NATIONAL BEVERAGE CORP

NATIONAL BEVERAGE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

National Beverage Corp. develops, produces, markets and sells a distinctive portfolio of sparkling waters, juices, energy drinks and carbonated soft drinks primarily in the United States and Canada. Incorporated in Delaware in 1985, National Beverage Corp. is a holding company for various operating subsidiaries. When used in this report, the terms “we,” “us,” “our,” “Company” and “National Beverage” mean National Beverage Corp. and its subsidiaries.

1. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements include the accounts of National Beverage Corp. and its subsidiaries. All significant intercompany transactions and accounts have been eliminated.

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles and rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly, they donot include all information and notes presented in the annual consolidated financial statements. The condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and accompanying notes included in our Annual Report on Form10-K for the fiscal year ended* April 27, 2024.*The accounting policies used in these interim unaudited condensed consolidated financial statements are consistent with those used in the annual consolidated financial statements.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the interim unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Results for the interim periods presented arenot necessarily indicative of results which might be expected for the entire fiscal year.

Fair Value of Financial Instruments

The carrying values of the Company’s financial instruments, including cash and cash equivalents, trade receivables, accounts payable and accrued liabilities, approximate fair value due to the relatively short maturity of the respective instruments. Derivative financial instruments which are used to partially mitigate our exposure to changes in certain raw material costs are recorded at fair value. Derivative financial instruments arenot used for trading or speculative purposes. Credit risk related to derivative financial instruments is managed by requiring high credit standards for counterparties and frequent cash settlements. The estimated fair values of derivative financial instruments are calculated based on market rates to settle the instruments. See Note6-Derivative Financial Instruments.

Inventories

Inventories are stated at the lower offirst-in,first-out cost or net realizable value. Adjustments, if required, to reduce the cost of the inventory to net realizable value are made for estimated excess, obsolete or impaired balances. Inventories at* July 27, 2024were comprised of finished goods of $49.0 million and raw materials of $41.6 million. Inventories at April 27, 2024*were comprised of finished goods of $50.3 million and raw materials of $34.3 million.

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Shipping and Handling Costs

Shipping and handling costs are reported in selling, general and administrative expenses in the accompanying condensed consolidated statements of income. Such costs were $19.5 million and $20.9 million for thethree months ended* July 27, 2024and July 29, 2023,respectively. Although our classification is consistent with many beverage companies, our gross margin may**not* be comparable to companies that include shipping and handling costs in cost of sales.

Marketing Costs

The Company utilizes a variety of marketing programs, including cooperative advertising programs with customers, to advertise and promote its beverages to consumers. Marketing costs are expensed when incurred, except for prepaid advertising and production costs, which are expensed when the advertising takes place. Marketing costs, which are included in selling, general and administrative expenses, were $11.5 million and $10.8 million for thethree months ended* July 27, 2024and July 29, 2023,*respectively.

Earnings Per Common Share

Basic earnings per common share is computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated in a similar manner, but includes the dilutive effect of stock options amounting to 98,000 and 256,000 shares in thethree months ended* July 27, 2024and July 29, 2023,*respectively.

2. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consist of the following:

Depreciation expense was $5.0 million and $4.6 million for thethree months ended* July 27, 2024and July 29, 2023,*respectively.

3. LEASES

The Company has entered into various non-cancelable operating lease agreements for certain offices, buildings and machinery and equipment which expire at various dates through* May 2036.The Company doesnot* assume renewals in the determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. Lease agreements generally donot contain material residual value guarantees or material restrictive covenants. Operating lease costs were $4.1 million and $3.7 million for thethree months ended* July 27, 2024and July 29, 2023,respectively. As of July 27, 2024,the weighted-average remaining lease term and weighted average discount rate of operating leases was 4.69 years and 4.34%, respectively. As of April 27, 2024,the weighted-average remaining lease term and weighted average discount rate of operating leases was 4.80 years and 4.30%, respectively. Cash payments were $4.1 million and $3.7 million for operating leases for thethree* months ended* July 27, 2024and July 29, 2023,*respectively.

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The following is a summary of future minimum lease payments and related liabilities for all non-cancelable operating leases as of* July 27, 2024:*

4. DEBT

At* July 27, 2024,a subsidiary of the Company maintained unsecured revolving credit facilities with banks aggregating $100 million (the “Credit Facilities”). The Credit Facilities expire from October 28, 2024to May 30, 2025and any borrowings would currently bear interest at 1.05% above the Secured Overnight Financing Rate (SOFR). There wereno borrowings outstanding under the Credit Facilities at July 27, 2024or April 27, 2024.At July 27, 2024,*$2.2 million of the Credit Facilities was reserved for standby letters of credit and $97.8 million was available for borrowings.

On* December 21, 2021,a subsidiary of the Company entered into an unsecured revolving term loan facility with a national bank aggregating $50 million (the “Loan Facility”). There wereno borrowings outstanding under the Loan Facility at July 27, 2024or April 27, 2024.The Loan Facility expires December 31, 2025*and any borrowings would bear interest at 1.05% above the adjusted daily SOFR.

The Credit Facilities and Loan Facility require the subsidiary to maintain certain financial ratios, including debt to net worth and debt to EBITDA (as defined in the credit agreements), and contain other restrictions,none of which are expected to have a material effect on operations or financial position. At* July 27, 2024,*the subsidiary was in compliance with all loan covenants.

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5. STOCK OPTIONS

During thethree months ended* July 27, 2024,no options were granted, options to purchase 42,700 shares were exercised and options to purchase 4,200 shares were cancelled at weighted average exercise prices of $8.07 and $15.71, respectively. At July 27, 2024,*options to purchase 253,000 shares at a weighted average exercise price of $28.54 per share were outstanding and stock-based awards to purchase 5,397,605 shares of common stock were available for grant.

6. DERIVATIVE FINANCIAL INSTRUMENTS

From time to time, we enter into aluminum swap contracts to partially mitigate our exposure to changes in the cost of aluminum containers. Such financial instruments are designated and accounted for as cash flow hedges. Accordingly, gains or losses attributable to the effective portion of the cash flow hedge are reported in accumulated other comprehensive income (loss) (“AOCI”) and reclassified into cost of sales in the period in which the hedged transaction affects earnings. The ineffective portion of the change in fair value of our cash flow hedge was immaterial. The following summarizes the gains (losses) recognized in the Condensed Consolidated Statements of Income and AOCI:

As of* July 27, 2024,the notional amount of our outstanding aluminum swap contracts was $102.0 million and, assumingno* change in commodity prices, $1.7 million of unrealized loss before tax will be reclassified from AOCI and recognized in earnings over the next12 months. The maximum length of time for which the Company hedges its exposure to the variability of future cash flows is less thanthree years.

As of* July 27, 2024,the fair value of the short-term derivative liability was $1.9 million, which was included inaccrued liabilities, the fair value of the long-term derivative liability was $0.7 million, which was included in other liabilities, and the fair value of the derivative asset was $0.4 million, of which $0.2 million was included in prepaids and other assets and $0.2 million in other assets. As of April 27, 2024,the fair value of the derivative asset, which was included inprepaid and other assets, was $5.7 million. Such valuation doesnot* entail a significant amount of judgment and the inputs that are significant to the fair value measurement are Level2 as defined by the fair value hierarchy as they are observable market based inputs or unobservable inputs that are corroborated by market data.

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7. CASH DIVIDEND

On* June 12, 2024,the Company's board of directors declared a special cash dividend of $3.25 per share payable to shareholders of record on June 24, 2024.The special cash dividend of $304.1 million was paid on July 24, 2024.*