National Beverage Corp.
Annual Report 2005

Plain-text annual report

ty innovation and evolution...nutrients for profound opportuni revolut ion, .when better is attainable revolution is the staircase to innovation . good is not enough. a constant progressive change ev•o•lu•tion a radical and pervasive movement rev•o•lu•tion n atio n a l b eve ra g e co r p. e v o l u t i o n 20 0 5 a n n u a l re p o r t 2005 annual report evolution national beverage corp. rev •o• l u •tio n a radical and pervasive movement ev •o• l u •tio n a constant progressive change g o o d i s n o t e n o u g h . . . w h e n b e t t e r i s a t t a i n a b l e revolution is the staircase to i n n ov a t i o n r e v o l u t i o n , i n n o v a t i o n a n d e v o l u t i o n...nutrients for profound o p p o r t u n i t y 2005 annual report evolution national beverage corp. rev •o• l u •tio n a radical and pervasive movement ev •o• l u •tio n a constant progressive change g o o d i s n o t e n o u g h . . . w h e n b e t t e r i s a t t a i n a b l e revolution is the staircase to i n n ov a t i o n r e v o l u t i o n , i n n o v a t i o n a n d e v o l u t i o n...nutrients for profound o p p o r t u n i t y e v o l u t i o n i n n o v a t i n g i n a c h a n g i n g w o r l d t special and rare times…a forced effort to bring about change occurs…a Revolution of sorts. One is underway within the soft-drink industry and, over the past two years, has had a dramatic effect. What started this revolution was the consumers’ demand for flavor variety and a more healthy thirst quencher. The consumer revolt against the brown, sugary colas expanded further with the demand for more ‘kick’ and excitement. Thus, the energy beverage gave relief to those who wanted more from their soft drinks and got it! ‡ While all of this was occurring, a soft drink more acceptable for children was demanded by moms and school supervisors. Government reports about obesity and diabetes heightened awareness for ‘better-for-you thirst relievers’. The revolution was further fueled by rising costs of health care and the aging of America. And so…a full-fledged revolt by the sophisticated beverage consumer developed with a fervor…that has forever realigned the consumers’ demands…a new tasteful evolution is underway! Full swing—as they say. ‡ As with any revolution, there are associated risks and costs. Bitter-Sweet envelops everything during this time (no flavor-able remark intended). Some examples of bitter are the lowering of revenues as rising costs are forced upon our retail partner and, ultimately, the consumer. And, yes, a sweet margin increase and robust demand for our Rip It energy beverage is [ energy drinks are rising in popularity as consumers are demanding more ‘kick’ and excitement. ] [ sugar-free, waters and juices are a dynamic segment due to the public’s conscious efforts at living a healthier lifestyle. ] extremely enlightening. Shasta and Faygo are both flavor-oriented soft drinks that have loyal consumers who demand value and taste alike. While we are devoted to these long-time dedicated consumers, much effort is being expended in developing soft drinks, unique flavors, fun tastes…more in tune to the current health conscious consumer—especially the vibrant, fun-crazed teen. ‘OOOH Shasta’—a new offering for the no-calorie, no-carb, good-for-you, female consumer is one of Shasta’s uniquely packaged introductions. Tweaking our great flavors, while developing better-for-you beverages is quite a challenge, but one that has tradition and over a century of leadership and certification. Believe me…when someone pops open a tab, puts it to their lips and, with no hesitation, takes a big gulp and swallows…that trust is priceless! ‡ We are capitalizing on these time-tested, flavor brands—Shasta and Faygo—and may soon give the soft-drink techie something to have fun with…maybe even experiment as a wanna-be beverage chemist with creating their favorite flavored soft drinks. If someone walked into one of our bottling plants during the filling process of Peach Mango Fiz…an exotic mouth-watering aroma would smother their senses. Well, this same aromatic stimulant energizes our tantalizing creative…and that is sweet—real sweet! ‡ These are a few examples relative to the climate of change within our Company. The most significant change brought about and one that we had previously underutilized is…Focus! This consumer revolution has ignited a fever within us to further excel at what is the ‘best’ of National Beverage Corp. Our ‘brilliance’ is innovation—we create and market new flavors, new beverages, new packages and new tastes better than any other beverage company. The alarm went off…we are 100% focused and innovating! ‡ What does the future hold? Describe the evolution! Excitement for starters. New and innovative soft drinks, creative packaging and the demanding variety consumer to satisfy…with the ‘best’ of National Beverage, is magnified right now. We have aggressive and talented management, a new focus and a balance sheet of ammo to do anything we desire. ‡ Those bitter revenue reductions are reversing and new beverages are in ‘test’ market as of this writing. Flavor chemists are burning the midnight oil, for certain, and the strong balance sheet is getting stronger. Opportunity has targeted our hoard of cash…therefore, focus a watchful eye on us…careful not to miss a wonderful happening in our passionate evolution! Nick A. Caporella Chairman and Chief Executive Officer [ variety, diversity and NEW...what our customers demand for the future. ] management’s discussion and analysis of financial condition and results of operations (continued) F i n a n c i a l s selected financial data (In thousands, except per share amounts) S TAT E M E N T O F I N C O M E 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 B A L A N C E S H E E T DATA : Working capital Property—net Total assets Long-term debt Deferred income taxes—net Shareholders’ equity(1) Cash dividends per share(1) Fiscal Year Ended April 30, 2005 May 1, 2004 May 3, 2003(3) April 27, 2002 April 28, 2001 $ 495,572 $ 512,061 $ 500,430 $ 502,778 $ 480,415 340,206 343,316 335,457 339,041 323,743 155,366 130,037 168,745 139,058 164,973 136,902 163,737 136,925 106 1,199 132 544 316 706 857 867 156,672 131,852 2,110 1,506 26,422 30,099 9,536 11,408 28,461 10,872 26,822 24,216 10,270 9,236 $ 16,886 $ 18,691 $ 17,589 $ 16,552 $ 14,980 $ .45 $ .44 $ .51 .49 .48 .46 $ .45 $ .44 .41 .40 $ 81,962 $ 64,967 $ 79,785 $ 70,164 $ 62,444 62,879 59,535 60,432 60,658 62,215 224,587 205,378 218,195 205,685 203,868 — — 300 15,958 14,930 14,843 10,981 12,072 24,136 10,208 143,296 125,376 143,292 125,677 108,488 $ — $ 1.00 $ — $ — $ — n o i t u l o v e / 1 / n o i t u l o v e r (1) In April 2004, the Company paid a special “one-time” cash dividend of $1.00 per share, aggregating $38.4 million. (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. Share amounts have been adjusted for the 100% stock dividend distributed on March 22, 2004. (3) Fiscal 2003 consisted of 53 