National Beverage Corp. Annual Report 2006

FY2006 Annual Report · National Beverage Corp.

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NATIONAL BEVER AGE CORP.

2006 ANNUAL REPORT

There is nothing more powerful on earth...than an idea!

Why is it that freshly-cut grass, a pinch of cinnamon, or enriched roasted-mango coffee all provide us
with mood-changing buoyancy? How can we create a beverage that duplicates that distinctive feeling?
Will we taste the special essence that comes through each and every time?

One morning a wish—last night a dream—tomorrow a reality. Team National’s ideas make consumers

happy—one sip at a time…through Innovation.

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Never before have Americans been more concerned with enhancing and preserving
healthy minds and bodies. Nutrition, exercise, germ resistance and disease prevention
are the focus of our daily lives. Team National recognizes increasing consumer demand
for ‘good-for-you’ supplements and is passionately working to develop our ideas for
health and wellness into innovative concepts that promote health and deliver the same
quality, refreshment and wonderful flavor for which our traditional beverages are known.
We dream about provoking enthusiastic smiles and laughter in children who are
anxious to consume their nutrients—much to their mom’s surprise! How? We are focused
on developing methods to deliver nutrients in fun and innovative ways. We dream of
boosting the immune system to ward off viruses and bacteria that children contact in
their daily lives. How? We are limited only by our imagination…

National Beverage is committed to exploring the use of healthy supplements around
the world and tailoring these supplements to meet the taste of health-conscious Americans.
We aim to deliver wellness—in our traditional ‘fun and flavorful’ way!

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Developing a healthy beverage that supplies delicious taste while replenishing the
body’s needs and stimulating the mind—that has traditionally been the mission of
National Beverage’s Dream Team. This team has formulated uniquely refreshing flavors
of premium juices and waters to meet the demands of consumers of all ages. We are
proud to provide a wide array of wholesome and appealing beverage choices,
including LaCroix, Crystal Bay and ClearFruit flavored waters and Everfresh and Mr.
Pure juices.

Our Dream Team’s mission is expanding…into tomorrow! Now, our Reality Force is
dreaming of new ways to take tomorrow’s packages to market using the most dynamic
and creative concepts. Some packages may include a tablet sealed in the closure. The
consumer buys the product, presses the cap and ‘poof’—a nutrient-fresh beverage is
ready for consumption as potent as the day it was produced—even after six to eight
weeks of waiting time. Or…we dream of a fast-melt strip or tablet that cuts sugar and
curbs appetite, appealing to the wellness and obesity issues that are among the top
concerns of consumers.

How does all this happen? Innovation…a la National Beverage Corp.!

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National Beverage’s soft-drink creations are the culmination of more than a century of
inspiration…and perfect practice!

There has been a shift in consumer preference to more diet and flavored carbonated
soft drinks. Such distinctive flavors as Black Cherry, Cream, Strawberry, Pineapple,
Raspberry, Kiwi-Strawberry, Orange Mango, Grapefruit, and Grape have exhibited
particularly strong growth. National Beverage’s heritage and tradition of being America’s
true ‘King of Flavors’ is perfectly aligned with this favorable trend.

From the mom who is providing a special, sugar-free treat for her child to the office
worker looking for a fruit-flavored break, our core brands—Shasta and Faygo—are the
soft drinks of choice for every occasion. These brands have heralded many ‘firsts’—first
to use steel cans, first to use alternative sweeteners, first to launch diet flavors, first to
introduce 8-oz. cans, first to convert an entire diet line to Splenda—the list of ‘firsts’ goes
on and on…into the future. We shall never be content with the successes of the past—
it’s tomorrow’s innovations that will be our stepping stones into the realm of the one-of-a-
kind products that hallmark…our novel imagination.

Every sip of Shasta, Faygo, Ritz and Big Shot elicits a smile and a satisfied “aaaah”—
fond memories of the brand ‘you grew up with’ and enormous expectations of more to
come from…Team National!

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Vision...a la National Beverage is...
‘Ideas That Taste Good!’

When companies or products combat each other to succeed...
it’s called Competition—

When people invent ‘ideas’ to distance themselves from all others...
it’s called Innovation—

The dynamic global marketplace contains masses
of youthful human energy that is shifting costs and
efficiencies from ‘once here’ to ‘now there.’ Add to
this a global conversion of lifestyle from poorer to
poor—from no class to better class—from humble to
proud—this has ignited a profound Human Blender.
Now add a revolution of cultures where some
nations are trying to just live—while others, more
advanced, are deeply engaged in health/wellness
to lengthen life. Alas…this ‘Rubik Composition’
mandates Innovation—not change—change was
the old-fashioned way. This is 2006—now, one
must consciously Innovate to even participate in the
world of business.

Creating the ‘ambiance’ for inventing new and
better ways—whether in marketing, manufacturing,
procuring, selling or distributing—is always the
precursor for our reported results.

Attracting those rare souls who ‘imagine’ a
healthier, more novel substance not yet discovered or
a package yet to be developed, is quite ‘magical’
and uniquely arduous…one of National’s more
ardent traits! Is it clairvoyance or intellect that
anticipates the ‘future’ consumables within these
emerging lifestyles? We believe that the atmosphere
of high standards and profound creativity produces
an attraction for those who cannot be content outside
this ‘charged’ and inventive workplace. We are

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National Beverage Corp. and our core is Flavor—
Fun—Variety, so…Innovation is our Birthmark!

Our strategic focus is on distinct methods to
deliver healthier products to those demanding them
—products for a mom to fulfill ‘safer’ requirements
for her children in a more exciting and nutritious
‘concept.’ This new and distinct protocol will
stimulate her children to use the more wholesome
products…aiding her original goal.

Also, as our America ‘ages,’ we strive to ‘nourish’
this more anti-aging/wellness-aware society with a
‘quick/easy’ method to enhance, while quenching
both…‘requirements’ and fun.

