Summary of HAIN CELESTIAL GROUP INC

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

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the September 30, 2009 Condensed Consolidated Financial Statements and the related Notes contained in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended June 30, 2009. Forward-looking statements in this review are qualified by the cautionary statement included in this review under the sub-heading, "Note Regarding Forward Looking Information," below.

Overview

We manufacture, market, distribute and sell natural and organic specialty and snack food products and natural personal care products, under brand names which are sold as "better-for-you" products, providing consumers with the opportunity to lead A Healthy Way of Life™. We are a leader in many natural food and personal care products categories, with an extensive portfolio of well known brands. We operate in one segment, the manufacturing, distribution, marketing and sale of natural and organic products, including food, beverage and personal care products. Our business strategy is to integrate all of our brands under one management team and employ a uniform marketing, sales and distribution program. Our products are sold to specialty and natural food distributors, as well as to supermarkets, natural food stores, and other retail classes of trade including mass-market retailers, drug store chains, food service channels and club stores. We manufacture internationally and our products are sold in more than 50 countries. Our brand names are well recognized in the various market categories they serve.

We have acquired numerous brands since our formation and we intend to seek future growth through internal expansion as well as the acquisition of complementary brands. We consider the acquisition of natural and organic food and personal care products companies and product lines an integral part of our business strategy. We believe that by integrating our various brands, we will achieve economies of scale and enhanced market penetration. We seek to capitalize on our brand equity and the distribution achieved through each of our acquired businesses with strategic introductions of new products that complement existing lines to enhance revenues and margins. Our continuing investments in the operational performance of our business units and our focused execution on cost containment, productivity, cash flow and margin enhancement positions us to offer innovative new products with healthful attributes and enables us to build on the foundation of our long-term strategy of sustainable growth. We are committed to creating and promoting A Healthy Way of Life™ for the benefit of consumers, our customers, shareholders and employees.

The economic challenges and uncertainties experienced in the United States as well as the rest of the world have persisted since our fiscal 2009 second quarter. We continued to experience challenging industry conditions during the first quarter of 2010 due to the global economic slowdown. These challenges and uncertainties continue to negatively affect consumer demand and lead to significant distributor and retailer destocking, which had, and may continue to have, an adverse impact on our business. Despite these conditions, we are encouraged by our results in the United States and Canada, as discussed in detail, below.

The global economic challenges have also impacted our business in Europe, where sales in the United Kingdom declined in the three months ended September 30, 2009 from the prior year comparable period. The demand weakness and the phasing out of the supply of fresh prepared sandwiches to a major retail customer in the United Kingdom resulted in underutilization of our production capacity. In response, we initiated a consolidation of our Daily Bread production activities into our Luton facility. In our United Kingdom meat-free frozen food operation, we are pleased with the performance of our Linda McCartney products, which had substantially higher sales than the year ago period and we have been successful in obtaining new customers, which we expect will improve our sales and factory utilization in the second half of this fiscal year. Results at our continent-based operations were strong, where sales on a local currency basis were ahead of last year and profit improved.

While we cannot predict the continuing magnitude and duration of the economic downturn or its impact on the demand for our products, we believe that we will continue to derive benefits from new, innovative products, seeking to provide consumers with healthful, "better-for-you" products at reasonable prices.

We continued our focus on generating cash and maintaining a strong balance sheet with ample liquidity. During the first quarter of fiscal 2010, we repaid an additional $16.3 million of borrowings under our credit facility, which brings the total repayments since the end of last year's first quarter to $76.5 million.

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Our corporate website is www.hain-celestial.com. The information contained on our website is not, and shall not be deemed to be, a part of this report or incorporated into any of our other filings made with the Securities and Exchange Commission ("SEC").

Factor Affecting Comparability

As of June 30, 2009, the minority owner of Hain Pure Protein Corp. ("HPP") acquired a controlling interest in the joint venture through the purchase of newly issued shares. As a result, the Company's equity interest was reduced to 48.7% and, effective June 30, 2009, the Company deconsolidated HPP and began accounting for its investment in HPP under the equity method of accounting. Beginning on July 1, 2009, the revenues and expenses of HPP are no longer consolidated and the Company's 48.7% share of HPP's results are reported as a separate line on the condensed consolidated statement of operations. The Company's condensed consolidated statements of operations for all periods prior to July 1, 2009 include the revenues and expenses of HPP.