weeks. management’s discussion and analysis of financial condition and results of operations n n a a t t i i o o n n a a l l b b e e v v e e r r a a g g e e c c o o r r p p . . / / 2 2 / / 2 2 0 0 0 0 5 5 a a n n n n u u a a l l r r e e p p o o r r t t O V E R V I E W National Beverage Corp. develops, manufactures, markets and distributes a complete portfolio of quality beverage products 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. Our lines of multi-flavored soft drinks, including those of our flagship brands, Shasta® and Faygo®, emphasize distinctive flavor variety. In addition, we offer an assortment of premium beverages geared to the health-conscious consumer, including Everfresh®, Home Juice®, and Mr. Pure® 100% juice and juice-based products; and LaCroix®, Mt. Shasta™, Crystal Bay® and ClearFruit® flavored and spring water products. We also produce specialty products, including Rip It™, an energy drink geared toward young consum- ers, Ohana® fruit-flavored drinks and St. Nick’s® holiday soft drinks. Substantially all of our brands are produced in 14 manufacturing facilities that are strategically located in major metropolitan mar- kets 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 strategy emphasizes the growth of our products by offering a branded beverage portfolio of proprietary flavors; by supporting the franchise value of regional brands and expanding those brands with new packaging and broader demographic emphasis; by developing and acquiring innovative products tailored toward healthy lifestyles; and by appealing to the “quality- price” expectations of the family consumer. We believe that the “regional share dynamics” of our brands perpetuate consumer loyalty within local regional markets, resulting in more retailer- sponsored promotional activities. Over the last several years, we have focused on increasing penetration of our brands in the convenience channel through Company-owned and independent distributors. The convenience channel is composed of convenience stores, gas stations and other smaller “up-and-down-the-street” accounts. Because of the higher retail prices and margins that typically prevail, we have undertaken specific measures to expand distribution in this chan- nel. These include development of products specifically targeted to this market, such as ClearFruit, Everfresh, Mr. Pure, Crystal Bay, and Rip It. Additionally, we have created proprietary and special- ized packaging for these products with distinctive graphics. We intend to continue our focus on enhancing growth in the conve- nience 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. R E S U LT S O F O P E R AT I O N S Fiscal 2005 and fiscal 2004 consisted of 52 weeks while fiscal Net Sales During fiscal 2005, we initiated a series of price increases to offset unprecedented raw material cost increases, especially in the latter part of the year as sustained increases in 2003 consisted of 53 weeks. Gross Profit Gross profit approximated 31.4% of net sales for fiscal 2005 and 33.0% for fiscal 2004. This decline was due to the fuel and resin continued to rise to historical new highs. Price effect of the sales decrease and higher cost of goods sold. Cost increases tend to have an adverse effect on case volume and the of goods sold per unit increased approximately 4%, primarily due industry generally experienced reduced case volume, especially to higher packaging and energy costs. for carbonated soft drinks. As a result, our branded case volume Gross profit, approximating 33.0% of net sales for both fiscal was relatively flat for the year while net pricing was up slightly, 2004 and 2003, increased $3.8 million in fiscal 2004. An increase due to higher selling prices and a change in product mix. This in higher margin business and a reduction in certain fixed manu- product mix change included increased sales of our alternative facturing costs were partially offset by increases in certain raw beverages as obesity and other health issues caused consumers material costs. to consume less carbonated soft drinks. Also impacting sales was Shipping and handling costs are included in selling, general a nineteen percent (19%) volume decline in allied branded prod- and administrative expenses, the classification of which is consis- ucts related to a retailer’s change in philosophy, which affected tent with many beverage companies. However, our gross margin their sales and our earlier decision to eliminate certain lower may not be comparable to companies that include shipping and margin business. Net sales included $1.8 million received from a handling costs in cost of sales. See Note 1 of Notes to Consoli- customer relative to the recovery of pricing and promotional dated Financial Statements. allowances for product shipped in a previous year. Net sales for fiscal 2004 increased approximately $11.6 million, or 2.3%, to $512.1 million. This sales growth was due primarily to increased volume of National Beverage’s branded soft drinks and favorable changes in product mix. This improvement was partially offset by a decline in lower margin allied branded business. Selling, General and Administrative Expenses Selling, general and administrative expenses for fiscal 2005 were $130.0 million or 26.2% of net sales compared to $139.1 million or 27.2% of net sales for fiscal 2004. The decline in expenses was due primarily to lower selling and marketing costs of $3.2 million and $5.6 million, respectively, partially offset by higher energy costs. n n o o i i t t u u l l o o v v e e / / 3 1 / / n n o o i i t t u u l l o o v v e e r r management’s discussion and analysis of financial condition and results of operations (continued) Selling, general and administrative expenses for fiscal 2004 L I Q U I D I T Y A N D F I N A N C I A L C O N D I T I O N were $139.1 million or 27.2% of net sales compared to $136.9 million or 27.4% of net sales for fiscal 2003. Due to the effect of higher volume, selling, general and administrative expenses as a percent of sales marginally declined, partially offset by higher marketing costs related to new product introductions. Interest Expense and Other Income—Net decreased $26,000 in fiscal 2005 and $184,000 in fiscal 2004 as a Interest expense Capital Resources Our current sources of capital are cash flow from operations and borrowings under existing credit facilities. The Company maintains unsecured revolving credit facilities aggregating $45 million of which approximately $42 million was available for future borrowings at April 30, 2005. We believe that existing capital resources are sufficient to meet our capital requirements and those of the parent company for the fore- result of a decline in outstanding debt. Other income includes seeable future. interest income of $581,000 for fiscal 2005, $603,000 for fiscal 2004, and $816,000 for fiscal 2003. The decrease in interest income for fiscal 2005 is primarily due to a decline in average investments outstanding, while the decline in fiscal 2004 is related to a reduc- tion in investment yields. In