Our Nutrafizz family of innovating products will
meet the essentials of both children and mature,
adult consumers.

Beverages for the exciting, ‘charged up’ segment
of ‘alternative demanders’ will be ‘focused’ on more
aggressively—more passionately than ever. The
energy category, or as some describe…the
madness-fun beverage business…has now
surpassed the once fastest growing sports drink
business. Freeky…isn’t it?!

Our strategic focus relative to ‘core’ flavor brands
will also be centered around Innovation! More non-
carbonated—no sugar—naturally sweetened, soft
drinks will be delivered in packages that attract the
‘value’ minded consumer. Shasta, Faygo, Big Shot,
Ritz and Crystal Bay, while carbonated, are cousins
to Everfresh juice, Mr. Pure juice and ClearFruit,
which are not. What’s that old saying about ‘family’
helping ‘family’…good traits of one may help the
future of the other…we’ll see!

Yes, I saved the best for last…LaCroix. This brand
of sparkling, flavored water is a 4.0+ classmate in
our family of beverages and has the greatest
potential. Classy, dynamic and wonderful to look
at…are typical when describing LaCroix and its
superb packaging. The ultimate is its taste…as its
insatiable consumer contently agrees. Look at the
latest LaCroix multi-pak…is that Innovation or what?!
I was the ‘founder’ of National Beverage Corp.
and throughout the years have tried to set the bar
high enough to toughen the Win, while maintaining
the ‘highest’ standards of our business peers. I
believe our Company will achieve more than ever
in FY2007, not only because of our unique
standards but, more importantly, our allegiance to
Innovation. Our core philosophy promotes an ‘ever
challenging’ provocation forcing our team to
excel—providing the shareholders, directors,
employees and consumers the best-of-what’s-
possible all the time…

Maybe it was the wisdom of my father who

initiated it with:

‘If You Can’t Win…

Make The Winner Break A Record’!

Is this the ultimate definition of…Innovation?!

I think so!

Sincerely,

Nick A. Caporella
Chairman and Chief Executive Officer

P.S. Scratch …Excite will appear!

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Selected Financial Data

(In thousands, except per share amounts)

SU M M A RY O F O PER ATI O N S:

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

PER S H A RE DATA:
Basic net income(2)
Diluted net income(2)
Cash dividends paid(3)
Closing stock price

BA L A N CE S H EE T DATA:

Working capital
Property—net
Total assets
Long-term debt
Deferred income taxes—net
Shareholders’ equity(3)

Fiscal Year Ended

April 29,
2006

April 30,
2005

May 1,
2004

May 3,
2003(1)

April 27,
2002

$ 516,802
349,131

$ 495,572
340,206

$ 512,061
343,316

$ 500,430
335,457

$ 502,778
339,041

167,671
135,090
105
2,416

34,892
12,666

155,366
130,037
106
1,199

26,422
9,536

168,745
139,058
132
544

30,099
11,408

164,973
136,902
316
706

28,461
10,872

163,737
136,925
857
867

26,822
10,270

$ 22,226

$ 16,886

$ 18,691

$ 17,589

$ 16,552

.59
.58
1.00
15.36

$ 75,025
56,027
218,339
—
17,783
130,860

.45
.44
—
7.10

.51
.49
1.00
9.08

.48
.46
—
7.10

.45
.44
—
7.20

$ 81,962
62,879
224,587
—
15,958
143,296

$ 64,967
59,535
205,378
—
14,930
125,376

$ 79,785
60,432
218,195
300
14,843
143,292

$ 70,164
60,658
205,685
10,981
12,072
125,677

(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. Share amounts have been adjusted for the 100% stock dividend distributed on March 22, 2004.
(3) In January 2006 and April 2004, the Company paid a special cash dividend of $1.00 per share, aggregating $38.0 million and $38.4 million, respectively.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVI E W

National Beverage Corp. develops, manufactures, markets
and distributes a complete portfolio of quality beverage prod-
ucts throughout the United States. Incorporated in Delaware in
1985, National Beverage Corp. is a holding company for
various operating subsidiaries. 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 distinc-
tive flavor variety. In addition, we offer an assortment of pre-
mium beverages geared to the health-conscious consumer,
including Everfresh®, Home Juice®, and Mr. Pure® 100% juice
and juice-based products; and LaCroix®, Mt. ShastaTM, Crystal
Bay® and ClearFruit® flavored and spring water products. We
also produce energy drinks and powdered beverage prod-
ucts, including Rip It®, an energy drink in liquid and powdered
form geared toward young consumers and PowerBlastTM Energy
Fuel, a powdered nutritional beverage product for “on-the-go”
consumers. Other products include Ohana® fruit-flavored drinks
and St. Nick’s® holiday soft drinks. Substantially all of our
brands are produced in thirteen manufacturing facilities that
are strategically located in major metropolitan markets through-
out 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 modern packaging and broader
demographic emphasis; by developing and acquiring innova-
tive products tailored toward healthy lifestyles; and by appeal-
ing 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 increas-
ing 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 channel. These include development of
products specifically targeted to this market, such as ClearFruit,
Everfresh, Mr. Pure, Crystal Bay, Rip It and PowerBlast. Addi-
tionally, we have created proprietary and specialized pack-
aging for these products with distinctive graphics. We intend
to continue 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 vol-
ume 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.

RESU LTS O F O PER ATI O N S

Net Sales Net sales for fiscal 2006 increased 4.7% to
$516.8 million compared to fiscal 2005, excluding $1.8 mil-
lion received last year from a customer relative to a recovery
of pricing and promotional allowances for product shipped in
a previous period. This increase included a 6% improvement
in pricing and a 1% increase in branded volume, partially
offset by a 12% decline in allied case volume. The increases
in unit pricing and branded volume were led by increased
sales of Rip It energy drinks, Everfresh juices and LaCroix
waters. Volume, however, was negatively impacted by the

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

effects of price increases instituted to recover raw material cost
increases and by the effects of major hurricanes in several of
our market areas.

