Tomorrow… Team National Speaks Cool & Hot Brand New Big Flavor 8,365 Feet High View from the Mountaintop Financial Review The Numbers Make the Story bigFLAVOR A National Beverage Publication Strawberr y Watermelon Raspberr y Lemonade RedPop Chillin’ Cherr y Punch Candy Apple Grape Strawberr y Raspberr y Black Currant Red Grape Stain F l a v o Moon Mist Blue Wild Blackberr y Rush Triple Berr y Cotton Candy Ruby Red Grapefruit Strawberr y Banana Bubble Gum Peach Fling Orange Pineapple Sparkling Orange Premium Papaya Mandarin Orange Mango Blue Ice Tiki Blue Lemonade Grapefruit Piña Colada Pineapple Diet White Grape r l i c i o u s ! It’s no wonder National Beverage Corp. has been dubbed ‘America’s Flavor Choice!’ Kiwi-Strawberry, Pineapple, Rock & Rye, Diet Key Lime Pie—these are just a few of the unique and delicious flavors included in our Shasta and Faygo lines of soft drinks. Combined, the two brands have commanded consumer loyalty for more than 200 years! Of course, health-conscious and taste-loving consumers thirst for our luscious juices and revitalizing flavored and spring water products. Mandarin Orange Mango, Wild Berr y, Raspberr y, Peach Fling, Premium Papaya, and Orange Carrot are par t of an assor tment of refreshing flavors formulated to satisfy the most discriminating palate. Flavorlicious…National Beverage defined! Diet Key Lime Pie Moon Mist Frosh Sparkling Lemon-Lime French Vanilla Cola Rah-Rah Root Beer Diet Chocolate Crème Rock & Rye Sparkling Cherr y Black Cherr y Cranberr y Tomato Diet Raspberr y Crème T h e r e ’ s N o L i m e T h e r e ’ s N o L i m e t h e P r e s e n t t h e P r e s e n t L i k e L i k e W i t h O t h e r i t h O t h e r F l a v o r F l a v o r a t u r a l a l N a t u r Na t u ra l l y F l a v o r e d Na t u ra l l y F l a v o r e d L i m e So d a L i m e So d a View A from 8,365 feet Feature Article on Page 10 04 Conversation with Team National An insight into the fun, spirit, innovation and future of National Beverage Corp. by Team National. 07 Financial Highlights View and compare highlights from 1999 through the present. 08 Cool & Hot—Brand New Big Flavor What’s new and exciting? From sizzling campaigns to butt-smackin’ fun. 10 View from the Mountaintop Ascend to the peak and exhume the enrichment of philosophy at National Beverage Corp. 13 Financials The Numbers Make the Story. bigFLAVOR Editor-in-Chief Nick A. Caporella Managing Editor Joseph G. Caporella Revenue Director Dean A. McCoy Publisher Margaret M. Madden Copy Editor Grace A. Keene Design Director Cindy B. Gildersleeve Product Contributing Director Brent R. Bott Research Editor Gregory J. Kwederis Laughter is the music of the soul ... BF: Nick, you and your team imagine, we agonized about the rev- other brand can do what we did seem incredibly excited. enue reduction that resulted from our with...’Bad’ Shasta Rita? Our fun- What’s up? decision, but I’m pleased that the flavored lime soda in a BIG 3 liter growth of our core branded soft package is novel and sparks a stimulus drinks, Shasta and Faygo, has more than offset the decline in allied for Moms to bring it home, not only for its trusted Shasta flavor/taste...but branded volume and revenues. for a fun-sparked setting at the dinner NAC: Big flavor! Big news! Big expectations! We’re doing big things in spite of a chaotic business climate. FY2003 was a year of Big Change for us—a year in which we experi- enced a metamorp hosis of sorts that has fueled our passion and reaffirmed our strategic course. We wandered I can say without reservation...we are on track to building growth through new brand extension development...like ClearFruit, Shasta Shortz and Frutika. table. Shasta is unique in the develop- ment of specialty flavors...Right, Sandy? SES: That’s for sure. In fact, our newly expanded Tiki flavor line and our French Vanilla Cola, regular and diet, have put us in great standing with our retailers. I will not mention names here, but we have significantly ‘off-course’ a few years ago and a BF: Well, you’ve got my atten- great thing happened...our tough tion. Tell us a little about these economy and low-priced allied brand great new products. pricing created a re-focus. We are a sales and marketing company NAC: Sure. One new product we’re particularly excited about is Shasta increased sales in the flavor category with one of my retailers. So much so, and needed to be jolted into reality... Shortz—it’s “made for kids by kids!” that a giant cola company went from Our Brands are Our Company. We developed new great flavors of number 2 to number 3...with our fla- We are extremely excited about brand extension development, new media marketing creative and bold packag- ing for new products. This is the first time in our existence that so much potential existed at the start of a new fiscal year’s first quarter. behind all of this? NAC: Sometimes choices are made for the short term...that is, revenues Shasta, put them in 8-oz cans with vors taking the number 2 position. This ‘cool’ graphics and developed a was a win/win for everyone except ‘fridge’ pack just for kids. Brian was that cola company. out there ‘pounding the pavement’ introducing Shortz to national retail accounts before we even began pro- I am really anxious to see how our Frutika is doing in the test market. duction. How are sales of Shasta BF: What’s Frutika? Shortz doing with regard to your MJB: Frutika is a fantastic fruit nectar product that we created ‘from scratch’ BMG: Nick, I can’t even begin to tell you how much fun we’ve had with and totally developed within the past six months. We have eight delicious the Shortz project and how happy I flavors with levels of sweetness and BF: What was the catalyst expectations, Brian? come easier through a method and am with preliminary results. My own viscosity formulated to appeal to the so it becomes okay to do...after all, kids love the pair of ‘shorts’ on the Hispanic market. Instead of packaging we have to do more volume, right? cans, not to mention the shorts ‘color- Frutika in cans, as most nectars are Shockingly, a wake-up call can come in the middle of an afternoon...Right, Joe? ing book’ inside the carton and the fun sold, we sell Frutika in convenient plas- website at www.shastashortz.com. tic bottles with bold and appealing We’re already receiving significant graphics. This package was made for JGC: Absolutely. Nick is correct repeat orders from some large national the single-serve, cold box consumer. that FY2003 was a special chains and I’m proud to say that We are currently test-marketing Frutika year, in spite of some obstacles. Shortz is currently exceeding our in Chicago and will hopefully begin I’m confident we made the correct expectations. decision to walk away from large retail allied branded (private label) business. Margins on these products were already at our minimum accept- able level and the retailers involved were hammering us to reduce our pricing even further. As you can MJB: Nick, let me interject by talking about how well-received Shortz has been by the large regional accounts in southern California that I’ve been distribution in Miami and California, locations that contain large Hispanic populations. Nick, I understand that you’ve been working on some creative marketing for Frutika. calling on. I can’t wait until both Shasta Shortz and Frutika are fully NAC: Frutika is such a great product that we need to do all we can to boost integrated into our system. And what consumer awareness. We’ve developed Tomorrow ... Team National Speaks Big Flavor recently chatted with Nick Caporella (NAC), Chairman and CEO of National Beverage Corp., along with other key National Beverage team members: Joe Caporella (JGC), President of National Beverage Corp.; Stan Sheridan (SMS), President of Faygo Beverages; Sandy Salzberg (SES), President of Shasta, Inc.; Mike Bahr (MJB), EVP of Shasta West and Brian Gaggin (BMG), EVP of National Retail Brands. 