addition, other income for fiscal 2005 includes a gain of $633,000 related to a contract settlement with a customer. Cash Flows During fiscal 2005, cash of $32.9 million was gener- ated from operating activities, which was partially offset by $3.9 million used for investing activities. Cash provided by operating activities for fiscal 2005 increased $11.6 million due to an increase in non-cash charges and favorable changes in working capital requirements. Cash used in investing activities increased $3.8 million primarily due to increased capital expenditures to enhance Income Taxes Our effective tax rate was approximately 36.1% for fiscal 2005, 37.9% for fiscal 2004, and 38.2% for fiscal 2003. packaging capabilities and improve manufacturing efficiencies. Cash provided by financing activities of $146,000 was comprised The difference between the effective rate and the federal statu- of proceeds from stock options exercised. tory rate of 35% was primarily due to the effects of state income During fiscal 2004, cash of $21.3 million was generated from taxes, nondeductible expenses, and nontaxable interest income. operating activities, which was offset by $39.2 million used for See Note 8 of Notes to Consolidated Financial Statements. financing activities. Cash provided by operating activities for fiscal n a t i o n a l b e v e r a g e c o r p . / 4 / 2 0 0 5 a n n u a l r e p o r t 2004 decreased $14.7 million due to an increase in working capi- tal requirements. Cash used in investing activities declined $25.6 million due to changes in net marketable securities sold. Cash used in financing activities increased $29.5 million due to cash In January 1998, the Board of Directors authorized the pur- dividends paid in April 2004, which was partially offset by a reduc- chase of up to 800,000 shares of National Beverage common tion in net debt repayments. Financial Position During fiscal 2005, our working capital increased $17.0 million to $82.0 million from $65.0 million, primar- ily due to an increase in cash balances generated from operating activities. Trade receivables decreased $2.6 million due primarily to lower sales. Prepaid and other assets declined $684,000 due to lower income tax refund receivables. At April 30, 2005, the cur- rent ratio was 2.4 to 1 compared to 2.1 to 1 for the prior year. During fiscal 2004, our working capital decreased $14.8 mil- lion to $65.0 million from $79.8 million primarily due to the cash dividend payment. The increase in trade receivables is due to the effect of higher sales volume and change in terms with certain customers. The increase in prepaid and other assets is due to a reclassification from noncurrent assets and an increase in income tax refund receivables. At May 1, 2004, the current ratio was 2.1 to 1 compared to 2.4 to 1 for the prior year. Liquidity We continually evaluate capital projects designed to expand capacity and improve efficiency at our manufacturing facilities. In fiscal 2005, we incurred increased capital expenditures to enhance packaging capabilities and improve manufacturing efficiencies. Such programs are expected to continue in fiscal 2006; however, capital expenditures in fiscal 2006 should not exceed fiscal 2005 amounts. stock. In fiscal 2004 and 2003, we purchased 18,000 shares and 18,250 shares, respectively, and aggregate shares purchased since January 1998 were 502,060. There were no shares purchased in fiscal 2005. Pursuant to a management agreement, we incurred a fee to Corporate Management Advisors, Inc. (“CMA”) of approximately $5.0 million for fiscal 2005, $5.1 million for fiscal 2004, and $5.0 million for fiscal 2003. At April 30, 2005, we owed $1.2 million to CMA for unpaid fees. See Note 6 of Notes to Consolidated Financial Statements. C O N T R AC T UA L O B L I G AT I O N S Long-term contractual obligations at April 30, 2005 are payable as follows: (In thousands) Total 2006 2007– 2009– 2008 2010 Thereafter Operating leases $ 10,730 $ 4,866 $ 4,328 $1,311 $225 Purchase commitments 50,021 22,723 27,298 — — Total $ 60,751 $ 27,589 $ 31,626 $1,311 $225 The Company contributes to certain pension plans under collective bargaining agreements based on hours worked and to a discretionary profit sharing plan, neither of which have any n o i t u l o v e / 5 / n o i t u l o v e r management’s discussion and analysis of financial condition and results of operations (continued) long-term contractual funding requirements. Contributions were estimates are based on management’s knowledge of current $2.3 million for fiscal 2005, $2.2 million for fiscal 2004, and $2.2 events and actions it may undertake in the future, they may ulti- million for fiscal 2003. mately differ from actual results. We believe that the critical We maintain self-insured and deductible programs for certain accounting policies described in the following paragraphs affect liability, medical and workers’ compensation exposures. Other the most significant estimates and assumptions used in the long-term liabilities include known claims and estimated incurred, preparation of our consolidated financial statements. For these but not reported, claims not otherwise covered by insurance, policies, we caution that future events rarely develop exactly as based on actuarial assumptions and historical claims experience. estimated, and the best estimates routinely require adjustment. Since the timing and amount of claims settlement varies signifi- cantly, we are not able to reasonably estimate future payments for the periods indicated. We have standby letters of credit aggregating $3 million related to our self-insurance programs, which expire in fiscal 2006. We expect to renew these standby letters of credit until they are no longer required. O F F - B A L A N C E S H E E T A R R A N G E M E N T S We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition. C R I T I C A L AC C O U N T I N G P O L I C I E S The preparation of financial statements in conformity with gener- ally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these Credit Risk We sell products to a variety of customers and extend credit based on an evaluation of each 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 based on specific customer circumstances, credit conditions, and historical write-offs and collections. Impairment of Long-Lived Assets All long-lived assets, exclud- ing goodwill and intangible assets not subject to amortization, are evaluated for impairment on the basis of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impaired asset is written down to its estimated fair market value based on the best information available. Estimated fair market value is generally measured by discounting future cash flows. n a t i o n a l b e v e r a g e c o r p . / 6 / 2 0 0 5 a n n u a l r e p o r t Goodwill and intangible assets not subject to amortization are expected amount to be paid over the period of benefit or evaluated for impairment annually or sooner in accordance with expected sales volume. The recognition of expense for these SFAS No. 142. An