During fiscal 2005, we initiated a series of price increases
to offset unprecedented raw material cost increases, espe-
cially in the latter part of the year as sustained increases in
fuel and resin continued to rise to historical new highs. Price
increases tend to have an adverse effect on case volume and
the industry generally experienced reduced case volume,
especially for carbonated soft drinks. As a result, our branded
case volume was relatively flat for the year while net pricing
was up slightly, due to higher selling prices and a change in
product mix. This product mix change included increased
sales of our alternative beverages as obesity and other health
issues caused consumers to consume less carbonated soft
drinks. Also impacting sales was a 19% volume decline in
allied branded products related to a retailer’s change in phi-
losophy, which affected their sales and our earlier decision to
eliminate certain lower margin business. Net sales included
$1.8 million received from a customer relative to the recovery
of pricing and promotional allowances for product shipped in
a previous year.

Gross Profit Gross profit approximated 32.4% of net sales
for fiscal 2006 and 31.4% of net sales for fiscal 2005. This
improvement was due to net proceeds of $8.4 million received
from a fructose settlement partially offset by the effects of
higher cost of goods sold, lower allied case volume, and the
$1.8 million noted above. Excluding the fructose settlement,
cost of goods sold per unit increased approximately 7%, pri-
marily due to higher manufacturing and raw material costs.
See Note 11 of Notes to Consolidated Financial Statements.

Gross profit approximated 31.4% of net sales for fiscal
2005 and 33.0% for fiscal 2004. This decline was due to
the effect of the sales decrease and higher cost of goods
sold. Cost of goods sold per unit increased approximately
4%, primarily due to higher packaging and energy costs.

Shipping and handling costs are included in selling, gen-
eral and administrative expenses, the classification of which is
consistent with many beverage companies. However, our gross
margin may not be comparable to companies that include
shipping and handling costs in cost of sales. See Note 1 of
Notes to Consolidated Financial Statements.

Selling, General and Administrative Expenses Selling, gen-
eral and administrative expenses were $135.1 million or
26.1% of net sales for fiscal 2006 compared to $130.0 mil-
lion or 26.2% of net sales for last year. The $5.1 million
increase is due to higher marketing and administrative costs
including increased costs related to product development and
new product introduction.

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.

Interest Expense and Other Income—Net
Interest expense
of $105,000 in fiscal 2006 and $106,000 in fiscal 2005 is
primarily related to financing costs related to maintaining lines
of credit. Other income includes interest income of $1,450,000
for fiscal 2006, $581,000 for fiscal 2005, and $603,000
for fiscal 2004. The increase in interest income for fiscal
2006 is primarily due to an increase in investment yields and
average invested balances, while the decline in fiscal 2005 is
related to a decrease in average invested balances. Fiscal
2006 other income includes gains and losses on the disposal
of property of approximately $2.1 million and $2.0 million,
respectively. In addition, other income for fiscal 2006 and
fiscal 2005 includes a gain of $1.1 million and $633,000,
respectively, related to a contract settlement with a customer.

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Income Taxes Our effective tax rate was approximately
36.3% for fiscal 2006, 36.1% for fiscal 2005, and 37.9% for
fiscal 2004. The difference between the effective rate and the
federal statutory rate of 35% was primarily due to the effects
of state income taxes, nondeductible expenses, and nontax-
able interest income. See Note 8 of Notes to Consolidated
Financial Statements.

L I Q U I D IT Y A N D FI N A N CI A L CO N D ITI O N

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 $3 million is utilized
for standby letters of credit at April 29, 2006. We believe
that existing capital resources are sufficient to meet our capital
requirements and those of the parent company for the fore-
seeable future.

Cash Flows During fiscal 2006, $28.6 million was provided
from operating activities, which was offset by $5.1 million
used for investing activities and $35.9 million used for financ-
ing activities. Cash provided by operating activities decreased
$4.3 million due to an increase in trade receivables, inventories
and other assets. Cash used in investing activities increased
$1.2 million due to the net change in marketable securities
purchased and sold. Cash used in financing activities increased
$36.1 million due primarily to the $38 million cash dividend
paid in January 2006.

During fiscal 2005, cash of $32.9 million was generated
from operating activities, which was partially offset by $3.9
million used for investing activities. Cash provided by operat-
ing activities for fiscal 2005 increased $11.6 million due to an
increase in non-cash charges and favorable changes in work-
ing capital requirements. Cash used in investing activities
increased $3.8 million primarily due to increased capital
expenditures to enhance packaging capabilities and improve

manufacturing efficiencies. Cash provided by financing activi-
ties of $146,000 was comprised of proceeds from stock
options exercised.

Financial Position During fiscal 2006, our working capital
decreased $6.9 million to $75 million primarily due to the
$38 million cash dividend paid in January 2006. Trade
receivables increased $2.1 million due to higher sales. Inventory
increased $4.7 million due to the effects of new products and
cost increases. Prepaid and other assets increased $1.6 mil-
lion due to an increase in income tax refund receivables. At
April 29, 2006, the current ratio was 2.2 to 1 compared to
2.4 to 1 at April 30, 2005.

During fiscal 2005, our working capital increased $17
million to $82 million from $65 million, primarily 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 current ratio was 2.4 to 1 compared to 2.1 to 1 for
the prior year.

Liquidity We continually evaluate capital projects designed
to expand capacity, enhance packaging capabilities and
improve efficiencies at our manufacturing facilities. In the latter
part of fiscal 2004, we initiated several capital expenditure
programs to upgrade our manufacturing facilities, which
resulted in increased capital expenditures in fiscal 2005 and,
to a lesser extent, in fiscal 2006. Such programs are expected
to continue in fiscal 2007.