04 CONVERSATION WITH TEAM NATIONAL NATIONAL BEVERAGE CORP. 05 May 3, 2003 $500.4 17.6 .96 79.8 2.4x 218.2 1.5 143.3 Fiscal Year Ended April 27, April 28, April 29, May 1, 2002 2001 2000 1999 $502.8 $480.4 $426.3 $402.1 16.6 .91 70.2 15.0 .82 62.4 13.6 .74 54.9 13.2 .71 57.5 2.3x 2.1x 1.9x 2.2x 205.7 11.0 125.7 203.9 24.1 108.5 197.8 180.4 33.9 93.7 40.3 82.0 derovalfyllarut a n retawgnilkraps egareveb television commercials, billboards and already love these recent diet offer- operations of our company for the (dollars in millions, except per share amounts) Highlights point-of-sale material that are absolute ings. Additionally, new ads focus on last decade, particularly with regard attention-getters! They are different, a our top-selling 20-ounce single-serve to sales functions, and I am proud to little ‘over the top’, but mostly fun and bottles and the most requested Faygo have witnessed his maturity into a designed to get our target audience, drink, RedPop. As an aside, the entire seasoned and astute leader. He has males in the age group of 20-35, to Faygo family was recently honored assumed additional responsibilities try this great beverage. to commemorate our commitment to all across the ‘corporate front’. BF: It sounds like you have really stepped up your market- ing efforts. NAC: This is a huge part of the ‘metamorphosis’ that I mentioned our Detroit home by unveiling a new façade of our bottling facility. Faygo moved into this facility in 1935, 28 years after Faygo was founded. Our dedication ceremony became a media event and was well-attended BF: Congratulations, Joe. It sounds like you have a lot of work to do. JGC: Well, I am so grateful to Nick, the Board of Directors and all of Team earlier. It’s been a fun and rewarding by city and state dignitaries and loyal National for the confidence and trust experience to lead our creative efforts in new marketing and media initia- tives. Whether working on an ‘edgy’ television commercial for Faygo or a media blitz to introduce Frutika to the Chicago test market, the ‘flavor’ of our company certainly shines through. Faygo fans. BF: Nick, you speak of Team National with a genuine devo- tion...how so? NAC: The success of National Beverage rests completely with our they have placed in me. It’s wonderful to be part of this great company and I am committed to magnify National Beverage’s success. Stan, Mike, Sandy, Brian and I, and all of our other National Beverage team members, are proud of our accomplishments I can’t tell you how much I enjoyed talented, determined and loyal team. and have set challenging targets to helping to create the cartoon and We are so fortunate that we have create an exciting future. Isn’t that butt-smackin’ lyrics for our Shasta numerous employees that have been what an encore is about? Shortz radio commercial. Shortz with the National Beverage family for dynamic packaging motivated us to come up with energetic and creative publicity. And just wait until you see the Frutika ads! BF: Based on your level of excitement, it’s going to be hard to wait! Now, you also mentioned marketing for Faygo. Can Stan fill us in with what’s happening with our favorite Midwestern brand? SMS: Well, in addition to the televi- sion ad that Nick mentioned, we’ve had success with radio and print ads that tout our newest flavors—Diet Key Lime Pie and Diet Coconut Cream Pie. We try to introduce at least two new flavors every year, and consumers 06 CONVERSATION WITH TEAM NATIONAL decades. Our people give their all to make our company ‘great’. An integral part of my philosophy and recipe for success is to acknowledge employees that have done outstanding BF: Well, your company and its people are quite impressive. Nick, can you sum up your thoughts on National Beverage Corp.’s prospects. jobs. Some of the individuals that received special recognition this year NAC: National Beverage is at the cusp of a new launch. Our metamor- were Sandy Salzberg, who was ele- phosis also includes flight...maybe vated to the position of President at our new wings will take us to heights Shasta, Inc. and Bill Phillips, who was before now unachievable. recently made President of National BevPak, the company responsible for all Shasta manufacturing operations. With talent and passion to navigate with—and our brands and balance sheet as fuel...I promise that the thrill Another strategic decision for our com- of the trip will equal the magic of pany was made in September, when the destination. our Board of Directors named my son, Joe, President of National Beverage. Joe has been involved in the day-to-day Step aboard and come along... Net Sales Net Income Net Income per Share—Basic Working Capital Current Ratio Total Assets Total Debt Total Equity Where Beverages Are Sold in the U.S. Volume Cases(1) % of Total Supermarket Fountain/Restaurant Vending Mass Merchandiser/ Supercenter/Drug Convenience/Gas Warehouse Club 3,840 2,320 1,730 1,010 700 500 38% 23% 17% 10% 7% 5% Total 10,100 100% (1) in millions of 192 oz. cases Source: Beverage Digest/Fact Book 2003 National Beverage’s ‘Hybrid Distribution System’ is positioned to serve multiple channels within a diverse industry. BRAND NEW BIG FLAVOR What’s so cool that kids everywhere are asking for it? What’s Hot enough to inspire an advertising campaign that sizzles? The answers to both questions are found in big new and exciting products from National Beverage! cool…Kids of all ages love the bold graphics, delicious flavors and ideal size of Shasta Shortz. ‘Short’ 8-ounce cans contain just enough Bubble Gum, Red Grape Stain, Cotton Candy, Camo Orange Crème, Rah-Rah Root Beer and Chillin’ Cherry Punch flavored soft drinks to quench a kid’s thirst for butt-smackin’ taste and fun. Hot…Warm beaches, zesty foods, and the sweet and rich flavor of Frutika nectars appeal to the fast- growing Hispanic population. Consumers love the pleasing ‘mouth-feel’ and luscious flavors (Pear, Peach, Mango, Guava, Apricot, Papaya, Strawberry-Banana and Pineapple-Coconut) of Frutika. Also, a hot and innovative advertising campaign that includes ‘unconventional’ television commercials, radio ads and billboards is capturing attention in various test markets. Preliminary results show that Frutika, in its convenient 12-oz plastic bottle, is a ‘hit’ with both traditional nectar drinkers and a new generation of nectar lovers. Made by a kid... for a kid! ® Cool &Hot Brand New Big Flavor Providing Big Flavor for EVERYONE…that’s what we do best at National Beverage. Moms, teens, kids…even those with dietary restrictions…are devoted to great-tasting 08 COOL & HOT National Beverage products. From the time-tested flavor of Faygo RedPop to the brand new, big flavor of Frutika Strawberry-Banana, National Beverage is America’s Flavor Choice! NATIONAL BEVERAGE CORP. 09 We at National Beverage are absolutely dedicated to the theory (our philosophy) that at the very core of each result achieved...lives the inspiration of the challenge...to which we were once committed. “These are not trite words or a political mission statement to stare at, but a true and honest description of our Coat of Arms,” stated Joe Caporella, President of National Beverage Corp. “Each strategic move or simple proposal has been confronted by our philosophy and executed mentally until it survives or dies. The ones that survive become commitments attested to by our income statement and bal- ance sheet,” continued the smiling president. “These past couple of years of watching businesses struggle in this tough economy really heightens my commitment to our philosophy,” boasts Bill Phillips, chief of View Does challenge inspire one from 8,365 feet A to ‘simulate’ a previously untried task...until it becomes a routine result? We believe it does! to realize how tough and smart one has to be...to continuously ‘outdo’ your pre- vious achievements. I don’t care who you are, it is an impossible challenge to have a mandate to continuously succeed. Now...add to this man- date...’that you will succeed in any undertaking, with any business, regardless of the atmosphere at the time’! If that is called the ‘challenge of challenges’...well, I am truly blessed to have a mentor who throughout his life has been the master of response to challenge...my best friend—my