impairment loss is recognized if the carrying incentives involves the use of judgment related to performance amount, or for goodwill, the carrying amount of its reporting unit, and sales volume estimates that are made based on historical 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 recog- nition to temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial state- ments. Valuation allowances are established when it is deemed, more likely than not, that the benefit of deferred tax assets will not be realized. Insurance Programs We maintain self-insured and deductible programs for certain liability, medical and workers’ compensation exposures. Accordingly, we accrue for known claims and esti- mated incurred but not reported claims not otherwise covered by insurance, based on actuarial assumptions and historical claims experience. experience and other factors. Sales incentives are accounted for as a reduction of revenues and actual amounts may vary from reported amounts. F O R WA R D - L O O K I N G S TAT E M E N T S National Beverage and its representatives may from time to time make written or oral statements relating to future events or results relative to our financial, operational and business performance, achievements, objectives and strategies. These statements are “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995, and include statements contained in this Annual Report, filings with the Securities and Exchange Commission and other reports to our stockholders. Certain state- ments including, without limitation, statements containing the words “believes,” “anticipates,” “intends,” “expects,” and “esti- mates” constitute “forward-looking statements” and involve n o i t u l o v e / 7 / n o i t u l o v e r Sales Incentives We offer various sales incentive arrangements to our customers, which require customer performance or known and unknown risk, uncertainties and other factors that may cause the actual results, performance or achievements of our achievement of certain sales volume targets. In those circum- Company to be materially different from any future results, per- stances when the incentive is paid in advance, we amortize the formance or achievements expressed or implied by such forward- amount paid over the period of benefit or contractual sales looking statements. Such factors include, but are not limited to, volume. When the incentive is paid in arrears, we accrue the the following: general economic and business conditions; pricing management’s discussion and analysis of financial condition and results of operations (concluded) of competitive products; success in acquiring other beverage Q UA N T I TAT I V E A N D Q UA L I TAT I V E D I S C L O S U R E S A B O U T businesses; success of new product and flavor introductions; M A R K E T R I S K fluctuations in the costs of raw materials and the ability to pass along any cost increases to our customers; our ability to increase prices for our products; labor strikes or work stoppages or other interruptions or difficulties in the employment of labor; continued retailer support for our products; changes in consumer preferences and our success in creating products geared toward consumers’ tastes; success of implementing business strategies; changes in business strategy or development plans; government regulations; unseasonably cold or wet 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. Commodities We purchase various raw materials, including aluminum cans, plastic bottles, high fructose corn syrup, and var- ious juice concentrates, the prices of which fluctuate based on commodity market conditions. Our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. Interest Rates We had no outstanding debt or debt-related interest rate exposure during fiscal 2005. Our investment portfolio is comprised of highly liquid securi- ties consisting primarily of short-term money market instruments and auction rate securities, the yields of which fluctuate based largely on short-term Treasury rates. If the yield of these instru- ments had changed by 100 basis points (1%), interest income for fiscal 2005 would have changed by approximately $300,000. n a t i o n a l b e v e r a g e c o r p . / 8 / 2 0 0 5 a n n u a l r e p o r t consolidated balance sheets As of April 30, 2005 and May 1, 2004 (In thousands, except share amounts) A S S E T S Current assets: Cash and equivalents Marketable securities Trade receivables—net of allowances of $585 (2005) and $608 (2004) Inventories Deferred income taxes—net Prepaid and other assets Total current assets Property—net Goodwill Intangible assets—net Other assets L I A B I L I T I E S A N D S H A R E H O L D E R S ’ E Q U I T Y Current liabilities: Accounts payable Accrued liabilities Income taxes payable Total current liabilities Deferred income taxes—net 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 41,018,960 shares (2005) and 40,894,440 shares (2004); outstanding 36,986,176 shares (2005) and 36,861,656 shares (2004) Additional paid-in capital Retained earnings Treasury stock—at cost: Preferred stock—150,000 shares Common stock—4,032,784 shares Total shareholders’ equity See accompanying Notes to Consolidated Financial Statements. 2005 2004 $ 54,557 — 46,135 29,738 1,759 7,657 $ 25,365 9,000 48,776 29,754 1,622 8,341 139,846 62,879 13,145 1,939 6,778 122,858 59,535 13,145 1,948 7,892 $ 224,587 $ 205,378 $ 38,012 18,290 1,582 $ 37,138 18,801 1,952 57,884 15,958 7,449 57,891 14,930 7,181 150 150 410 19,679 141,057 409 18,646 124,171 (5,100) (12,900) (5,100) (12,900) 143,296 125,376 $ 224,587 $ 205,378 n o i t u l o v e / 9 / n o i t u l o v e r consolidated statements of income For the Fiscal Years Ended April 30, 2005, May 1, 2004 and May 3, 2003 (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. n a t i o n a l b e v e r a g e c o r p . / 1 0 / 2 0 0 5 a n n u a l r e p o r t 2005 2004 2003 $ 495,572 340,206 $ 512,061 343,316 $ 500,430 335,457 155,366 130,037 106 1,199 168,745 139,058 132 544 26,422 9,536 30,099 11,408 164,973 136,902 316 706 28,461 10,872 $ 16,886 $ 18,691 $ 17,589 $ $ .45 $ .44 $ .51 .49 $ $ .48 .46 37,579 36,937 36,800 38,254 38,166 38,120 consolidated statements of shareholders’ equity For the Fiscal Years Ended April 30, 2005, May 1, 2004 and May 3, 2003 (In thousands, except share amounts) Shares Amount Shares Amount Shares Amount 2005 2004 2003 P R E F E R R E D S TO C K Beginning and end of year C O M M O N S TO C K Beginning of year Stock options exercised 100% stock dividend End of year A D D I T I O N A L PA I D - I N C A P I TA L Beginning of year Stock options exercised Other End of year R E TA I N E D E A R N I N G S Beginning of year Net income Cash dividends paid End of year T R E A S U R Y S TO C K — P R E F E R R E D Beginning and end of year T R E A S U R Y S TO C K — C O M M O N Beginning of year Purchase of stock End of year 150,000 $ 150 150,000 $ 150 150,000 $ 150 40,894,440 124,520 — 41,018,960 409 1 — 410 22,250,202 338,510 18,305,728 40,894,440 223 3 183 409 22,209,312 40,890 — 22,250,202 18,646 