ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

National Beverage Corp. is a holding company for various subsidiaries that develop, manufacture, market and sell a diverse portfolio of beverage products. In this report, the terms "we", "us", "our", "Company" and "National Beverage" mean National Beverage Corp. and its subsidiaries.

Our brands include soft drinks, energy drinks and shots, juices, teas, still and sparkling waters and nutritionally enhanced beverages, and span both carbonated and non-carbonated offerings. In addition, we produce soft drinks for certain retailers ("Allied Brands") who also promote certain of our brands ("Strategic Alliances"). We employ a philosophy that demands vertical integration wherever possible and our vertically integrated manufacturing model unites the procurement of raw materials, production of concentrates and manufacturing of finished products in our twelve manufacturing facilities. To service a diverse customer base that includes numerous national retailers as well as hundreds of smaller "up-and-down-the-street" accounts, we developed a hybrid distribution system which promotes and utilizes customers' warehouse distribution facilities and our own direct-store delivery fleet plus the direct-store delivery systems of independent distributors.

We consider ourselves to be a leader in the development and sale of flavored beverage products. Our soft drink flavor development spans over 100 years originating with our flagship brands, Shasta® and Faygo®, and includes our Ritz® and Big Shot® brands. For the health-conscious consumer, we offer a diverse line of flavored beverage products, including Everfresh®, Home Juice® and Mr. Pure® 100% juice and juice-based products; LaCroix®, Crystal Bay® and Clear Fruit® flavored, sparkling and spring water products; and Àsanté® nutritionally-enhanced beverages. In addition, we produce and market Rip It® energy drinks and shots, Ohana® fruit-flavored non-carbonated drinks, Sundance® teas and lemonades and St. Nick's® holiday soft drinks. We refer to our portfolio of brands other than soft drinks as our "Power+ Brands".

Our strategy emphasizes the growth of our products by (i) offering a beverage portfolio of proprietary flavors with distinctive packaging and broad demographic appeal, (ii) supporting the franchise value of regional brands,
(iii) appealing to the "quality-value" expectations of the family consumer and
(iv) responding to demographic trends by developing innovative products tailored toward healthy lifestyles or designed to expand distribution in higher-margin channels.

The majority of our sales are seasonal with the highest volume typically realized during the summer months. As a result, our operating results from one fiscal quarter to the next may not be comparable. Additionally, our operating results are affected by numerous factors, including fluctuations in the costs of raw materials, changes in consumer preference for beverage products, competitive pricing in the marketplace and weather conditions.

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RESULTS OF OPERATIONS

Three Months Ended October 27, 2012 (second quarter of fiscal 2013) compared to Three Months Ended October 29, 2011 (second quarter of fiscal 2012)

Net sales for the second quarter of fiscal 2013 increased 5.4% to $166.6 million as compared to $158.0 million for the second quarter of fiscal 2012. The sales improvement is due to case volume growth of 15.4% for our Power+ Brands and 6.3% for carbonated soft drinks. This sales improvement was partially offset by a 2.9% decline in unit pricing primarily due to product mix changes.

Gross profit approximated 32.8% of net sales for the second quarter of fiscal 2013 compared to 34.2% of net sales for the second quarter of fiscal 2012. The gross profit decline is due to product mix changes and lower pricing mentioned above. Cost of sales decreased .8% on a per unit basis.

Selling, general & administrative expenses were $36.1 million or 21.7% of net sales for the second quarter of fiscal 2013 compared to $36.9 million or 23.4% of net sales for the second quarter of fiscal 2012. The decrease in expenses was due to lower marketing costs.

Other expense includes interest income of $11,000 for the second quarter of fiscal 2013 and $13,000 for the second quarter of fiscal 2012.

The Company's effective income tax rate, based upon estimated annual income tax rates, was 34.5% for the second quarter of fiscal 2013 and 35.0% for the second quarter of fiscal 2012. The difference between the effective rate and the federal statutory rate of 35% was primarily due to the effect of state income taxes and the manufacturing deduction.

Six Months Ended October 27, 2012 (first six months of fiscal 2013) compared to Six Months Ended October 29, 2011 (first six months of fiscal 2012)

Net sales for the first six months of fiscal 2013 increased 6.8% to $349.4 million as compared to $327.1 million for the first six months of fiscal 2012. The sales improvement is due to case volume growth of 18.3% for our Power+ Brands and 6.8% for carbonated soft drinks. This sales improvement was partially offset by a 2.6% decline in unit pricing primarily due to product mix changes.

Gross profit approximated 32.3% of net sales for the first six months of fiscal 2013 compared to 35.2% of net sales for the first six months of fiscal 2012. The gross profit decline is due to product mix changes and lower pricing mentioned above. Cost of sales increased 1.7% on a per unit basis.

Selling, general & administrative expenses were $72.4 million or 20.7% of net sales for the first six months of fiscal 2013 compared to $77.3 million or 23.6% of net sales for the first six months of fiscal 2012. The decrease in expenses was due to lower marketing and administration expenses.

Other expense includes interest income of $25,000 for the first six months of fiscal 2013 and $23,000 for the first six months of fiscal 2012.

The Company's effective income tax rate, based upon estimated annual income tax rates, was 34.5% for the first six months of fiscal 2013 and 35.0% for the first six months of fiscal 2012. The difference between the effective rate and the federal statutory rate of 35% was primarily due to the effect of state income taxes and the manufacturing deduction.

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LIQUIDITY AND FINANCIAL CONDITION

Liquidity and Capital Resources
Our principal source of funds is cash generated from operations, which may be supplemented by borrowings available under our credit facilities. We maintain $75 million unsecured revolving credit facilities of which $2.4 million was used for standby letters of credit at October 27, 2012. On November 23, 2012, the Company amended one of its credit facilities to increase the amount of available credit from $25 million to $50 million and extend the maturity date to November 22, 2015. We believe that existing capital resources will be sufficient to meet our liquidity and capital requirements for the next twelve months.

On November 23, 2012, the Company declared a special cash dividend of $2.55 per share payable to shareholders of record on December 7, 2012. The cash dividend, expected to approximate $118 million, will be paid from available cash and credit facilities on or before February 1, 2013.

Cash Flows
The Company's cash position for the first six months of fiscal 2013 increased $13.1 million from April 28, 2012, which compares to an increase of $14.6 million for the similar 2012 fiscal period.

Net cash provided by operating activities for the first six months of fiscal 2013 amounted to $16.1 million compared to $18.1 million for the similar 2012 fiscal period. For the first six months of fiscal 2013, cash flow was principally provided by net income of $26.4 million and depreciation and amortization aggregating $5.8 million, offset in part by an increase in inventories and a decline in accounts payable.

Net cash used in investing activities for the first six months of fiscal 2013, principally capital expenditures, amounted to $3.2 million compared to $3.8 million for the similar 2012 fiscal period.

Financial Position
During the first six months of fiscal 2013, working capital increased $27.7 million to $97.5 million due to cash generated from operations. Trade receivables decreased $5.0 million, which represents a reduction in days sales outstanding from approximately 33.9 days at year-end to 30.9 days, and inventories increased $2.1 million, which represents a decrease in inventory turns from 11.0 at year-end to 10.4 times. The current ratio was 2.7 to 1 at October 27, 2012 and 1.9 to 1 at April 28, 2012.