father,” Joe Caporella stated. “Team National is a rare and special group of people! The passion for what we do can- not be ignited with a paycheck. We are cocooned within a philosophy that is a pro- jectile aimed at our target...its thrust pro- vided by the challenge of our goals. Our commitment to stay the course is fueled by the fact that we limit ourselves to only one choice...the choice to succeed. We get paid to feel good...everything else Team National does is...by instinct,” Joe concluded, beam- ing with a glow of pride! National Beverage’s manufacturing opera- tions. “The corruption, failures and punishing regulations were the result of a great boom period when ‘short-term results’ prioritized all other strategic thinking. We, the leader- ship of Team National, make and made the ‘right’ decisions for the year or years to come. Those decisions that were made for the next quarter only, are being read about in the Journal...in the obituary column,” con- tinued Phillips. “I was here when National acquired Shasta. I lived this story...I witnessed firsthand how a profound philosophy rewards ...not just by survival, but with humbling pride and respect,” Phillips concluded with his contagious sparkle. “I, too, reflect with deep appreciation the discipline it takes to do what National Beverage did. If one applied reasonable logic to the events existing at the time of birth and followed closely the incubation years—the outcome was nearly miraculous,” stated the CEO of a packaging vendor who has supplied National Beverage over the years. “Most who come into contact with me...know that I truly admire the man who started this company. It goes without saying that I love my father, but as I mature through my expe- riences and grow as a man...I have come 10 VIEW FROM THE MOUNTAINTOP NATIONAL BEVERAGE CORP. 11 Introducing La Croix. The sparkling flirtation of fruit and water. Light. Refreshing. Naturally flavored with Lemon, Lime, Berry, Cran Raspberry, Orange or Pure. No Calories. No Artificial Sweeteners. No Sodium. The Numbers Make the Story 14 Selected Financial Data 15 Management’s Discussion and Analysis of Financial Condition and Results of Operations 18 Consolidated Balance Sheets 19 Consolidated Statements of Income 20 Consolidated Statements of Shareholders’ Equity 21 Consolidated Statements of Cash Flows 22 Notes to Consolidated Financial Statements 27 Report of Independent Certified Public Accountants 28 Market Information NATIONAL BEVERAGE CORP. 13 Selected Financial Data (In thousands, except per share amounts) Statement of Income Data: Net sales Cost of sales Gross profit Selling, general and administrative expenses Interest expense Other income—net Income before income taxes Provision for income taxes Net income Net income per share(2): Basic Diluted Balance Sheet Data: Working capital Property—net Total assets Long-term debt Deferred income taxes Shareholders’ equity Fiscal Year Ended May 3, 2003(1) April 27, 2002 April 28, 2001 April 29, 2000 May 1, 1999 $500,430 $502,778 $480,415 $426,269 $402,108 335,457 339,041 323,743 286,245 268,844 164,973 136,902 316 706 28,461 10,872 163,737 156,672 140,024 133,264 136,925 131,852 120,104 110,246 857 867 26,822 10,270 2,110 1,506 24,216 9,236 2,789 4,754 21,885 8,302 3,304 1,323 21,037 7,868 $ 17,589 $ 16,552 $ 14,980 $ 13,583 $ 13,169 $ .96 .92 $ $ .91 .87 $ .82 .80 $ .74 .71 .71 .68 $ 79,785 $ 70,164 $ 62,444 $ 54,907 $ 57,504 60,432 218,195 300 14,843 143,292 60,658 62,215 62,430 56,103 205,685 203,868 197,754 180,404 10,981 12,072 24,136 10,208 125,677 108,488 33,933 8,011 93,686 40,267 8,344 82,005 (1) Fiscal 2003 consisted of 53 weeks. (2) Basic net income per share is computed by dividing earnings applicable to common shares by the weighted average number of shares outstanding. Diluted net income per share includes the dilutive effect of stock options. 14 NATIONAL BEVERAGE CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview Results of Operations National Beverage Corp. develops, manufactures, markets and distributes Net Sales a complete portfolio of quality non-alcoholic beverage products throughout Net sales for fiscal 2003 were relatively flat when compared to fiscal 2002. the United States. Incorporated in Delaware in 1985, National Beverage Beginning in the latter part of fiscal 2002, we implemented a strategy to Corp. is a holding company for various operating subsidiaries. When used grow our branded portfolio of products with less emphasis placed on lower in this report, the terms “we,” “us,” “our,” “Company” and “National margin allied branded soft drink products. During fiscal 2003, growth of Beverage” mean National Beverage Corp. and its subsidiaries. our flagship soft drink brands, Shasta and Faygo, mitigated the reduction Our lines of multi-flavored soft drinks, including those of our flagship brands, Shasta(cid:2) and Faygo(cid:2), emphasize distinctive flavor variety. In addi- tion, we offer an assortment of premium beverages geared toward the health-conscious consumer, including Everfresh(cid:2), Home Juice(cid:2), and Mr. Pure(cid:2) 100% juice and juice-based products; and LaCROIX(cid:2), Mt. Shasta(cid:3), Crystal Bay(cid:2) and ClearFruit(cid:2) flavored and spring water products. We also produce specialty products, including VooDoo Rain(cid:2), a line of alternative bever- ages geared toward young consumers, Ohana(cid:2) fruit-flavored drinks and St. Nick’s(cid:2) holiday soft drinks. Substantially all of our brands are produced in 14 manufacturing facilities that are strategically located in major metro- politan markets throughout the continental United States. To a lesser extent, we develop and produce soft drinks for retail grocery chains, warehouse clubs, mass-merchandisers and wholesalers (“allied brands”) as well as soft drinks for other beverage companies. Our Company’s strategy emphasizes the growth of our branded prod- ucts by offering a beverage portfolio of proprietary flavors; by supporting the franchise value of regional brands; by developing and acquiring inno- vative products tailored toward healthy lifestyles; and by appealing to the “quality-price” sensitivity factor of the family consumer. We believe that the “regional share dynamics” of our brands possess consumer loyalty in our allied branded business. Net sales for fiscal 2002 increased approximately $22.4 million, or 4.7%, to $502.8 million. This sales growth was due primarily to increased pricing in certain markets, increased volume of National Beverage’s branded soft drinks, and sales of the Ritz and Crystal Bay brands acquired in September 2000. This improvement was partially offset by changes in product mix and the elimination of certain lower margin allied branded business. Gross Profit Gross profit approximated 33.0% of net sales for fiscal 2003 and 32.6% for fiscal 2002. This improvement was due to an increase in higher margin business and a reduction in fixed manufacturing costs related to the phase out of two less efficient leased production facilities. These improvements were partially offset by increases in certain raw material costs. Gross profit for fiscal 2002, which approximated 32.6% of net sales, increased 4.5%, to $163.7 million. Gross profit was favorably affected by the improved pricing mentioned above and the effect of volume growth on fixed manufacturing costs, partially offset by increased costs and changes in product mix. within local markets and generate more aggressive retailer sponsored Selling, General and Administrative Expenses promotional activities. Selling, general and administrative expenses increased as a percentage Over the last several years, we have focused on increasing penetration of net sales to 27.4% for fiscal 2003 compared to 27.2% of net sales for of our brands in the convenience channel through Company-owned and fiscal 2002. The increase as a percentage of net sales was due to higher independent distributors. The convenience channel is composed of con- selling and distribution expenses related to changes in product and distri- venience stores, gas stations and other smaller “up-and-down-the-street” bution