506 527 19,679 124,171 16,886 — 141,057 16,818 2,011 (183) 18,646 143,846 18,691 (38,366) 124,171 222 1 — 223 16,526 292 — 16,818 126,257 17,589 — 143,846 n o i t u l o v e / 1 1 / n o i t u l o v e r 150,000 (5,100) 150,000 (5,100) 150,000 (5,100) 4,032,784 — (12,900) — 4,014,784 18,000 (12,645) (255) 3,996,534 18,250 (12,378) (267) 4,032,784 (12,900) 4,032,784 (12,900) 4,014,784 (12,645) TOTA L S H A R E H O L D E R S ’ E Q U I T Y $ 143,296 $ 125,376 $ 143,292 See accompanying Notes to Consolidated Financial Statements. consolidated statements of cash flows For the Fiscal Years Ended April 30, 2005, May 1, 2004 and May 3, 2003 (In thousands) O P E R AT I N G AC T I V I T I E S : Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Deferred income tax provision Loss on sale of assets Changes in assets and liabilities: n a t i o n a l b e v e r a g e c o r p . / 1 2 / 2 0 0 5 a n n u a l r e p o r t Trade receivables Inventories Prepaid and other assets Accounts payable Accrued and other liabilities, net Net cash provided by operating activities I N V E S T I N G AC T I V I T I E S : Marketable securities purchased Marketable securities sold Property additions Proceeds from sale of assets Net cash used in investing activities F I N A N C I N G AC T I V I T I E S : Debt repayments Common stock cash dividend Purchase of common stock Proceeds from stock options exercised Net cash provided by (used in) financing activities N E T I N C R E A S E ( D E C R E A S E ) I N C A S H A N D E Q U I VA L E N T S C A S H A N D E Q U I VA L E N T S — B E G I N N I N G O F Y E A R C A S H A N D E Q U I VA L E N T S — E N D O F Y E A R OT H E R C A S H F L O W I N F O R M AT I O N : Interest paid Income taxes paid See accompanying Notes to Consolidated Financial Statements. 2005 2004 2003 $ 16,886 $ 18,691 $ 17,589 12,464 891 15 2,641 16 (1,165) 874 275 11,394 143 59 (7,745) (1,059) (7,784) 2,169 5,453 11,319 2,709 110 1,924 2,345 (1,834) 4,150 (2,324) 32,897 21,321 35,988 (233,900) 242,900 (13,003) 152 (3,851) (205,700) 213,700 (8,696) 623 (58,000) 41,000 (8,936) 312 (73) (25,624) — — — 146 (1,450) (38,366) (255) 854 146 (39,217) (9,531) — (267) 122 (9,676) 29,192 (17,969) 688 25,365 43,334 42,646 $ 54,557 $ 25,365 $ 43,334 $ 106 6,910 $ 133 11,049 $ 336 7,863 notes to consolidated financial statements National Beverage Corp. develops, manufactures, markets and distributes a complete portfolio of multi-flavored soft drinks, Credit Risk We sell products to a variety of customers and extend credit based on an evaluation of each customer’s financial juice drinks, water and specialty beverages throughout the United condition, generally without requiring collateral. Exposure to States. Incorporated in Delaware in 1985, National Beverage losses on receivables varies by customer principally due to the Corp. is a holding company for various operating subsidiaries. financial condition of each customer. We monitor our exposure to When used in this report, the terms “we,” “us,” “our,” “Company” credit losses and maintain allowances for anticipated losses and “National Beverage” mean National Beverage Corp. and its based on specific customer circumstances, credit conditions, and subsidiaries. 1. S I G N I F I C A N T AC C O U N T I N G P O L I C I E S Basis of Presentation The consolidated financial statements include the accounts of the Company and all subsidiaries. All sig- nificant intercompany balances have been eliminated. 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 2005 and fiscal 2004 consist of 52 weeks while fiscal 2003 consists of 53 weeks. Cash and Equivalents Cash and equivalents are comprised of cash and highly liquid securities (consisting primarily of short- term money-market investments) with an original maturity or redemption option of three months or less. historical write-offs and collections. At April 30, 2005 and May 1, 2004, we did not have any customer that comprised more than 10% of trade receivables. No one customer accounted for more than 10% of net sales during any of the last three fiscal years. 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. Impairment of Long-Lived Assets All long-lived assets, exclud- ing 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 n o i t u l o v e / 3 1 / n o i t u l o v e r Changes in Accounting Standards Management has reviewed the current changes in accounting standards and does not expect impaired asset is written down to its estimated fair market value based on the best information available. Estimated fair market any of these changes to have a material impact on the Company. value is generally measured by discounting future cash flows. notes to consolidated financial statements (continued) Goodwill and intangible assets not subject to amortization are evaluated for impairment annually or sooner in accordance with Marketing Costs We are involved in a variety of marketing pro- grams, including cooperative advertising programs with custom- SFAS No. 142. An impairment loss is recognized if the carrying ers, which advertise and promote our products to consumers. amount, or for goodwill, the carrying amount of its reporting unit, Marketing costs are expensed when incurred, except for prepaid 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 recog- advertising and production costs of future media advertising. Marketing costs, which are included in selling, general and admin- istrative expenses, were $35.6 million in fiscal 2005, $41.2 million in fiscal 2004, and $39.4 million in fiscal 2003. nition to temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial state- Net Income Per Share Basic net income per share is computed by dividing net income by the weighted average number of com- ments. Valuation allowances are established when it is deemed, mon shares outstanding. Included in average common shares more likely than not, that the benefit of deferred tax assets will outstanding are shares of common stock that option holders have not be realized. Insurance Programs We maintain self-insured and deductible programs for certain liability, medical and workers’ compensation exposures. Accordingly, we accrue for known claims and esti- mated incurred but not reported claims not otherwise covered by insurance, based on actuarial assumptions and historical claims experience. Inventories out cost or market. Inventories at April 30, 2005 are comprised of Inventories are stated at the lower of first-in, first- finished goods of $17,411,000 and raw materials of $12,327,000. Inventories at May 1, 2004 are comprised of finished goods of $16,349,000 and raw materials of $13,405,000. elected to defer physical delivery following the exercise of stock options. Diluted net income per share also includes the dilutive effect of stock options, which amounted to 675,000 shares (2005), 1,229,000 shares (2004), and 1,320,000 shares (2003). Property Property is recorded at cost. Property additions, replace- ments and betterments are capitalized, while maintenance and repairs that do not extend the useful life of an