In January 1998, the Board of Directors authorized the
purchase of up to 800,000 shares of National Beverage
common stock. In fiscal 2004, we purchased 18,000 shares
and there were no shares purchased in fiscal 2006 and
fiscal 2005. Aggregate shares purchased since January 1998
were 502,060.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Pursuant to a management agreement, we incurred a fee
to Corporate Management Advisors, Inc. (“CMA”) of approxi-
mately $5.2 million for fiscal 2006, $5.0 million for fiscal

2005, and $5.1 million for fiscal 2004. At April 29, 2006,
we owed $1.3 million to CMA for unpaid fees. See Note 6
of Notes to Consolidated Financial Statements.

CO N TR AC T UA L O B L I GATI O N S

Long-term contractual obligations at April 29, 2006 are payable as follows:

(In thousands)

Operating leases

Purchase commitments

Total

We have guaranteed the residual value of certain leased
property in the amount of $11.3 million. Management believes
that the net realizable value of the equipment will be in excess
of the guaranteed amount when the lease terminates in
July 2012.

We contribute to certain pension plans under collective
bargaining agreements based on hours worked and to a
discretionary profit sharing plan, neither of which have any
long-term contractual funding requirements. Contributions were
$2.2 million for fiscal 2006, $2.3 million for fiscal 2005, and
$2.2 million for fiscal 2004.

We maintain self-insured and deductible programs for
certain liability, medical and workers’ compensation exposures.
Other long-term liabilities include known claims and estimated
incurred, but not reported, claims not otherwise covered by
insurance, based on actuarial assumptions and historical claims
experience. Since the timing and amount of claims settlement
varies significantly, 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
2007. We expect to renew these standby letters of credit until
they are no longer required.

2008–

2010–

Total

2007

2009

2011

Thereafter

$ 17,577

$ 5,268

$ 6,860

$ 3,645

$1,804

29,176

19,985

9,191

—

$ 46,753

$ 25,253

$ 16,051

$ 3,645

$1,804

O FF-BA L A N CE S H EE T A RR A N G E M EN TS

We do not have any off-balance sheet arrangements that
have or are reasonably likely to have a current or future mate-
rial effect on our financial condition.

CRITI C A L ACCO U N TI N G P O L I CI ES

The preparation of financial statements in conformity with gen-
erally 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 knowl-
edge of current events and actions it may undertake in the
future, they may ultimately differ from actual results. We believe
that the critical accounting policies described in the following
paragraphs affect the most significant estimates and assump-
tions used in the preparation of our consolidated financial
statements. For these policies, we caution that future events
rarely develop exactly as estimated, and the best estimates
routinely require adjustment.

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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 princi-
pally 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 discount-
ing future cash flows. Goodwill and intangible assets not sub-
ject to amortization are evaluated for impairment annually or
sooner in accordance with SFAS No. 142. An impairment loss
is recognized if the carrying amount, or for goodwill, the carry-
ing amount of its reporting unit, 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 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’ compensa-
tion exposures. Accordingly, we accrue for known claims and
estimated incurred but not reported claims not otherwise

covered by insurance, based on actuarial assumptions and
historical claims experience.

Sales Incentives We offer various sales incentive arrange-
ments to our customers, which require customer performance
or achievement of certain sales volume targets. In those cir-
cumstances when the incentive is paid in advance, we amor-
tize the amount paid over the period of benefit or contractual
sales volume. When the incentive is paid in arrears, we
accrue the expected amount to be paid over the period of
benefit or expected sales volume. The recognition of expense
for these incentives involves the use of judgment related to
performance and sales volume estimates that are made based
on historical experience and other factors. Sales incentives are
accounted for as a reduction of revenues and actual amounts
may vary from reported amounts.

F O RWA R D -LO O K I N G S TATE M EN TS

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 statements including, without limitation,
statements containing the words “believes,” “anticipates,”
“intends,” “expects,” and “estimates” constitute “forward-looking
statements” and involve known and unknown risk, uncertainties
and other factors that may cause the actual results, perfor-
mance or achievements of our Company to be materially
different from any future results, performance or achievements
expressed or implied by such forward-looking statements.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Such factors include, but are not limited to, the following: gen-
eral 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 and packaging supplies, 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 employ-
ment of labor; continued retailer support for our products;
changes in consumer preferences and our success in creating
products geared toward consumers’ tastes; success of imple-
menting 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.

Q UA N TITATIVE A N D Q UA L ITATIVE D ISCLOSU RES

A BO U T M A RK E T RIS K

Commodities We purchase various raw materials, including
aluminum cans, plastic bottles, high fructose corn syrup, and
various 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 2006.

Our investment portfolio is comprised of highly liquid
securities consisting primarily of short-term money market instru-
ments and auction rate securities, the yields of which fluctuate
based largely on short-term Treasury rates. If the yield of these
instruments had changed by 100 basis points (1%), interest
income for fiscal 2006 would have changed by approxi-
mately $500,000.

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Consolidated Balance Sheets

As of April 29, 2006 and April 30, 2005

(In thousands, except share amounts)

AS S E TS

Current assets:
Cash and equivalents
Trade receivables—net of allowances of $562 (2006) and $585 (2005)

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 ITI ES A N D S H A REH O L D ERS’ EQ U IT 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

2006

2005

$ 42,119
48,236
34,429
1,940
9,287

136,011
56,027
13,145
1,653
11,503

$ 54,557
46,135
29,738
1,759
7,657

139,846
62,879
13,145
1,939
6,778

$ 218,339

$ 224,587

$ 38,041
20,576
2,369

$ 38,012
18,290
1,582

60,986
17,783
8,710

57,884
15,958
7,449

$15,000—1,000,000 shares authorized; 150,000 shares issued; no shares outstanding

150

Common stock, $.01 par value—authorized 50,000,000 shares;

issued 41,511,193 shares (2006) and 41,018,960 shares (2005);

outstanding 37,478,409 shares (2006) and 36,986,176 shares (2005)

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.

415
23,033
125,262

410
19,679
141,057

(5,100)
(12,900)

130,860

143,296

$ 218,339

$ 224,587

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Consolidated Statements of Income

For the Fiscal Years Ended April 29, 2006, April 30, 2005 and May 1, 2004

(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.

