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. 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.

Segment Reporting

The Company operates as a single operating segment for purposes of presenting financial information and evaluating performance. As such, the accompanying consolidated financial statements present financial information in a format that is consistent with the internal financial information used by management.

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. As of* January 25, 2025and April 27, 2024,cash and cash equivalents included money-market instruments of $77.2 million and $240.7 million, respectively. These financial instruments are Level1* as defined by the fair value hierarchy since they are based on quoted prices in active markets for identical assets and liabilities. Derivative financial instruments which are used to partially mitigate 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 Note5-Derivative Financial Instruments.

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Trade Receivables, Net

The Company’s estimated allowances for credit losses as of* January 25, 2025and April 27, 2024were $1.3 million and $0.9 million, respectively. The Company’s trade receivable, net balances as of January 27, 2024and April 29, 2023*were $101.7 million and $104.9 million, respectively.

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* January 25, 2025were comprised of finished goods of $46.1 million and raw materials of $38.9 million. Inventories at April 27, 2024*were comprised of finished goods of $50.3 million and raw materials of $34.3 million.

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 $17.5 million and $17.7 million for thethree months ended* January 25, 2025and January 27, 2024,respectively. Shipping and handling costs were $55.5 million and $58.3 million for thenine* months ended* January 25, 2025and January 27, 2024,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 $10.1 million and $11.0 million for thethree months ended* January 25, 2025and January 27, 2024,respectively. Marketing costs were $33.2 million and $35.1 million for thenine* months ended* January 25, 2025and January 27, 2024,*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 that was 74,000 and 186,000 shares in thethree months ended* January 25, 2025and January 27, 2024,respectively. The dilutive effect of stock options was 82,000 and 229,000 shares in thenine* months ended* January 25, 2025and January 27, 2024,*respectively.

Recently Issued Accounting Pronouncements

In* November 2024,the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic220*-40): Disaggregation of Income Statement Expenses,” which requires entities to disaggregate operating expenses into specific categories such as employee compensation, depreciation, and intangible asset amortization, by relevant expense caption on the statement of operations. The standard is effective for annual reporting periods beginning after* December 15, 2026,and interim periods within annual reporting periods beginning after December 15, 2027.Early adoption is permitted on either a prospective or retrospective basis. We are currently evaluating the impact of adopting ASU2024*-03 on our consolidated financial statements and related disclosures.

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In* December 2023,the FASB issued ASU2023*-09, “Income Taxes (Topic740): Improvements to Income Tax Disclosures,” which requires disclosure of specific categories in the rate reconciliation, including additional information for reconciling items that meet a quantitative threshold and specific disaggregation of income taxes paid and tax expense. The amendment is effective for annual periods beginning after* December 15, 2024.Early adoption is permitted. The Company is currently evaluating the impact of adoption of this standard on its consolidated financial statements and doesnot* expect a material impact upon adoption.

In* November 2023,the FASB issued ASU2023*-07, “Segment Reporting (Topic280): Improvements to Reportable Segment Disclosures,” which requires additional disclosure of significant segment expenses included in the reported measure of segment profit or loss and regularly provided to the Chief Operating Decision Maker. This standard doesnot change how an entity identifies its operating segments or applies quantitative thresholds to determine its reportable segments. The standard will be effective for our fiscal year ending* May 3, 2025.The Company evaluated the impact of adoption of this standards on its consolidated financial statements and doesnot* expect a material impact upon adoption.

2. PROPERTY, PLANT AND EQUIPMENT, NET

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

Property, plant and equipment included construction-in-progress in the amounts of $42.0 million and $32.5 million as of* January 25, 2025and April 27, 2024,respectively. Depreciation expense was $4.9 million and $4.8 million for thethree* months ended* January 25, 2025and January 27, 2024,respectively. Depreciation expense was $15.0 million and $14.0 million for thenine* months ended* January 25, 2025and January 27, 2024,*respectively. Depreciation expense is recorded in cost of sales and selling, general and administrative expenses.

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* January 2037.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 $4.2 million and $4.1 million for thethree months ended* January 25, 2025and January 27, 2024,respectively. Operating lease costs were $12.5 million and $11.8 million for thenine* months ended* January 25, 2025and January 27, 2024,respectively. As of January 25, 2025,the weighted-average remaining lease term and weighted average discount rate of operating leases was 4.85 years and 4.50%, 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 $3.9 million and $3.5 million for operating leases for thethree* months ended* January 25, 2025and January 27, 2024,respectively. Cash payments were $12.3 million and $11.4 million for operating leases for thenine* months ended* January 25, 2025and January 27, 2024,*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* January 25, 2025:*

4. DEBT

At* January 25, 2025,a subsidiary of the Company maintained unsecured revolving credit facilities with banks aggregating $100 million (the “Credit Facilities”). The Credit Facilities expire from May 30, 2025to September 10, 2027and any borrowings would currently bear interest at 1.15% above the Secured Overnight Financing Rate (“SOFR”). There wereno borrowings outstanding under the Credit Facilities at January 25, 2025or April 27, 2024.At January 25, 2025,*$2.2 million of the Credit Facilities was reserved for standby letters of credit and $97.8 million was available for borrowings.

A subsidiary of the Company also maintains 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* January 25, 2025or April 27, 2024.The Loan Facility expires December 31, 2027*and any borrowings would bear interest at 1.15% 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* January 25, 2025,*the subsidiary was in compliance with all loan covenants.

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5. 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* January 25, 2025,the notional amount of our outstanding aluminum swap contracts was $73.0 million and, assumingno* change in commodity prices, $6.7 million of unrealized gain 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.

The Company isnot subject to any legally enforceable master netting arrangements and doesnot offset fair value amounts recognized for derivative instruments. As of* January 25, 2025,the fair value of the derivative asset was $8.2 million, of which $6.8 million was included in prepaid and other assets and $1.4 million in other assets. The fair value of the derivative liability was $0.1 million which was included inaccrued liabilities. As of April 27, 2024,the fair value of the derivative asset, which was included inprepaid and other current 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.

6. RELATED PARTIES

The Company is a party to a management agreement with Corporate Management Advisors, Inc. (CMA), a corporation owned by our Chairman and Chief Executive Officer. The management agreement provides that the Company will pay CMA an annual base fee equal toone percent of the consolidated net sales of the Company. Management fees to CMA were $2.7 million for each of thethree months ended* January 25, 2025and January 27, 2024.Management fees to CMA were $8.9 million and $9.0 million for thenine* months ended* January 25, 2025and January 27, 2024,respectively. At January 25, 2025and April 27, 2024,*current liabilities included amounts due to CMA of $1.6 million and $3.0 million, respectively.

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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.*