asset are expensed as incurred. Depreciation is recorded using the straight-line method over estimated useful lives of 7 to 30 years for buildings and improvements, and 3 to 15 years for machinery and equip- ment. Leasehold improvements are amortized using the straight- line method over the shorter of the remaining lease term or the n a t i o n a l b e v e r a g e c o r p . / 1 4 / 2 0 0 5 a n n u a l r e p o r t estimated useful life of the improvement. When assets are retired that are made based on historical experience and other factors. or otherwise disposed, the cost and accumulated depreciation Sales incentives are accounted for as a reduction of revenues and are removed from the respective accounts and any related gain actual amounts may vary from reported amounts. or loss is recognized. Reclassifications Reclassifications have been made to prior year amounts to conform to the current year presentation, including Segment Reporting We operate as a single operating segment for purposes of presenting financial information and evaluating performance. As such, the accompanying consolidated financial reclassifying $9 million of auction rate securities from their previ- statements present financial information in a format that is consis- ously reported classification as cash equivalents to marketable tent with the internal financial information used by management. securities at May 1, 2004. We have also made corresponding reclassifications to our Consolidated Statements of Cash Flows for fiscal 2004 and 2003 to reflect the gross purchases and sales of these securities as investing activities rather than as a compo- nent of cash and equivalents. 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 require customer performance or achieve- Shipping and Handling Costs Shipping and handling costs are reported in selling, general and administrative expenses in the accompanying statements of income. Such costs aggregated $41.4 million in fiscal 2005, $41.4 million in fiscal 2004, and $40.6 million in fiscal 2003. Stock-Based Compensation We apply Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employ- ees” (“APB 25”), and related interpretations, in accounting for stock-based awards to employees. Under APB 25, we generally recognize no compensation expense with respect to such awards n o i t u l o v e / 5 1 / n o i t u l o v e r ment of certain sales volume targets. In those circumstances unless the exercise price of options granted is less than the mar- when the incentive is paid in advance, we amortize the amount ket price on the date of grant. paid over the period of benefit or contractual sales volume. When We apply Statement of Financial Accounting Standards the incentive is paid in arrears, we accrue the expected amount No. 123, “Accounting and Disclosure of Stock-Based Compensa- to be paid over the period of benefit or expected sales volume. tion” (“SFAS 123”) for awards granted to non-employees after The recognition of expense for these incentives involves the use December 15, 1994. The fair value of option grants was estimated of judgment related to performance and sales volume estimates using the Black-Scholes option-pricing model with the following notes to consolidated financial statements (continued) assumptions: expected life of 10 years; volatility factor of 41% for Depreciation expense was $9,492,000 for fiscal 2005, $8,911,000 fiscal 2005, 41% for 2004, and 42% for 2003; risk-free interest rates for fiscal 2004, and $8,740,000 for fiscal 2003. of approximately 5% for fiscal 2005, 4% for 2004, and 4% for 2003; and no dividend payments. 3 . I N TA N G I B L E A S S E T S Had compensation cost for options granted to employees Intangible assets as of April 30, 2005 and May 1, 2004 consisted been recorded using the Black-Scholes option-pricing model, net of the following: income and basic and diluted earnings per share for each of the (In thousands) 2005 2004 last three fiscal years would have been reduced on a pro forma basis by less than $200,000 and $.01 per share. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and anticipated future actions, actual results may vary from reported amounts. 2 . P R O P E R T Y Property as of April 30, 2005 and May 1, 2004 consisted of the Nonamortizable trademarks $ 1,654 $ 1,587 Amortizable distribution rights and other Less accumulated amortization Net Total—net 882 (597) 285 882 (521) 361 $ 1,939 $ 1,948 Amortization expense related to intangible assets was $83,000 for fiscal 2005, $63,000 for fiscal 2004, and $59,000 for fiscal 2003. 4 . AC C R U E D L I A B I L I T I E S Accrued liabilities as of April 30, 2005 and May 1, 2004 consisted following: (In thousands) Land Buildings and improvements Machinery and equipment Total Less accumulated depreciation of the following: (In thousands) 2005 2004 Accrued compensation $ 10,187 $ 10,187 Accrued promotions 38,743 37,693 119,850 108,989 168,780 156,869 (105,901) (97,334) Other accrued liabilities Total Property—net $ 62,879 $ 59,535 2005 2004 $ 5,383 $ 5,539 4,971 7,936 5,490 7,772 $ 18,290 $ 18,801 n a t i o n a l b e v e r a g e c o r p . / 1 6 / 2 0 0 5 a n n u a l r e p o r t 5 . D E B T On April 30, 2004, the Company paid a special “one-time” A subsidiary of the Company maintains unsecured revolving credit cash dividend of $1.00 per share to shareholders of record on facilities aggregating $45 million (the “Credit Facilities”) with March 26, 2004, including holders of deferred shares and vested banks. The Credit Facilities expire through May 1, 2007 and bear stock options. interest at ½% below the banks’ reference rate or ¾% above In January 1998, the Board of Directors authorized the pur- LIBOR, at the subsidiary’s election. At April 30, 2005, there was chase of up to 800,000 shares of National Beverage common stock. no outstanding debt under the Credit Facilities and approxi- In fiscal 2004 and 2003, we purchased 18,000 shares and 18,250 mately $42 million was available for future borrowings. shares, respectively, which are classified as treasury stock. There The Credit Facilities require the subsidiary to maintain certain were no shares purchased in fiscal 2005. Aggregate shares pur- financial ratios and contain other restrictions, none of which are chased since January 1998 were 502,060. expected to have a material impact on our operations or financial National Beverage is a party to a management agreement position. Significant financial ratios and restrictions include: fixed with Corporate Management Advisors, Inc. (“CMA”), a corporation charge coverage; net worth ratio; and limitations on incurrence of owned by the Company’s Chairman and Chief Executive Officer. debt. At April 30, 2005, we were in compliance with all loan cov- Under the agreement, the employees of CMA provide our Com- enants and approximately $25 million of retained earnings were pany with corporate finance, strategic planning, business devel- restricted from distribution. 