mix. accounts. Because of the higher retail prices and margins that typically Selling, general and administrative expenses for fiscal 2002 were prevail, we have undertaken specific measures to expand distribution in $136.9 million or 27.2% of net sales compared to $131.9 million or this channel. These include development of products specifically targeted to this market, such as VooDoo Rain, ClearFruit, Everfresh, Mr. Pure, Ritz(cid:2) and Crystal Bay. Additionally, we have created proprietary and specialized 27.4% of net sales for fiscal 2001. The dollar increase was primarily due to higher distribution and selling costs related to increased sales volume. The decline as a percent of net sales reflects the effect of higher volume packaging for these products with distinctive graphics. We intend to con- on fixed expenses. tinue our focus on enhancing growth in the convenience channel through both specialized packaging and innovative product development. Beverage industry sales are seasonal with the highest volume typically realized during the summer months. Additionally, our operating results are subject to numerous factors, including fluctuations in the costs of raw materials, changes in consumer preference for beverage products and competitive pricing in the marketplace. Interest Expense and Other Income—Net Fiscal 2003 and 2002 interest expense decreased $541,000 and $1.3 million, respectively, due to a reduction in average outstanding debt and interest rates. Other income includes interest income of $816,000 for fiscal 2003, $1.1 million for fiscal 2002, and $1.6 million for fiscal 2001. The decline in interest income is due to a reduction in investment yields. NATIONAL BEVERAGE CORP. 15 Management’s Discussion and Analysis of Financial Condition and Results of Operations Income Taxes and accrued liabilities increased as a result of the sales growth while the Our effective tax rate was approximately 38.2% for fiscal 2003, 38.3% decline in accounts payable was related to the timing of certain vendor for fiscal 2002, and 38.1% for fiscal 2001. The difference between the payments. At April 27, 2002, the current ratio was 2.3 to 1 compared to effective rate and the federal statutory rate of 35% was primarily due to 2.1 to 1 for the prior year. the effects of state income taxes and other nondeductible expenses. See Note 8 of Notes to Consolidated Financial Statements. Liquidity and Financial Condition Capital Resources Liquidity We periodically evaluate capital projects designed to expand capacity and improve efficiency at our manufacturing facilities. We presently have no material commitments for capital expenditures and expect that fiscal 2004 capital expenditures will be comparable to fiscal 2003. Our current sources of capital are cash flow from operations and borrow- In January 1998, the Board of Directors authorized the purchase of up ings under existing credit facilities. We maintain unsecured revolving credit to 800,000 shares of National Beverage common stock. In fiscal 2003 and facilities aggregating $45 million of which approximately $42 million was 2002, we purchased 18,250 shares and 23,900 shares, respectively, and available for future borrowings at May 3, 2003. We believe that existing aggregate shares purchased since January 1998 were 484,060. capital resources are sufficient to meet our capital requirements and those Pursuant to a management agreement, we incurred a fee to Corporate of the parent company for the foreseeable future. Management Advisors, Inc. (“CMA”) of approximately $5.0 million for Cash Flows During fiscal 2003, we generated cash of $36.0 million from operating activities, which was partially offset by $8.6 million expended for investing activities and $9.7 million expended for financing activities. Cash provided by operating activities for fiscal 2003 increased $12.6 million compared fiscal 2003, $5.0 million for fiscal 2002, and $4.8 million for fiscal 2001. At May 3, 2003, we owed $1.3 million to CMA for unpaid fees. See Note 7 of Notes to Consolidated Financial Statements. Changes in Accounting Standards to fiscal 2002 primarily due to an increase in cash provided by net income We adopted Statement of Financial Accounting Standards (“SFAS”) No. 144 and a reduction in net working capital requirements. Cash used in invest- “Accounting for the Impairment or Disposal of Long-Lived Assets” during ing activities increased $1.5 million due to an increase in property additions the first quarter of fiscal 2003. The adoption of SFAS No. 144 did not while cash used in financing activities decreased $3.6 million primarily have a material impact on our financial position or operating results. due to a reduction in net debt repayments. We adopted SFAS No. 148 “Accounting for Stock-Based Compensation During fiscal 2002, National Beverage generated cash of $23.4 million —Transition and Disclosure” during the fourth quarter of fiscal 2003. This from operating activities, which was partially offset by $7.1 million expended statement amends the disclosure requirements of SFAS No. 123 and pro- for investing activities and $13.2 million expended for financing activities. vides alternative methods of transition for a voluntary change to the fair Cash provided by operating activities for fiscal 2002 increased $1.9 million value based method of accounting for stock-based employee compensation. compared to fiscal 2001 primarily due to an increase in cash provided by The adoption of SFAS No. 148 did not have a material impact on our net income and other liabilities. Cash used in investing activities decreased financial position or operating results. $2.9 million due to a decline in cash used for acquisitions while cash used in financing activities increased $2.9 million primarily due to an increase Critical Accounting Policies in net debt repayments. Financial Position The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates During fiscal 2003, our working capital increased $9.6 million to $79.8 and assumptions that affect the amounts reported in the financial state- million from $70.2 million primarily due to cash generated from operations. ments and accompanying notes. Although these estimates are based on The decrease in inventory is related to a reduction in allied branded inven- management’s knowledge of current events and actions it may undertake tory and the decrease in prepaid and other is partly due to a decline in in the future, they may ultimately differ from actual results. We believe that income tax refund receivables. The accounts payable increase was related the critical accounting policies described in the following paragraphs affect to the timing of certain vendor payments. At May 3, 2003, the current the most significant estimates and assumptions used in the preparation of ratio was 2.4 to 1 compared to 2.3 to 1 for the prior year. our consolidated financial statements. For these policies, we caution that During fiscal 2002, our working capital improved to $70.2 million from future events rarely develop exactly as estimated, and the best estimates $62.4 million primarily due to cash generated from operations, an increase routinely require adjustment. in current assets, and a reduction in accounts payable. Trade receivables 16 NATIONAL BEVERAGE CORP. (continued) Credit Risk Commission and other reports to our stockholders. Certain statements We sell products to a variety of customers and extend credit based on an including, without limitation, statements containing the words “believes,” evaluation of the customer’s financial condition, generally without requiring “anticipates,” “intends,” “expects,” and “estimates” constitute “forward- collateral. Exposure to losses on receivables varies by customer principally looking statements” and involve known and unknown risk, uncertainties due to the financial condition of each customer. We monitor our exposure and other factors that may cause the actual results, performance or achieve- to credit losses and maintain allowances for anticipated losses. ments of our Company to be materially different from any future results, 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 infor- mation available. Estimated fair market value is generally measured by discounting future cash flows. Goodwill and intangible assets not subject to amortization are evaluated for impairment annually or sooner in accord- ance with SFAS No. 142 and an impairment loss is recognized if the carrying amount is greater than its fair value. Income Taxes 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 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 Annual Report. 