2006

2005

2004

$ 516,802
349,131

$ 495,572
340,206

$ 512,061
343,316

167,671
135,090
105
2,416

34,892
12,666

155,366
130,037
106
1,199

26,422
9,536

168,745
139,058
132
544

30,099
11,408

$ 22,226

$ 16,886

$ 18,691

.59

.58

.45

.44

.51

.49

37,806

37,579

36,937

38,288

38,254

38,166

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Consolidated Statements of Shareholders’ Equity

For the Fiscal Years Ended April 29, 2006, April 30, 2005 and May 1, 2004

2006

2005

2004

(In thousands, except share amounts)

Amount

PREFERRED S TO CK

Beginning and end of year

150,000

150

150,000

150

150,000

150

CO M M O N S TO CK

Beginning of year
Stock options exercised
100% stock dividend

End of year

A D D ITI O N A L PA I D -I N C A PITA L

41,018,960
492,233
—

41,511,193

Beginning of year
Stock options exercised
Stock-based compensation
Stock-based tax benefits
100% stock dividend

End of year

RE TA I N ED E A R N I N GS

Beginning of year
Net income
Cash dividends paid

End of year

TRE ASU RY S TO CK-PREFERRED

410
5
—

415

19,679
1,000
1,254
1,100
—

23,033

141,057
22,226
(38,021)

125,262

40,894,440
124,520
—

22,250,202
409
338,510
1
— 18,305,728

41,018,960

410

40,894,440

223
3
183

409

18,646
145
78
810
—

19,679

124,171
16,886
—

141,057

16,818
851
—
1,160
(183)

18,646

143,846
18,691
(38,366)

124,171

Beginning and end of year

150,000

(5,100)

150,000

(5,100)

150,000

(5,100)

TRE ASU RY S TO CK- CO M M O N

Beginning of year
Purchase of stock

End of year

4,032,784
—

(12,900)
—

4,032,784
—

(12,900)
—

4,014,784
18,000

(12,645)
(255)

4,032,784

(12,900)

4,032,784

(12,900)

4,032,784

(12,900)

TOTA L S H A REH O L D ERS’ EQ U IT Y

$ 130,860

$ 143,296

$ 125,376

See accompanying Notes to Consolidated Financial Statements.

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Consolidated Statements of Cash Flows

For the Fiscal Years Ended April 29, 2006, April 30, 2005 and May 1, 2004

(In thousands)

O PER ATI N G AC TIVITI ES:

Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Deferred income tax provision

Loss (gain) on disposal of property, net

Changes in assets and liabilities:

Trade receivables

Inventories

Prepaid and other assets
Accounts payable
Accrued and other liabilities, net

2006

2005

2004

$ 22,226

$ 16,886

$ 18,691

13,587
1,644
(51)

(2,101)
(4,691)
(4,675)
29
2,584

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

Net cash provided by operating activities

28,552

32,897

21,321

I N VES TI N G AC TIVITI ES:

Marketable securities purchased
Marketable securities sold
Property additions
Proceeds from sale of assets

Net cash used in investing activities

FI N A N CI N G AC TIVITI ES:

Debt repayments
Common stock cash dividend
Purchase of common stock
Proceeds from stock options exercised
Stock-based tax benefits

Net cash provided by (used in) financing activities

N E T I N CRE AS E ( D ECRE AS E) I N C AS H A N D EQ U IVA L EN TS

C AS H A N D EQ U IVA L EN TS — B EG I N N I N G O F YE A R

(352,775)
352,775
(7,964)
2,890

(233,900)
242,900
(13,003)
152

(205,700)
213,700
(8,696)
623

(5,074)

(3,851)

(73)

—
(38,021)
—
1,005
1,100

(35,916)

(12,438)
54,557

—
—
—
146
—

146

29,192
25,365

(1,450)
(38,366)
(255)
854
—

(39,217)

(17,969)
43,334

C AS H A N D EQ U IVA L EN TS — EN D O F YE A R

$ 42,119

$ 54,557

$ 25,365

OT H ER C AS H FLOW I N F O R M ATI O N :

Interest paid
Income taxes paid

See accompanying Notes to Consolidated Financial Statements.

105
10,754

106
6,910

133
11,049

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Notes to Consolidated Financial Statements

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 operating
subsidiaries. When used in this report, the terms “we,” “us,”
“our,” “Company” and “National Beverage” mean National
Beverage Corp. and its subsidiaries.

1. S I G N I FI C A N T ACCO U N TI N G P O L I CI ES

Basis of Presentation The consolidated financial statements
include the accounts of National Beverage Corp. and all sub-
sidiaries. All significant 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 2006, 2005 and 2004 consist of 52 weeks.

Cash and Equivalents Cash and equivalents are comprised
of cash and highly liquid securities (consisting primarily of
short-term money-market investments) with an original maturity
or redemption option of three months or less.

Changes in Accounting Standards Management has reviewed
the current changes in accounting standards and does not
expect any of these changes to have a material impact on
the Company.

Credit Risk We sell products to a variety of customers and
extend credit based on an evaluation of each customer’s finan-
cial 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 antici-
pated losses based on specific customer circumstances, credit
conditions, and historical write-offs and collections. At April 29,
2006 and April 30, 2005, 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.

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 likely than not, that the benefit of
deferred tax assets will not be realized.

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Notes to Consolidated Financial Statements (continued)

Inventories
Inventories are stated at the lower of first-in, first-
out cost or market. Inventories at April 29, 2006 are com-
prised of finished goods of $18,997,000 and raw materials
of $15,432,000. Inventories at April 30, 2005 are comprised
of finished goods of $17,411,000 and raw materials of
$12,327,000.