6 . C A PITA L S TO CK A N D TR A NSAC TI O NS W ITH R EL ATE D PA R TIE S On March 22, 2004, the Company distributed a 100% stock divi- dend to shareholders of record on March 8, 2004. As a result of the stock dividend, approximately $183,000, representing the par value of the shares issued, was reclassified from additional paid-in capital to common stock. Average shares outstanding, stock option data and per share data presented in these financial opment 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 incurred fees to CMA of $5.0 million for fiscal 2005, $5.1 million for fiscal 2004, and $5.0 million for fiscal 2003. No incentive com- pensation has been incurred or approved under the management agreement since its inception. Included in accounts payable at April 30, 2005 and May 1, 2004 were amounts due CMA of $1.2 statements have been adjusted retroactively for the effects of million and $1.3 million, respectively. the stock dividend. n o i t u l o v e / 7 1 / n o i t u l o v e r notes to consolidated financial statements (continued) 7. OT H E R I N C O M E Other income consisted of the following: (In thousands) Interest income Loss on sale of assets, net Gain on contract settlement 2005 2004 2003 $ 581 $ 603 $ 816 (15) 633 (59) — (110) — Deferred taxes are recorded to give recognition to tempo- rary 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. Our deferred tax assets and liabilities as of April 30, 2005 and May 1, 2004 consisted of the following: Total $ 1,199 $ 544 $ 706 (In thousands) 8 . I N C O M E TA X E S The provision for income taxes consisted of the following: Deferred tax assets: Accrued expenses and other Inventory and amortizable assets (In thousands) Current Deferred Total 2005 2004 2003 Total deferred tax assets $ 8,645 $ 11,265 $ 8,163 891 143 2,709 $ 9,536 $ 11,408 $ 10,872 Deferred tax liabilities: Property Intangibles and other Total deferred tax liabilities 2005 2004 $ 2,280 $ 3,074 279 388 2,559 3,462 16,492 14,861 266 1,909 16,758 16,770 The reconciliation of the statutory federal income tax rate to Net deferred tax liabilities $ 14,199 $ 13,308 our effective tax rate was as follows: Statutory federal income tax rate State income taxes, net of federal benefit Other differences 2005 2004 2003 35.0% 35.0% 35.0% 3.0 (1.9) 3.0 (.1) 2.9 .3 Effective income tax rate 36.1% 37.9% 38.2% Current deferred tax assets—net $ 1,759 $ 1,622 Noncurrent deferred tax liabilities—net $ 15,958 $ 14,930 n a t i o n a l b e v e r a g e c o r p . / 1 8 / 2 0 0 5 a n n u a l r e p o r t 9. I N C E N T I V E A N D R E T I R E M E N T P L A N S options to purchase up to 100,000 shares of common stock to be The 1991 Omnibus Incentive Plan (the “Omnibus Plan”) provides for compensatory awards consisting of (i) stock options or stock awards for up to 4,000,000 shares of common stock, (ii) stock appreciation rights, dividend equivalents, other stock-based awards in amounts up to 4,000,000 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 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 issued under stock-based awards to an individual is limited to 1,400,000 during any year. Awards may be granted for no cash consideration or such minimal cash consideration as may be required by law. Options generally vest over a five-year period and expire after ten years. Pursuant to a Special Stock Option Plan, National Beverage has authorized the issuance of options to purchase up to an aggregate of 1,500,000 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 issued at the direction of the Chairman. The Key Employee Equity Partnership Program (“KEEP Pro- gram”) provides for the granting of stock options to purchase up to 200,000 shares of common stock to key employees, consul- tants, 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 purchased, up to a maximum of 12,000 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 pur- chase 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 1,280,000 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 common stock. As of April 30, 2005, no shares have been issued under the plan. n o i t u l o v e / 9 1 / n o i t u l o v e r notes to consolidated financial statements (continued) The following is a summary of stock option activity: The following is a summary of stock options outstanding as 2005 2004 2003 of April 30, 2005: (Shares in thousands) Shares Price(1) Shares Price(1) Shares Price(1) (Shares in thousands) Options Outstanding Options Exercisable Outstanding at beginning of year 1,033 $2.82 1,869 $2.17 1,993 $2.30 Range of Exercise Price Remaining Life(1) Shares Exercise Price(2) Shares Exercise Price(2) Options granted Options exercised Options canceled Outstanding at year-end Exercisable at year-end Available for grant at 15 (56) (16) 4.61 2.60 2.99 15 (748) (103) 5.33 1.14 2.19 1 (82) (43) 4.21 1.48 2.33 976 2.81 1,033 2.82 1,869 2.17 $ .01–$1.91 $2.07–$2.84 $3.20–$3.69 $4.06–$6.82 4 years 5 years 7 years 9 years 7 years 235 388 185 168 976 $ .92 2.60 3.67 4.98 2.81 212 292 142 145 791 $ .92 2.53 3.69 4.94 2.75 (1) Reflects weighted average remaining contractual life. 791 $2.75 817 $2.74 1,629 $2.03 (2) Reflects weighted average exercise price. year-end 2,960 2,459 2,351 Weighted average fair value of options granted $6.01 $5.37 $4.59 (1) Reflects weighted average exercise price except where noted. During fiscal 2005, 2004 and 2003, approximately $361,000, $1,160,000, and $171,000, respectively, of accrued compensation and tax benefits related to stock options exercised was credited to additional paid-in capital. In addition, tax benefits related to cash dividends paid to holders of deferred shares and vested stock options aggregating $527,000 was credited to additional paid-in capital in fiscal 2005. n a t i o n a l b e v e r a g e c o r p . / 2 0 / 2 0 0 5 a n n u a l r e p o r t The Company contributes to certain pension plans under From time to time, we are a party to various litigation matters collective bargaining agreements based on hours worked and to arising in the ordinary course of business. In our opinion, the ulti- a discretionary profit sharing plan, neither of which have any long- mate disposition of such matters will not have a material adverse term contractual funding requirements. Contributions were $2.3 effect on our consolidated financial position or results of operations. million for fiscal 2005, $2.2 million for fiscal 2004, and $2.2 million for fiscal 2003. 