptions used by the third party actuary in the actuarial analysis, to test that the inputs to the actuarial estimates were accurate and complete. |
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We compared payments made in the current year for prior year claims to prior year recorded reserves. |
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With the assistance of our actuarial specialist, we evaluated the propriety of the reserving techniques utilized for the workers’ compensation exposures. |
/s/ RSM US LLP
We have served as the Company's auditor since 2006.
Fort Lauderdale, Florida
June 29, 2022