Marketing Costs We are involved in a variety of marketing
programs, including cooperative advertising programs with
customers, which advertise and promote our products to con-
sumers. Marketing costs are expensed when incurred, except
for prepaid advertising and production costs of future media
advertising. Marketing costs, which are included in selling,
general and administrative expenses, were $37.9 million in
fiscal 2006, $35.6 million in fiscal 2005, and $41.2 million
in fiscal 2004.

Net Income Per Share Basic net income per share is com-
puted by dividing net income by the weighted average number
of common shares outstanding. Included in average common
shares outstanding are shares of common stock of which
option holders have elected to defer physical delivery follow-
ing the exercise of stock options. Diluted net income per share
also includes the dilutive effect of stock options, which amounted
to 482,000 shares (2006), 675,000 shares (2005), and
1,229,000 shares (2004).

Property Property is recorded at cost. Property additions,
replacements and betterments are capitalized, while mainte-
nance 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 machin-
ery and equipment. Leasehold improvements are amortized
using the straight-line method over the shorter of the remaining
lease term or the estimated useful life of the improvement.

When assets are retired or otherwise disposed, the cost and
accumulated depreciation are removed from the respective
accounts and any related gain or loss is recognized.

Reclassifications Reclassifications have been made to prior
year amounts to conform to the current year presentation.

Revenue Recognition Revenue from product sales is recog-
nized when title and risk of loss passes to the customer, which
generally occurs upon delivery.

Sales Incentives We offer various sales incentive arrange-
ments to our customers, which require customer performance
or achievement of certain sales volume targets. In those circum-
stances when the incentive is paid in advance, we amortize
the amount paid over the period of benefit or contractual sales
volume. When the incentive is paid in arrears, we accrue the
expected amount to be paid over the period of benefit or
expected sales volume. The recognition of expense for these
incentives involves the use of judgment related to performance
and sales volume estimates that are made based on historical
experience and other factors. Sales incentives are accounted
for as a reduction of revenues and actual amounts may vary
from reported amounts.

Segment Reporting We operate as a single operating
segment for purposes of presenting financial information and
evaluating performance. As such, the accompanying consoli-
dated financial statements present financial information in a
format that is consistent with the internal financial information
used by management.

Shipping and Handling Costs Shipping and handling costs
are reported in selling, general and administrative expenses in
the accompanying statements of income. Such costs aggre-
gated $44.1 million in fiscal 2006, $41.4 million in fiscal
2005, and $41.4 million in fiscal 2004.

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Stock-Based Compensation At the beginning of the fourth
quarter of fiscal 2006, the Company adopted SFAS No. 123R,
“Stock-Based Compensation” pursuant to the modified pro-
spective application and, accordingly, prior period amounts
have not been restated. Stock-based compensation expense
was recorded based on the fair value method for all awards
granted on or after the date of adoption and for the portion of
previously granted awards that remained unvested at the date
of adoption.

Prior to the fourth quarter of fiscal 2006, the Company
applied the provisions of APB No. 25, “Accounting for Stock
Issued to Employees,” as permitted under SFAS No. 148,
“Accounting for Stock-Based Compensation—Transition and
Disclosure—an amendment of FASB Statement No. 123.”
Under APB 25, stock-based compensation expense was gen-
erally not recognized unless the exercise price of options
granted was less than the market price on the date of grant.

Had compensation cost for options granted to employees
been recorded based on the fair value method under SFAS
No. 123, “Accounting for Stock-Based Compensation” prior to
the adoption date, net income and earnings per share for each
of the last three fiscal years would have been impacted 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. PRO PERT Y

Property as of April 29, 2006 and April 30, 2005 consisted
of the following:

(In thousands)

Land

Buildings and improvements

Machinery and equipment

Total

Less accumulated depreciation

2006

2005

8,915

$ 10,187

38,101

115,379

38,743

119,850

162,395

168,780

(106,368)

(105,901)

Property—net

$ 56,027

$ 62,879

Depreciation expense was $10,147,000 for fiscal 2006,
$9,492,000 for fiscal 2005, and $8,911,000 for fiscal 2004.

3. I N TA N G I B L E AS S E TS

Intangible assets as of April 29, 2006 and April 30, 2005
consisted of the following:

(In thousands)

2006

2005

Nonamortizable trademarks

1,653

$ 1,654

Amortizable distribution rights

Less accumulated amortization

Net

Total—net

855

(855)

—

855

(570)

285

1,653

$ 1,939

Amortization expense related to intangible assets was
$285,000 for fiscal 2006, $83,000 for fiscal 2005, and
$63,000 for fiscal 2004.

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4. ACCRU ED L I A B I L ITI ES

Accrued liabilities as of April 29, 2006 and April 30, 2005
consisted of the following:

(In thousands)

Accrued promotions

Accrued compensation

Accrued insurance
Other

Total

5. D EBT

2006

2005

$ 5,609
4,444

3,603

6,920

$ 4,971

5,383

2,864
5,072

$ 20,576

$ 18,290

A subsidiary of the Company maintains unsecured revolving
credit facilities aggregating $45 million (the “Credit Facilities”)
with banks. The Credit Facilities expire through May 1, 2008
and bear interest at ½% below the banks’ reference rate or
.6% above LIBOR, at the subsidiary’s election. At April 29,
2006, there was no outstanding debt under the Credit
Facilities and approximately $42 million was available for
future borrowings.

The Credit Facilities require the subsidiary to maintain
certain financial ratios and contain other restrictions, none of
which are expected to have a material impact on our opera-
tions or financial position. Significant financial ratios and
restrictions include: fixed charge coverage; net worth ratio; and
limitations on incurrence of debt. At April 29, 2006, we were
in compliance with all loan covenants and approximately $25
million of retained earnings were restricted from distribution.

6. C A PITA L S TO CK A N D TR A N SAC TI O N S W IT H

REL ATED PA RTI ES

On January 27, 2006, the Company paid a special cash
dividend of $1.00 per share to shareholders of record on
January 5, 2006, including holders of deferred shares.