11. S U B S E Q U E N T E V E N T S 10 . C O M M I T M E N T S A N D C O N T I N G E N C I E S In June 2005, we received approximately $7.7 million from the settlement of our claim in a class action lawsuit known as “In re: High We lease buildings, machinery and equipment under various Fructose Corn Syrup Antitrust Litigation Master File No. 95-1477 in non-cancelable operating lease agreements expiring at various the United States District Court for the Central District of Illinois.” dates through 2012. Certain of these leases contain scheduled The lawsuit related to purchases of high fructose corn syrup made rent increases and/or renewal options. Contractual rent increases by the Company and others. The settlement amount was allo- are taken into account when calculating the minimum lease pay- cated to each class action recipient based on the proportion of ment and recognized on a straight-line basis over the lease term. its purchases to total purchases by all class action recipients. The Rent expense under operating lease agreements totaled approx- proceeds less certain offsets and expenses will be recorded in imately $9,298,000 for fiscal 2005, $8,828,000 for fiscal 2004, and our first quarter ended July 30, 2005. The amount received to $8,934,000 for fiscal 2003. date represents approximately 90% of the expected recovery and Our minimum lease payments under non-cancelable operat- payment of the remaining balance is subject to final resolution of n o i t u l o v e / 1 2 / n o i t u l o v e r ing leases as of April 30, 2005 are as follows: all claims. (In thousands) Fiscal 2006 Fiscal 2007 Fiscal 2008 Fiscal 2009 Fiscal 2010 Thereafter Total minimum lease payments $ 4,866 2,720 1,608 1,024 287 225 $10,730 notes to consolidated financial statements (concluded) 12 . Q UA R T E R LY F I N A N C I A L DATA ( U N AU D I T E D ) (In thousands, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal 2005 Net sales Gross profit Net income Net income per share—basic Net income per share—diluted Fiscal 2004 Net sales Gross profit Net income Net income per share—basic Net income per share—diluted n a t i o n a l b e v e r a g e c o r p . / 2 2 / 2 0 0 5 a n n u a l r e p o r t $146,512 $124,858 $103,511 $120,691 48,337 8,856 $ .24 $ .23 39,482 4,120 $ .11 $ .11 32,542 586 $ .02 $ .02 35,005 3,324 $ .09 $ .09 $145,665 $129,373 $107,026 $129,997 48,628 8,450 $ .23 $ .22 42,342 4,021 $ .11 $ .11 35,164 1,356 $ .04 $ .04 42,611 4,864 $ .13 $ .13 report of independent registered certified public accounting firm 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 April 30, 2005 and May 1, 2004, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 2005, 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 standards of the Public Company Accounting Oversight Board (United States). Those standards 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 dis- closures 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 Fort Lauderdale, Florida July 29, 2005 n o i t u l o v e / 3 2 / n o i t u l o v e r market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities The common stock of National Beverage Corp., par value $.01 per share, (“the Common Stock”) is listed on the American Stock Exchange (“AMEX”) under the symbol “FIZ.” The following table shows the range of high and low sale prices per share of the Common Stock as reported by the AMEX for the fiscal quarters indicated: First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal 2005 Fiscal 2004 High Low High Low $ 10.29 $ 9.30 $ 9.89 $7.50 $7.74 $8.06 $ 7.70 $ 7.69 $ 8.37 $6.75 $6.98 $7.43 $ 9.20 $7.00 $ 11.60 $8.05 Excluding beneficial owners of our Common Stock whose securities are held in the names of various dealers and/or clearing agencies, there were approximately 800 shareholders of record at July 15, 2005, according to records maintained by our transfer agent. On April 30, 2004, the Company paid a special “one-time” cash dividend of $1.00 per share. Currently, the Board of Directors has no plans to declare additional cash dividends. See Note 5 of Notes to Consolidated Financial Statements for certain restrictions on the payment of dividends. n a t i o n a l b e v e r a g e c o r p . / 2 4 / 2 0 0 5 a n n u a l r e p o r t corporate data D I R E C T O R S 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.* Senior Partner Steel, Hector & Davis *Member Audit Committee C O R P O R AT E M A N AG E M E N T Nick A. Caporella Chairman of the Board & Chief Executive Officer Joseph G. Caporella President Edward F. Knecht Executive Vice President— Procurement George R. Bracken Senior Vice President— Finance 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 Dean A. McCoy Senior Vice President & Chief Accounting Officer Raymond J. Notarantonio Executive Director—IT John S. Bartley Director—Internal Audit Paul L. Barton Director—Human Resources Brent R. Bott Director—Consumer Marketing H. Don Hatcher Director—Insurance Gregory J. Kwederis Director—Beverage Analyst Lawrence P. Parent Director—Credit Management S U B S I D I A R Y M A N AG E M E N T Edward F. Knecht President Shasta Sweetener Corp. PACO, Inc. William R. Phillips President National BevPak Sanford E. Salzberg President Shasta, Inc. Michael J. Bahr Executive Vice President Shasta West, Inc. Alan A. Chittaro Executive Vice President Faygo Beverages, Inc. Alan D. Domzalski Executive Vice President Everfresh Beverages, Inc. Brian M. Gaggin Executive Vice President National Retail Brands, Inc. Charles A. Maier Executive Vice President Foodservice Shasta Sales, Inc. Victor R. Nastasia Executive Vice President Sundance Beverage Company 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 Martin J. Rose General Manager Shasta Vending S U B S I D I A R I E S 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. Shasta Beverages, Inc. Shasta Beverages International, Inc. Shasta, Inc. Shasta Midwest, Inc. Shasta Northwest, Inc. Shasta Sales, Inc. Shasta Sweetener Corp. Shasta West, Inc. Sundance Beverage Company C O R P O R AT E O F F I C E S One North University Drive Fort Lauderdale, FL 33324 954-581-0922 A N N UA L M E E T I N G The Annual Meeting of Shareholders will be held on Friday, September 30, 2005 at 2:00 p.m. local time at the Hyatt Regency Orlando International Airport, 9300 Airport Boulevard, Orlando, FL 32827. F I N A N C I A L A N D O T H E R I N F O R M AT I O N Copies of National Beverage Corp.’s Annual Report, Annual Report on Form 10-K and supple- mental quarterly financial data are available free of charge on our website or contact our Shareholder Relations department at the Company’s corporate address listed above or at 888-4-NBCFIZ. Earnings and other financial results, corporate news and other Company information are available on National Beverage’s website at www.nationalbeverage.com. S T O C K E X C H A N G E L I S T I N G Common Stock is listed on the American Stock Exchange—symbol FIZ. T R A N S F E R AG E N T A N D R E G I S T R A R Mellon Investor Services LLC P.O. Box 3315 South Hackensack, NJ 07606 877-484-5045 www.melloninvestor.com I N D E P E N D E N T A U D I T O R S PricewaterhouseCoopers LLP Ft. Lauderdale, FL management’s discussion and analysis of financial condition and results of operations (continued) NATIONAL BEVERAGE CORP. ONE NORTH UNIVERSITY DRIVE, FORT LAUDERDALE, FLORIDA 33324 954-581-0922 WWW.NATIONALBEVERAGE.COM ty innovation and evolution...nutrients for profound opportuni revolut ion, .when better is attainable revolution is the staircase to innovation . good is not enough. a constant progressive change ev•o•lu•tion a radical and pervasive movement rev•o•lu•tion n atio n a l b eve ra g e co r p. e v o l u t i o n 20 0 5 a n n u a l re p o r t 

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