Results of Operations

Three months ended September 30, 2009

Net sales for the three months ended September 30, 2009 were $230.5 million compared to $286.8 million for the three months ended September 30, 2008, a decrease of $56.3 million, which includes the impact of deconsolidating $38.4 million of HPP sales reported in the prior year quarter. Additionally, weaker foreign currencies relative to the year ago quarter decreased our reported sales by approximately $4.6 million or 2.0%. Sales in North America, excluding the impact of deconsolidating HPP, decreased $8.6 million, or 4.2%, from the year ago quarter. The decrease in sales resulted from a number of factors, including increased promotional spending, which is targeted at increasing consumption, distributor and retailer destocking, the Celestial Seasonings SKU rationalization implemented in the fourth quarter of fiscal 2009 and decreased sales of our personal care products into the chain drug channel. Despite these issues, we experienced continued growth of our Earth's Best, Arrowhead Mills, Imagine Soup and MaraNatha brands and increased distribution of our products into new channels. Additionally, our sales in Canada increased approximately 6% in local currency, although they were flat in U.S dollars. Sales in Europe decreased $9.4 million, or 21.0%, as a result of the lower sales in our United Kingdom-based operations. This was partially offset by increased sales at our continent-based operations.

Gross profit for the three months ended September 30, 2009 was $61.8 million, a decrease of $7.0 million from last year's quarter. Gross profit as a percentage of net sales was 26.8% for the three months ended September 30, 2009 compared to 24.0% of net sales for the September 30, 2008 quarter. The increase in gross profit percentage was primarily attributable to the deconsolidation of HPP, which impacted the prior year's gross profit ratio by approximately 300 basis points and was partially offset by the increase in promotional spending.

Selling, general and administrative expenses decreased by $10.8 million, or 20.2%, to $42.6 million for the three months ended September 30, 2009 compared to $53.3 million in the September 30, 2008 quarter. Selling, general and administrative expenses have decreased primarily as a result of the savings from the cost reduction initiatives we implemented last year, decreased professional fees related to the now-completed review of our stock option practices and the deconsolidation of HPP. Selling, general and administrative expenses as a percentage of net sales decreased to 18.5% in the first quarter of fiscal 2010 as compared to 18.6% in the first quarter of last year.

We incurred approximately $1.8 million of restructuring expenses in this year's first quarter related to the consolidation of our Daily Bread production activities into our Luton, United Kingdom facility. We expect that the transfer will be completed in the second quarter of this fiscal year with additional costs of approximately $1.0 million to be recognized in that period. In the first quarter of fiscal 2008, we incurred approximately $0.6 million of severance costs related to actions taken in several of our United States locations.

Operating income was $17.5 million for the three months ended September 30, 2009 compared to $14.9 million in the September 30, 2008 quarter. The increase in operating income resulted primarily from the decrease in our selling, general and administrative expenses. Operating income as a percentage of net sales was 7.6% in the September 30, 2009 quarter compared with 5.2% in the September 30, 2008 quarter.

Interest and other expenses, net were $3.0 million for the three months ended September 30, 2009 compared to $4.0 million for the three months ended September 30, 2008. Interest expense totaled $2.6 million in this year's first quarter, which was primarily related to interest on the $150 million of 5.98% senior notes outstanding and interest related to borrowings under our revolving credit facility. Interest expense in last year's first quarter was approximately $3.8 million. The decrease in interest expense resulted from a combination of lower borrowings under our revolving credit facility and lower interest rates.

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Our equity in the net loss from our investment in HPP was $1.0 million. In the prior year, HPP's results were consolidated into the Company's results.

Income before income taxes for the three months ended September 30, 2009 amounted to $13.4 million compared to $10.9 million in the comparable period of the prior year.