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. Our effective income tax rate and the tax bases of assets and liabilities are Quantitative and Qualitative Disclosures About Market Risk 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 when it is deemed, more likely than not, that the benefit of deferred tax assets will not be realized. Commodities We purchase various raw materials, including aluminum cans, plastic bottles, high fructose corn syrup, and various juice concentrates, prices of which fluctuate based on commodity market conditions. Our ability to recover increased costs through higher pricing may be limited by the com- Insurance Programs petitive environment in which we operate. 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 other- wise covered by insurance, based on actuarial assumptions and historical claims experience. Forward-Looking Statements Interest Rates At the end of fiscal 2003, we had $1,450,000 of floating-rate term-debt outstanding. If the interest rate changed by 100 basis points (1%), interest expense for fiscal 2003 would have changed by approximately $60,000. Because of our limited exposure to interest rate movements, we do not utilize interest rate swaps or other interest rate hedging products. Our investment portfolio is comprised of highly liquid securities consist- National Beverage and its representatives may from time to time make ing primarily of short-term money market instruments, the yields of which written or oral statements that are “forward-looking” within the meaning fluctuate based largely on short-term Treasury rates. If the yield of these of the Private Securities Litigation Reform Act of 1995, including statements instruments had changed by 100 basis points (1%), interest income for contained in this Annual Report, filings with the Securities and Exchange fiscal 2003 would have changed by approximately $500,000. NATIONAL BEVERAGE CORP. 17 Consolidated Balance Sheets As of May 3, 2003 and April 27, 2002 (In thousands, except share amounts) Assets Current assets: Cash and equivalents Trade receivables—net of allowances of $562 (2003) and $593 (2002) Inventories Deferred income taxes Prepaid and other Total current assets Property—net Goodwill Intangible assets—net Other assets Liabilities and Shareholders’ Equity Current liabilities: Accounts payable Accrued liabilities Income taxes payable Current maturities of long-term debt Total current liabilities Long-term debt Deferred income taxes Other liabilities Shareholders’ equity: Preferred stock, 7% cumulative, $1 par value, aggregate liquidation preference of $15,000—1,000,000 shares authorized; 150,000 shares issued; no shares outstanding Common stock, $.01 par value—authorized 50,000,000 shares; issued 22,250,202 shares (2003) and 22,209,312 shares (2002); outstanding 18,235,418 shares (2003) and 18,212,778 shares (2002) Additional paid-in capital Retained earnings Treasury stock—at cost: Preferred stock—150,000 shares Common stock—4,014,784 shares (2003) and 3,996,534 shares (2002) Total shareholders’ equity See accompanying Notes to Consolidated Financial Statements. 2003 2002 $ 60,334 $ 42,646 41,031 28,695 1,678 4,685 42,955 31,040 1,616 5,621 136,423 123,878 60,432 13,145 2,011 6,184 60,658 13,145 2,043 5,961 $218,195 $205,685 $ 34,969 $ 30,819 18,657 1,862 1,150 56,638 300 14,843 3,122 150 223 21,020 1,875 — 53,714 10,981 12,072 3,241 150 222 16,818 143,846 16,526 126,257 (5,100) (12,645) (5,100) (12,378) 143,292 125,677 $218,195 $205,685 18 NATIONAL BEVERAGE CORP. Consolidated Statements of Income For the Fiscal Years Ended May 3, 2003, April 27, 2002 and April 28, 2001 (In thousands, except per share amounts) Net sales Cost of sales Gross profit Selling, general and administrative expenses Interest expense Other income—net Income before income taxes Provision for income taxes Net income Net income per share— Basic Diluted Average common shares outstanding— Basic Diluted See accompanying Notes to Consolidated Financial Statements. 2003 2002 2001 $500,430 $502,778 $480,415 335,457 339,041 323,743 164,973 136,902 316 706 28,461 10,872 163,737 156,672 136,925 131,852 857 867 26,822 10,270 2,110 1,506 24,216 9,236 $ 17,589 $ 16,552 $ 14,980 $ $ .96 .92 $ $ .91 .87 $ $ .82 .80 18,400 19,060 18,212 18,992 18,160 18,840 NATIONAL BEVERAGE CORP. 19 Consolidated Statements of Shareholders’ Equity For the Fiscal Years Ended May 3, 2003, April 27, 2002 and April 28, 2001 (In thousands, except share amounts) Preferred Stock Beginning and end of year Common Stock Beginning of year Stock options exercised End of year Additional Paid-In Capital Beginning of year Stock options exercised End of year Retained Earnings Beginning of year Net income End of year Treasury Stock—Preferred Beginning and end of year Treasury Stock—Common Beginning of year Purchase of common stock End of year Total Shareholders’ Equity See accompanying Notes to Consolidated Financial Statements. 2003 2002 2001 Shares Amount Shares Amount Shares Amount 150,000 $ 150 150,000 $ 150 150,000 $ 150 22,209,312 40,890 22,250,202 222 1 223 22,134,612 221 22,117,332 74,700 1 17,280 22,209,312 222 22,134,612 221 — 221 16,526 292 16,818 126,257 17,589 143,846 15,638 888 16,526 109,705 16,552 126,257 15,556 82 15,638 94,725 14,980 109,705 150,000 (5,100) 150,000 (5,100) 150,000 (5,100) 3,996,534 (12,378) 3,972,634 (12,126) 3,939,034 (11,866) 18,250 (267) 23,900 (252) 33,600 (260) 4,014,784 (12,645) 3,996,534 (12,378) 3,972,634 (12,126) $143,292 $125,677 $108,488 20 NATIONAL BEVERAGE CORP. Consolidated Statements of Cash Flows For the Fiscal Years Ended May 3, 2003, April 27, 2002 and April 28, 2001 (In thousands) Operating Activities: Net income Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization Deferred income tax provision Loss on sale of assets Changes in assets and liabilities, net of acquisitions: Trade receivables Inventories Prepaid and other assets Accounts payable Accrued and other liabilities, net Net cash provided by operating activities Investing Activities: Property additions Proceeds from sale of assets Acquisitions, net of cash acquired Net cash used in investing activities Financing Activities: Debt repayments Borrowings (payments) on line of credit, net Purchase of common stock Proceeds from stock options exercised Net cash used in financing activities Net Increase in Cash and Equivalents Cash and Equivalents—Beginning of Year Cash and Equivalents—End of Year Other Cash Flow Information: Interest paid Income taxes paid See accompanying Notes to Consolidated Financial Statements. 