On April 30, 2004, the Company paid a special cash
dividend of $1.00 per share to shareholders of record on
March 26, 2004, including holders of deferred shares and
vested stock options.

On March 22, 2004, the Company distributed a 100%
stock dividend 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 reclassi-
fied from additional paid-in capital to common stock. Average
shares outstanding, stock option data and per share data
presented in these financial statements have been adjusted
retroactively for the effects of the stock dividend.

In January 1998, the Board of Directors authorized the
purchase of up to 800,000 shares of National Beverage
common stock. In fiscal 2004, we purchased 18,000 shares,
which are classified as treasury stock. There were no shares
purchased in fiscal 2006 and fiscal 2005. Aggregate shares
purchased since January 1998 were 502,060.

The Company is a party to a management agreement
with Corporate Management Advisors, Inc. (“CMA”), a corpo-
ration owned by the Company’s Chairman and Chief Executive
Officer. Under the agreement, the employees of CMA provide
our Company with corporate finance, strategic planning, busi-
ness 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. In July 2005, in connection
with providing services under the management agreement,
CMA became a twenty percent joint owner of an aircraft
used by the Company. We incurred fees to CMA of $5.2
million for fiscal 2006, $5.0 million for fiscal 2005, and $5.1
million for fiscal 2004. No incentive compensation has been
incurred or approved under the management agreement since
its inception. Included in accounts payable at April 29, 2006

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and April 30, 2005 were amounts due CMA of $1.3 million
and $1.2 million, respectively.

7. OT H ER I N CO M E

Other income consisted of the following:

(In thousands)

2006

2005

2004

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. Valua-
tion allowances are established when it is deemed, more likely
than not, that the benefit of deferred tax assets will not be real-
ized. Our deferred tax assets and liabilities as of April 29,
2006 and April 30, 2005 consisted of the following:

Interest income
Gain on contract settlement

Gain (loss) on disposal of

property, net

Relinquishment of

distribution rights

$ 1,450
1,143

$ 581

$ 603

633

—

(In thousands)

Deferred tax assets:

(15)

(59)

Accrued expenses and other

Inventory and amortizable assets

(228)

—

Total deferred tax assets

Total

$ 2,416

$1,199

$ 544

Fiscal 2006 other income includes gains and losses on
the disposal of property of approximately $2.1 million and
$2.0 million, respectively.

8. I N CO M E TA XES

The provision for income taxes consisted of the following:

(In thousands)

Current

Deferred

Total

2006

2005

2004

$11,022

$8,645

$11,265

1,644

891

143

$12,666

$9,536

$11,408

The reconciliation of the statutory federal income tax rate

to our effective tax rate was as follows:

2006

2005

2004

Statutory federal income tax rate

35.0%

State income taxes, net of

federal benefit

Other differences

2.9

(1.6)

3.0

(1.9)

3.0

(.1)

Effective income tax rate

36.3%

36.1%

37.9%

2006

2005

$ 2,161
155

$ 2,280

279

2,316

2,559

18,048

16,492

111

266

Deferred tax liabilities:

Property

Intangibles and other

Total deferred tax liabilities

18,159

16,758

Net deferred tax liabilities

$ 15,843

$ 14,199

Current deferred tax assets—net

$ 1,940

$ 1,759

Noncurrent deferred tax liabilities—net

$ 17,783

$ 15,958

9. S TO CK-BAS ED CO M PEN SATI O N

The 1991 Omnibus Incentive Plan (the “Omnibus Plan”) pro-
vides 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 consul-
tants of our Company by making available to them an oppor-
tunity to acquire a proprietary interest or to increase such
interest in National Beverage. The number of shares or options

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Notes to Consolidated Financial Statements (continued)

which may be issued under stock-based awards to an individ-
ual is limited to 1,400,000 during any year. Awards may be
granted for no cash consideration or such minimal cash con-
sideration 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. The Board of Directors also autho-
rized the issuance of options to purchase up to 100,000 shares
of common stock to be issued at the direction of the Chairman.
The Key Employee Equity Partnership Program (“KEEP
Program”) provides for the granting of stock options to purchase
up to 200,000 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
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. Options are granted at an initial exercise
price of 60% of the purchase price paid for the shares
acquired and reduce to the par value of the stock at the end
of the six-year vesting period.

The fair value of option grants was estimated on the date
of grant using a Black-Scholes option-pricing model with the
following assumptions: weighted average expected life of 7.7
years for fiscal 2006, 10 years for 2005, and 10 years for
2004; weighted average expected volatility of 30.5% for
fiscal 2006, 41% for 2005, and 41% for 2004; weighted
average risk-free interest rates of 4.5% for fiscal 2006, 5% for
2005, and 4% for 2004; and no expected dividend pay-
ments. Subsequent to adopting SFAS No. 123R, forfeitures

were estimated based on historical experience. Prior to adop-
tion, forfeitures were recorded as they occurred. In fiscal
2006, the expected life of stock options was estimated based
on historical experience. Prior to fiscal 2006, the expected
life was based on contractual term. The expected volatility
was estimated based on historical stock prices for a period
consistent with the expected life of stock options. The risk-free
interest rate was based on the U.S. Treasury constant maturity
interest rate whose term is consistent with the expected life of
stock options.

The following is a summary of stock option activity for

fiscal 2006:

Options outstanding, beginning of year

Granted

Exercised

Cancelled

Options outstanding, end of year

Options exercisable, end of year

Weighted
Average
Exercise
Price

$2.81

8.31

2.22

1.19

4.93

3.20

975,659

287,550

(453,433)

(400)

809,376

427,820

Stock-based compensation expense for fiscal 2006,
fiscal 2005 and fiscal 2004 was $291,000, $89,000, and
$229,000, respectively. The total fair value of shares vested
for fiscal 2006, fiscal 2005 and fiscal 2004 was $218,000,
$136,000, and $447,000, respectively. The total intrinsic
value for stock options exercised during fiscal 2006, fiscal
2005 and fiscal 2004 was $2.7 million, $353,000, and
$6.3 million, respectively. The weighted average fair value for
the stock options granted in fiscal 2006, fiscal 2005 and
fiscal 2004 was $5.18, $6.01, and $5.37, respectively.