Our effective income tax rate was 37.0% of pre-tax income for the three months ended September 30, 2009 compared to 38.0% for the three months ended September 30, 2008. The effective tax rate for the first quarter of fiscal 2010 was lower than the comparable period of the prior year as a result of changes in geographic income distribution and the deconsolidation of HPP. The effective rate differs from statutory rates due to the effect of state and local income taxes, tax rates in foreign jurisdictions and certain nondeductible expenses. Our effective tax rate may change from quarter to quarter based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes and tax audit settlements.

Net income attributable to The Hain Celestial Group, Inc. for the three months ended September 30, 2009 was $8.1 million compared to $7.0 million in the September 30, 2008 quarter. The increase of $1.1 million in earnings was attributable to the factors noted above.

Liquidity and Capital Resources

We finance our operations and growth primarily with the cash flows we generate from our operations and from both long-term fixed-rate borrowings and borrowings available to us under our Credit Facility.

Our cash balance was $16.6 million at September 30, 2009, a decrease of $24.8 million from the end of fiscal 2009. Net cash used in operating activities was $8.1 million for the three months ended September 30, 2009, compared to $29.2 million for the three months ended September 30, 2008. The decrease in cash used by operations in the first quarter of fiscal 2010 resulted primarily from an improvement in the changes in operating assets and liabilities of approximately $20.0 million as compared to the prior year comparable period. The change in operating assets and liabilities primarily resulted from improved inventory management. Our inventories increased approximately $6.6 million in the first three months of the current fiscal year but were $50.4 million, including $35.9 million as a result of the HPP deconsolidation, lower than a year ago. The current fiscal year's activity includes a seasonal increase of ingredients to support sales of our products, such as tea and soup, which increase in the cooler months. Our working capital decreased to $210.8 million at September 30, 2009 compared with $212.6 million at June 30, 2009.

In the three months ended September 30, 2009, we used $1.0 million of cash in investing activities. This consisted of $2.7 million of capital expenditures, which was partially offset by $1.7 million of repayments of advances received from HPP. We used $3.3 million of cash in investing activities in the three months ended September 30, 2008, primarily for capital expenditures.

Net cash of $16.1 million was used in financing activities for the three months ended September 30, 2009 compared to $17.7 million provided by financing activities for the three months ended September 30, 2008. The change was due principally to a decrease in the proceeds from exercises of stock options to $0.3 million in the three months ended September 30, 2009 from $4.8 million in the three months ended September 30, 2008 and $16.3 million of borrowings repaid under our Credit Facility for the three months ended September 30, 2009 compared to $13.0 million of drawings made during the three months ended September 30, 2008.

We maintain our cash and cash equivalents primarily in money market funds or their equivalent. As of September 30, 2009, all of our investments mature in less than three months. Accordingly, we do not believe that our investments have significant exposure to interest rate risk.

We have outstanding $150 million in aggregate principal amount of 10-year senior notes due May 2, 2016, issued in a private placement. The notes bear interest at 5.98%, payable semi-annually on November 2nd and May 2nd. We also have a credit agreement which provides us with a $250 million revolving credit facility (the "Credit Facility") expiring in May 2011. The Credit Facility provides for an uncommitted $100 million accordion feature, under which the facility may be increased to $350 million. The Credit Facility and the notes are guaranteed by substantially all of our current and future direct and indirect domestic subsidiaries. Loans under the Credit Facility bear interest at a base rate (greater of the

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applicable prime rate or Federal Funds Rate plus an applicable margin) or, at our option, the reserve adjusted LIBOR rate plus an applicable margin. As of September 30, 2009, there were $92.0 million of borrowings outstanding under the Credit Facility. We are required by the terms of the Credit Facility and the notes to comply with customary affirmative and negative covenants for facilities and notes of this nature.

We believe that our cash on hand of $16.6 million at September 30, 2009, projected cash flows from operations and availability under our credit facility are sufficient to fund our currently anticipated working capital needs, capital spending and other expected cash requirements for at least the next twelve months.