2003 2002 2001 $17,589 $ 16,552 $ 14,980 11,319 2,709 110 1,924 2,345 (1,834) 4,150 (2,324) 11,750 11,739 1,581 203 2,329 95 (1,887) (1,948) 707 (2,180) (6,832) 3,463 786 (4,002) 92 (2,604) 35,988 23,357 21,467 (8,936) (7,162) (6,049) 312 — 72 — 28 (3,979) (8,624) (7,090) (10,000) (9,531) — (267) 122 (9,155) (4,000) (252) 161 (9,106) (1,000) (260) 42 (9,676) (13,246) (10,324) 17,688 42,646 3,021 1,143 39,625 38,482 $60,334 $ 42,646 $ 39,625 $ 336 $ 935 $ 2,450 7,863 6,671 10,616 NATIONAL BEVERAGE CORP. 21 Notes to Consolidated Financial Statements 1. Significant Accounting Policies Impairment of Long-Lived Assets Organization National Beverage Corp. develops, manufactures, markets and distributes a complete portfolio of multi-flavored soft drinks, juice drinks, water and specialty beverages throughout the United States. Incorporated in Delaware in 1985, National Beverage Corp. is a holding company for various oper- ating subsidiaries. When used in this report, the terms “we,” “us,” “our,” “Company” and “National Beverage” mean National Beverage Corp. and its subsidiaries. Basis of Presentation The consolidated financial statements include the accounts of the Company and all subsidiaries. All significant intercompany balances have been elim- inated. Our fiscal year ends the Saturday closest to April 30th and, as a result, a 53rd week is added every five or six years. Fiscal 2003 consists of 53 weeks while fiscal 2002 and fiscal 2001 consist of 52 weeks. Cash and Equivalents 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 infor- mation available. Estimated fair market value is generally measured by discounting future cash flows. Goodwill and intangible assets not subject to amortization are evaluated for impairment annually or sooner in accord- ance with SFAS No. 142 and an impairment loss is recognized if the carrying amount is greater than its fair value. Income Taxes Our effective income tax rate and the tax bases of assets and liabilities are 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 when it is deemed, more Cash and equivalents are comprised of cash and highly liquid securities likely than not, that the benefit of deferred tax assets will not be realized. (consisting primarily of short-term money-market investments) with an origi- nal maturity or redemption option of three months or less. Changes in Accounting Standards Insurance Programs We maintain self-insured and deductible programs for certain liability, medical and workers’ compensation exposures. Accordingly, we accrue We adopted Statement of Financial Accounting Standards (“SFAS”) No. 144 for known claims and estimated incurred but not reported claims not other- “Accounting for the Impairment or Disposal of Long-Lived Assets” during wise covered by insurance, based on actuarial assumptions and historical the first quarter of fiscal 2003. The adoption of SFAS No. 144 did not have claims experience. a material impact on our financial position or operating results. We adopted SFAS No. 148 “Accounting for Stock-Based Compensation —Transition and Disclosure” during the fourth quarter of fiscal 2003. This statement amends the disclosure requirements of SFAS No. 123 and pro- vides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The adoption of SFAS No. 148 did not have a material impact on our financial position or operating results. Credit Risk We sell products to a variety of customers and extend credit based on an evaluation of the customer’s financial condition, generally without requiring collateral. Exposure to losses on receivables 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. At May 3, 2003 and April 27, 2002, we did not have any customers that comprised Inventories Inventories are stated at the lower of first-in, first-out cost or market. Inven- tories at May 3, 2003 are comprised of finished goods of $16,288,000 and raw materials of $12,407,000. Inventories at April 27, 2002 are comprised of finished goods of $17,531,000 and raw materials of $13,509,000. Marketing Costs We are involved in a variety of marketing programs, including cooperative advertising programs with customers, which advertise and promote our products to consumers. Marketing costs are expensed when incurred, except for prepaid advertising and production costs of future media advertising. Total marketing costs, which are included in selling, general and adminis- trative expenses, were $39.4 million in fiscal 2003, $40.3 million in fiscal 2002, and $39.4 million in fiscal 2001. more than 10% of trade receivables. No one customer accounted for more Net Income Per Share than 10% of net sales for fiscal 2003, 2002 or 2001. Basic net income per share is computed by dividing net income by the Fair Value of Financial Instruments The fair values of financial instruments are estimated based on market rates. The carrying amounts of financial instruments reflected in the balance sheets approximate their fair values. weighted average number of common shares outstanding. Diluted net income per share includes the dilutive effect of stock options. 22 NATIONAL BEVERAGE CORP. (continued) Property “Accounting and Disclosure of Stock-Based Compensation” (“SFAS 123”) Property is recorded at cost. Depreciation is computed by the straight-line for awards granted after December 15, 1994, as if the Company had method over estimated useful lives of 7 to 30 years for buildings and accounted for its stock-based awards to employees under the fair value improvements, and 3 to 15 years for machinery and equipment. When method of SFAS 123. The fair value of stock option grants was estimated assets are retired or otherwise disposed, the cost and accumulated depreci- using a Black-Scholes option-pricing model with the following assumptions ation are removed from the respective accounts and any related gain or used for grants: expected life of 10 years; volatility factor of 42% for fiscal loss is recognized. Maintenance and repair costs are charged to expense 2003, 43% for 2002, and 45% for 2001; risk-free interest rates of approxi- as incurred, and renewals and improvements that extend the useful lives of mately 4% for fiscal 2003, 5% for 2002, and 5% for 2001; and no dividend assets are capitalized. Revenue Recognition Revenue from product sales is recognized when title and risk of loss passes to the customer, which generally occurs upon delivery. Sales Incentives We offer various sales incentive arrangements to our customers, which are accounted for as a charge against sales. Many of these arrangements are based on annual and quarterly volume targets that are recorded based on expected amounts to be paid. Under certain arrangements, advanced payments are made to customers, which are deferred and amortized based on the contractual unit volume or the straight-line method over the lesser of the period of benefit or the non-cancelable period of the contract. It is payments. Had compensation cost for our option plans been determined and recorded consistent with the Black-Scholes option-pricing model in accordance with SFAS 123, net income and earnings per share for fiscal 2003, 2002 and 2001 would have been reduced on a pro forma basis by less than $200,000 and $.01 per share for each year. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assump- tions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. our policy to periodically review and evaluate the future benefits associated with these costs to determine that deferral and amortization is justified. 2. Acquisitions Unamortized costs associated with remaining periods of one year or less In September 2000, we acquired certain operations and assets of Beverage are included in prepaid and other, while all other amounts are included Canners International, Inc., a Miami-based producer and distributor of soft in other assets. Segment Reporting We operate as a single operating segment for purposes of presenting financial information and evaluating performance. As such, the accompa- nying consolidated financial statements present financial information in a format that is consistent with the internal financial information used by management. Shipping and Handling Costs drinks and sparkling waters. The assets acquired included a leased manu- facturing facility, inventory, and the Ritz(cid:2) and Crystal Bay(cid:2) brands. The acquisition has been accounted for using the purchase method of account- ing and, accordingly, the purchase price has been allocated to the assets acquired based upon their estimated fair values at the date of acquisition. Operating results of the acquired business, which are not material to consolidated results, have been included in the consolidated statements of income from the date of acquisition. Shipping and handling costs are reported in selling, general and adminis- 3. Property trative expenses in the accompanying statements of income. Such costs aggregated $40.6 million in fiscal 2003, $39.7 million in fiscal 2002, and Property at May 3, 2003 and April 27, 2002 consisted of the following: $37.0 million in fiscal 2001. Stock-Based Compensation We apply Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations, in accounting for stock-based awards to employees. Under APB 25, we gen- erally recognize no compensation expense with respect to such awards (In thousands) Land Buildings and improvements Machinery and equipment Total Less accumulated depreciation unless the exercise price of options granted is less than the market price Property—net on the date of grant. 