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As of April 29, 2006, unrecognized compensation
expense related to the unvested portion of the Company’s
stock options was $1.7 million, which is expected to be
recognized over a weighted average period of 4.8 years.
The weighted average remaining contractual term and the
aggregate intrinsic value for options outstanding as of April
29, 2006 was 5.8 years and $8.4 million, respectively. The
weighted average remaining contractual term and the aggre-
gate intrinsic value for options exercisable as of April 29,
2006 was 3.2 years and $5.2 million, respectively.

For fiscal 2006, net cash proceeds from the exercise of
stock options were $1,005,000 and the associated income
tax benefit was $942,000.

The Company has a stock purchase plan which 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 29, 2006, no shares have been
issued under the plan.

10. CO M M ITM EN TS A N D CO N TI N G EN CI ES

We lease buildings, machinery and equipment under various
non-cancelable operating lease agreements expiring at vari-
ous dates through 2013. Certain of these leases contain
scheduled rent increases and/or renewal options. Contractual
rent increases are taken into account when calculating the
minimum lease payment and recognized on a straight-line
basis over the lease term. Rent expense under operating lease
agreements totaled approximately $8,507,000 for fiscal
2006, $9,298,000 for fiscal 2005, and $8,828,000 for
fiscal 2004.

Our minimum lease payments under non-cancelable

operating leases as of April 29, 2006 are as follows:

(In thousands)

Fiscal 2007

Fiscal 2008

Fiscal 2009

Fiscal 2010

Fiscal 2011

Thereafter

Total minimum lease payments

$ 5,268

3,741

3,119

1,981

1,664

1,804

$17,577

We have guaranteed the residual value of certain leased
property in the amount of $11.3 million. No liability has been
recorded as management believes that the net realizable
value of the equipment will be in excess of the guaranteed
amount when the lease terminates in July 2012 and that the
fair market value of the guarantee is immaterial.

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 long-term contractual funding requirements. Contributions
were $2.2 million for fiscal 2006, $2.3 million for fiscal
2005, and $2.2 million for fiscal 2004.

From time to time, we are a party to various litigation mat-
ters 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.

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Notes to Consolidated Financial Statements (continued)

11. FRU C TOS E S E T TL E M EN T

In June 2005, we received a partial payment of $7.7 million
from the settlement of our claim in a class action lawsuit known
as “In re: High Fructose Corn Syrup Antitrust Litigation Master
File No. 95-1477 in the United States District Court for the
Central District of Illinois.” The lawsuit related to purchases of
high fructose corn syrup made by the Company and others.
The settlement amount was allocated to each class action

recipient based on the proportion of its purchases to total
purchases by all class action recipients. The amount received,
less offsets and expenses of $.5 million, was recorded as a
reduction in cost of sales in the first quarter of fiscal 2006. In
November 2005, the Company received $1.2 million, repre-
senting the final payment due under the settlement. Such
amount was recorded in the third quarter of fiscal 2006 as a
reduction in cost of sales.

12. Q UA RTERLY FI N A N CI A L DATA ( U N AU D ITED )

(In thousands, except per share amounts)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Fiscal 2006

Net sales

Gross profit

Net income

Net income per share—basic

Net income per share—diluted

Fiscal 2005

Net sales

Gross profit

Net income

Net income per share—basic

Net income per share—diluted

$ 142,363

$ 131,502

$ 109,587

$ 133,350

49,328

9,683

$ .26

$ .25

41,220

4,574

$ .12

34,920

2,297

$ .06

42,203

5,672

$ .15

$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

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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 29, 2006 and April 30, 2005, and the results of their operations and their cash flows for each of the three years in the
period ended April 29, 2006, 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 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
Fort Lauderdale, Florida
July 28, 2006

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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, (“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 2006

Fiscal 2005

High

Low

High

Low

$ 8.66
$ 8.76
$ 10.00
$ 16.00

$7.18

$7.07

$7.00
$8.31

$ 10.29

$ 9.30

$ 9.89

$ 9.20

$7.50

$7.74

$8.06

$7.00

Excluding beneficial owners of our Common Stock whose securities are held in the names of various dealers and/or clearing
agencies, there were approximately 700 shareholders of record at July 17, 2006, according to records maintained by our
transfer agent.

On January 27, 2006 and April 30, 2004, the Company paid a special 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.

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Corporate Data

D I R EC TO RS

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.*
Partner
Squire, Sanders & Dempsey L.L.P.

*Member Audit Committee

CO 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

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

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FI N A N C I A L A N D OT H ER
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
supplemental quarterly financial
data are available free of charge
on our website or contact our
Shareholder Relations department
at the Company’s corporate
address 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 TO CK E XC 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 FER 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 EPE N D E N T R E G I S T ER E D
CERT I FI E D P U B L I C
ACCO U N T I N G FI R M

PricewaterhouseCoopers LLP
Fort Lauderdale, FL

Brent R. Bott
Director—Consumer Marketing

Gregory J. Kwederis
Director—Beverage Analyst

Lawrence P. Parent
Director—Credit Management

S U B S I D I A RY 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 ES

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

CO R P O R AT E O FFI CES

One North University Drive
Fort Lauderdale, FL 33324
954-581-0922

A N N UA L M EE T I N G

The Annual Meeting of
Shareholders will be held on
Friday, September 29, 2006
at 2:00 p.m. local time at
the Hyatt Regency Orlando
International Airport, 9300
Airport Boulevard, Orlando,
FL 32827.

N AT I O N A L B E V E R A G E C O R P.

O N E N O R T H U N I V E R S I T Y D R I V E

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95 4 -5 81- 0 9 2 2 W W W. N AT I O N A L B E V E R AG E .C O M