Off Balance Sheet Arrangements

At September 30, 2009, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K that have had or are likely to have a material current or future effect on our financial statements.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The accounting principles we use require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and amounts of income and expenses during the reporting periods presented. We believe in the quality and reasonableness of our critical accounting policies; however, it is likely that materially different amounts would be reported under different conditions or using assumptions different from those that we have applied. The accounting policies that have been identified as critical to our business operations and understanding the results of our operations pertain to revenue recognition and sales incentives, valuation of accounts and chargebacks receivable, inventories, property, plant and equipment, accounting for acquisitions, stock based compensation, segments and goodwill and intangible assets. The application of each of these critical accounting policies and estimates was discussed in Item 7 of our Annual Report on Form 10-K for the year ended June 30, 2009. During the first quarter of fiscal 2010 we adopted the revised FASB for business combinations which will affect our accounting for acquisitions policy. See Note 2 to the Condensed Consolidated Financial Statements included in Item 1. There have been no other significant changes in the application of our critical accounting policies or estimates during fiscal 2010.

Seasonality

Our tea brand primarily manufactures and markets hot tea products and, as a result, its quarterly results of operations reflect seasonal trends resulting from increased demand for its hot tea products in the cooler months of the year. In addition, some of our other products (e.g., baking and cereal products and soups) also show stronger sales in the cooler months while our snack food and certain of our prepared food product lines are stronger in the warmer months. In years where there are warm winter seasons, our sales of cooler weather products, which typically increase in our second and third fiscal quarters, may be negatively impacted.

Quarterly fluctuations in our sales volume and operating results are due to a number of factors relating to our business, including the timing of trade promotions, advertising and consumer promotions and other factors, such as seasonality, inclement weather and unanticipated increases in labor, commodity, energy, insurance or other operating costs. The impact on sales volume and operating results due to the timing and extent of these factors can significantly impact our business. For these reasons, you should not rely on our quarterly operating results as indications of future performance.

Inflation

Inflation may cause increased ingredient, fuel, labor and benefits. For more information regarding ingredient costs, see Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk - Ingredient Inputs Price Risk, of the Company's Annual Report on Form 10-K for the year ended June 30, 2009. To the extent permitted by competition, we seek to recover increased costs through a combination of price increases, new product innovation and by implementing process efficiencies and cost reductions.

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Note Regarding Forward Looking Information

Certain statements contained in this Quarterly Report constitute "forward-looking statements" within the meaning of Rule 3b-6 of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the Company, or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following:

• our ability to achieve our guidance for sales and earnings per share in fiscal year 2010 given the recession in the U.S. and other markets that we sell products as well as economic and business conditions generally and their effect on our customers and consumers' product preferences, and our business, financial condition and results of operations;

• changes in estimates or judgments related to our impairment analysis of goodwill and other intangible assets;

• our ability to implement our business and acquisition strategy, including our strategy for improving results in Europe;

• the ability of our joint venture investments, including HPP, to successfully execute their business plans;

• our ability to realize sustainable growth generally and from investments in core brands, offering new products and our focus on cost containment, productivity, cash flow and margin enhancement in particular;

• our ability to effectively integrate our acquisitions;

• competition;

• the success and cost of introducing new products as well as our ability to increase prices on existing products;

• availability and retention of key personnel;

• our reliance on third party distributors, manufacturers and suppliers;

• our ability to maintain existing contracts and secure and integrate new customers;

• our ability to respond to changes and trends in customer and consumer demand, preferences and consumption;

• international sales and operations;

• changes in fuel and commodity costs;

• the continuing adverse effects on our results of operations from the impacts of foreign exchange;

• the resolution of the civil litigation regarding our stock option practices;

• changes in, or the failure to comply with, government regulations; and

• other risks detailed from time-to-time in the Company's reports filed with the Securities and Exchange Commission, including the annual report on Form 10-K, for the fiscal year ended June 30, 2009.

As a result of the foregoing and other factors, no assurance can be given as to the future results, levels of activity and achievements and neither the Company nor any person assumes responsibility for the accuracy and completeness of these statements.