2003 2002 $ 10,625 $ 10,625 36,331 102,832 35,437 98,195 149,788 144,257 (89,356) (83,599) $ 60,432 $ 60,658 Pro forma information regarding net income and earnings per share is required by Statement of Financial Accounting Standards No. 123, Depreciation expense was $8,740,000 for fiscal 2003, $8,444,000 for fiscal 2002, and $7,996,000 for fiscal 2001. NATIONAL BEVERAGE CORP. 23 Notes to Consolidated Financial Statements 4. Intangible Assets In accordance with SFAS No. 142 adopted in the first quarter of fiscal 2002, we discontinued the amortization of goodwill and certain intangible assets that were determined to have an indefinite life. Had we applied the non-amortization provisions of SFAS No. 142 at the beginning of fiscal 2001, net income would have increased by $361,000 (approximately $.02 per share). Intangible assets at May 3, 2003 and April 27, 2002 July 31, 2004 and bears interest at the bank’s reference rate or 11⁄4% above LIBOR, at the subsidiary’s election. Debt at May 3, 2003 matures as follows: $1,150,000 in fiscal 2004 and $300,000 in fiscal 2005. Debt agreements require subsidiaries to maintain certain financial ratios and contain other restrictions, none of which are expected to have a material impact on our operations or financial position. At May 3, 2003, retained earnings of approximately $28 million were restricted from distri- bution and we were in compliance with all loan covenants. Unamortized trademarks $ 1,587 $ 1,587 consist of the following: (In thousands) Amortizable distribution rights and other Less accumulated amortization Net Total—net 2003 2002 7. Capital Stock and Transactions with Related Parties 882 (458) 424 855 (399) 456 In January 1998, the Board of Directors authorized the purchase of up to 800,000 shares of National Beverage common stock. In fiscal 2003 and 2002, we purchased 18,250 shares and 23,900 shares, respectively, and aggregate shares purchased since January 1998 were 484,060. Such $ 2,011 $ 2,043 shares are classified as treasury stock. National Beverage is a party to a management agreement with Corporate Amortization expense related to intangible assets was $59,000 for fiscal Management Advisors, Inc. (“CMA”), a corporation owned by the 2003, $57,000 for fiscal 2002, and $144,000 for fiscal 2001. 5. Accrued Liabilities Accrued liabilities at May 3, 2003 and April 27, 2002 consisted of the Company’s Chairman and Chief Executive Officer. Under the agreement, the employees of CMA provide our Company with corporate finance, strategic planning, business development and other management services for an annual base fee equal to one percent of consolidated net sales, plus incentive compensation based on certain factors to be determined by the Compensation Committee of our Company’s Board of Directors. We following: (In thousands) Accrued promotions Accrued compensation Other accrued liabilities Total 6. Debt 2003 2002 incurred fees to CMA of $5.0 million for fiscal 2003, $5.0 million for fiscal $ 6,881 $ 7,307 5,063 6,713 5,487 8,226 $18,657 $21,020 2002, and $4.8 million for fiscal 2001. No incentive compensation has been incurred or approved under the management agreement since its inception. Included in accounts payable at May 3, 2003 and April 27, 2002 were amounts due CMA of $1,297,000 and $1,258,000, respectively. 8. Income Taxes The provision for income taxes consists of the following: Debt at May 3, 2003 and April 27, 2002 consisted of the following: (In thousands) Term Loan Facility Other Total 2003 2002 $ 1,450 $10,900 — 81 $ 1,450 $10,981 (In thousands) Current Deferred Total 2003 2002 2001 $ 8,163 $ 8,689 $6,907 2,709 1,581 2,329 $10,872 $10,270 $9,236 Certain subsidiaries maintain unsecured revolving credit facilities aggre- gating $45 million (the “Credit Facilities”) and an unsecured term loan facility (“Term Loan Facility”) with banks. The Credit Facilities expire through December 10, 2004 and bear interest at 1⁄2% below the banks’ reference rate or 1% above LIBOR, at the subsidiaries’ election. At May 3, 2003, approximately $42 million was available for future borrowings under the Credit Facilities. The Term Loan Facility is repayable in installments through The reconciliation of the statutory federal income tax rate to our effective tax rate is as follows: 2003 2002 2001 Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit Permanent differences Effective income tax rate 2.9 .3 2.6 .7 2.5 .6 38.2% 38.3% 38.1% 24 NATIONAL BEVERAGE CORP. (continued) Deferred taxes are recorded to give recognition to temporary differences issued under stock based awards to an individual is limited to 700,000 between the tax bases of assets or liabilities and their reported amounts in during any year. Awards may be granted for no cash consideration or the financial statements. Valuation allowances are established when it is such minimal cash consideration as may be required by law. Options gen- deemed, more likely than not, that the benefit of deferred tax assets will not erally vest over a five-year period and expire after ten years. be realized. Our deferred tax assets and liabilities as of May 3, 2003 and Pursuant to a Special Stock Option Plan, National Beverage has author- April 27, 2002 consisted of the following: ized the issuance of options to purchase up to an aggregate of 500,000 (In thousands) Deferred tax assets: Accrued expenses and other Inventory and amortizable assets Total deferred tax assets Deferred tax liabilities: Property, intangibles and other Net deferred tax liabilities 2003 2002 $ 2,428 $ 1,857 415 452 2,843 2,309 16,008 12,765 $13,165 $10,456 9. Incentive and Retirement Plans The 1991 Omnibus Incentive Plan (the “Omnibus Plan”) provides for com- pensatory awards consisting of (i) stock options or stock awards for up to 2,000,000 shares of common stock, (ii) stock appreciation rights, dividend equivalents, other stock-based awards in amounts up to 2,000,000 shares of common stock and (iii) performance awards consisting of any combina- tion of the above. The Omnibus Plan is designed to provide an incentive to the officers (including those who are also directors) and certain other key employees and consultants of our Company 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 The following is a summary of stock option activity: (Shares in thousands) Outstanding at beginning of year Options granted Options exercised Options canceled Outstanding at year-end Exercisable at year-end Available for grant at year-end Weighted average fair value of options granted (1) Reflects weighted average exercise price except where noted. shares of common stock. Options may be granted for such consideration as determined by the Board of Directors. National Beverage also 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 100,000 shares of common stock to key employees, consultants, directors and officers of the Company. Participants who purchase shares of stock in the open market receive grants of stock options equal to 50% of the number of shares pur- chased, up to a maximum of 6,000 shares in any two-year period. Options under the KEEP Program are automatically forfeited in the event of the sale of shares originally acquired by the participant. The options are granted at an initial exercise price of 60% of the purchase price paid for the shares acquired and reduces to the par value of the stock at the end of the six-year vesting period. The difference between the exercise price and the fair market value of the stock on date of grant is amortized over the vesting period. The 1991 Stock Purchase Plan provides for the purchase of up to 640,000 shares of common stock by employees who (i) have been employed by our Company for at least two years, (ii) are not part-time employees and (iii) are not owners of five percent or more of National Beverage com- mon stock. As of May 3, 2003, no shares have been issued under the plan. 2003 2002 2001 Shares Price(1) Shares Price(1) Shares Price(1) 996 $4.61 1,274 $3.71 1,122 $ 3.28 1 (41) (21) 935 8.42 2.97 4.67 4.34 89 (257) (110) 996 8.84 .84 6.45 4.61 814 $4.06 751 $3.49 1,175 1,155 $9.17 $7.88 208 (17) (39) 7.26 2.65 10.61 1,274 3.71 954 387 $ 2.49 $ 5.04 NATIONAL BEVERAGE CORP. 25 Notes to Consolidated Financial Statements The following is a summary of stock options outstanding at May 3, 2003: 10. Commitments and Contingencies (Shares in thousands) Options Outstanding Options Exercisable Future minimum rental commitments for non-cancelable operating leases at Remaining Exercise Exercise May 3, 2003 are as follows: Life(1) Shares Price(2) Shares Price(2) Range of Exercise Price $1.46–$2.09 $2.28–$5.00 $6.56–$7.38 $7.65–$9.88 2 years 3 years 8 years 5 years 4 years 388 271 187 89 935 $2.06 3.84 7.21 9.82 4.34 367 258 119 70 814 $2.09 3.89 7.13 9.83 4.06 (1) Reflects weighted average remaining contractual life. (2) Reflects weighted average exercise price. During fiscal 2002, approximately $727,000 of accrued compensation and tax benefits related to stock options exercised was recorded to addi- tional paid-in capital. We contribute to various defined contribution retirement plans (which cover employees under various collective bargaining agreements) and discretionary profit sharing plans (which cover all non-union employees). Contributions were $1.8 million for fiscal 2003, $1.7 million for fiscal 2002, and $1.5 million for fiscal 2001. 11. Quarterly Financial Data (Unaudited) (In thousands) Fiscal 2004 Fiscal 2005 Fiscal 2006 Fiscal 2007 Fiscal 2008 Thereafter Total minimum lease payments $ 5,604 3,727 2,273 1,477 836 353 $14,270 Rental expense was $8,934,000 for fiscal 2003, $9,415,000 for fiscal 2002, and $10,164,000 for fiscal 2001. From time to time, we are a party to various litigation matters arising in the ordinary course of business. In our opinion, the ultimate disposition of such matters will not have a material adverse effect on our consolidated financial position or results of operations. In the ordinary course of its busi- ness, we enter into commitments for the supply of certain raw materials, none of which are material to our financial position. (In thousands, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal 2003(1) Net sales Gross profit Net income Net income per share—basic Net income per share—diluted Fiscal 2002 Net sales Gross profit Net income Net income per share—basic Net income per share—diluted (1) Fiscal 2003 fourth quarter consisted of fourteen weeks while other quarters consisted of thirteen weeks. $ 142,877 $ 127,348 $ 100,500 $ 129,705 47,473 8,051 .44 .42 41,261 3,843 .21 .20 32,950 1,089 .06 . 06 43,289 4,606 .25 .24 $ 152,385 $ 124,124 $ 100,409 $ 125,860 50,126 7,616 .42 .40 39,980 3,589 .20 .19 32,587 930 .05 .05 41,044 4,417 .24 .23 26 NATIONAL BEVERAGE CORP. Report of Independent Certified Public Accountants To the Board of Directors and Shareholders of National Beverage Corp.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders’ equity and cash flows present fairly, in all material respects, the financial position of National Beverage Corp. and its subsidiaries at May 3, 2003 and April 27, 2002, and the results of their operations and their cash flows for each of the three years in the period ended May 3, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Miami, Florida July 22, 2003 NATIONAL BEVERAGE CORP. 27 Market Information The common stock of National Beverage Corp., par value $.01 per share, Excluding beneficial owners of our Common Stock whose securities are (“the Common Stock”) is listed on the American Stock Exchange (“AMEX”) held in the names of various dealers and/or clearing agencies, there were under the symbol “FIZ.“ The following table shows the range of high and approximately 1,000 shareholders of record at July 18, 2003, according low sale prices per share of the Common Stock as reported by the AMEX to records maintained by our transfer agent. for the fiscal quarters indicated: We have not paid any cash dividends with respect to our Common First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal 2003 Fiscal 2002 Stock during the last three fiscal years and our Board of Directors has no High Low High Low present plans for declaring any such cash dividends. See Note 6 of Notes $17.19 $12.80 $10.35 $ 8.90 to Consolidated Financial Statements for certain restrictions on the payment $14.35 $11.00 $10.94 $ 9.66 of dividends. $15.70 $14.30 $13.34 $10.30 $15.30 $13.80 $14.40 $12.35 28 NATIONAL BEVERAGE CORP. Corporate Data Directors Subsidiaries Nick A. Caporella, Chairman of the Board & Chief Executive Officer, National Beverage Corp. Joseph G. Caporella, President, National Beverage Corp. Samuel C. Hathorn, Jr.*, President, Trendmaker Development Co. S. Lee Kling*, Chairman of the Board, The Kling Company Joseph P. Klock, Jr., Esq.*, Chairman and Managing Partner, Steel, Hector & Davis *Member Audit Committee Corporate Management Nick A. Caporella, Chairman of the Board & Chief Executive Officer Joseph G. Caporella, President George R. Bracken, Senior Vice President—Finance Dean A. McCoy, Senior Vice President—Chief Accounting Officer Raymond J. Notarantonio, Executive Director—IT John S. Bartley, Director—Internal Audit Brent R. Bott, Director—Consumer Marketing H. Don Hatcher, Director—Insurance Gregory J. Kwederis, Director—Beverage Analyst Lawrence P. Parent, Director—Credit Management Subsidiary Management Edward F. Knecht, President, Shasta Sweetener Corp., PACO, Inc. William R. Phillips, President, National BevPak Sanford E. Salzberg, President, Shasta, Inc. Stanley M. Sheridan, President, Faygo Beverages, Inc. Michael J. Bahr, Executive Vice President, Shasta West, Inc. Alan D. Domzalski, Executive Vice President, Everfresh Beverages, Inc. Brian M. Gaggin, Executive Vice President, National Retail Brands, Inc. Harold S. Jackson, Executive Vice President, Shasta Northwest, Inc. Charles A. Maier, Executive Vice President, Foodservice, Shasta Sales, Inc. Michael J. Perez, Executive Vice President, Shasta Midwest, Inc. Dennis L. Thompson, Executive Vice President, BevCo Sales, Inc. John F. Hlebica, Vice President, Shasta Beverages International, Inc. Worth B. Shuman, III, Vice President, Military Sales Gregory L. Kimbrough, General Manager, PETCO, Inc. Martin J. Rose, General Manager, Shasta Vending Corporate Offices One North University Drive Fort Lauderdale, FL 33324 954-581-0922 BevCo Sales, Inc. Beverage Corporation International, Inc. Big Shot Beverages, Inc. Everfresh Beverages, Inc. Faygo Beverages, Inc. Home Juice Corp. National Retail Brands, Inc. NewBevCo, Inc. PACO, Inc. PETCO, Inc. Shasta, Inc. Shasta Beverages, Inc. Shasta Beverages International, Inc. Shasta Midwest, Inc. Shasta Northwest, Inc. Shasta Sales, Inc. Shasta Sweetener Corp. Shasta West, Inc. Annual Meeting The Annual Meeting of Shareholders will be held on Friday, October 3, 2003 at 2:00 p.m. local time at the Hyatt Regency Orlando International Airport, 9300 Airport Boulevard, Orlando, Florida 32827. Financial and Other Information Copies of National Beverage Corp.’s Annual Report, Annual Report on Form 10-K and supplemental quarterly financial data are available free of charge. Requests should be directed to the Company at P.O. Box 16720, Fort Lauderdale, FL 33318. Attention: Shareholder Relations. Earnings and other financial results, corporate news and other Company information are available on National Beverage’s website at www.nationalbeverage.com. Stock Listing National Beverage Corp.’s Common Stock is listed on the American Stock Exchange—ticker symbol FIZ. Registrar and Transfer Agent Mellon Investor Services LLC P.O. Box 3315 South Hackensack, NJ 07606 800-756-3353 Independent Auditors PricewaterhouseCoopers LLP Miami, FL m o c . s r o n n o c - n a r r u c . w w w / . c n I , s r o n n o C & n a r r u C y b d e n g i s e D