Summary of HAIN CELESTIAL GROUP INC

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

Overview

The Hain Celestial Group, Inc., a Delaware corporation, and its subsidiaries
(collectively, the "Company", and herein referred to as "we", "us", and "our")
manufacture, market, distribute and sell natural, organic, specialty and snack food products and natural personal care products, under brand names which are sold as "better-for-you" products. We are a leader in many of the top natural food and personal care products categories. We operate in one segment, the manufacturing, distribution and marketing of natural and organic products, including food, beverage and personal care products. 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 will 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. Our business strategy is to integrate all of our brands under one management team and employ a uniform marketing, sales and distribution program. We capitalize on our brand equity and the distribution achieved through each of our acquisitions with strategic introductions of new products that complement existing lines to enhance revenues and margins.

The United States as well as worldwide economies have recently experienced adverse conditions, which may further decline. These adverse conditions have caused, and may continue to cause, customers and consumers to take a conservative position and further reduce their inventories. In response, we continue to introduce new, innovative products, seeking to provide consumers with better-for-you products at reasonable prices. In addition, we utilized and have recently increased our marketing support, using consumption-orientated programs and consumer coupons to drive sales. We have also been challenged in recent quarters by rising input costs. We strive to offset the impact of input cost increases with a combination of cost savings initiatives and efficiencies and price increases to our customers. During the second and third quarters of fiscal 2009, we implemented workforce reductions and other cost reduction initiatives aimed at lowering our operating expenses in response to the current environment. We will continue to monitor our costs and evaluate the need for additional actions. In light of these economic conditions, we have experienced moderated sales growth, which we expect will continue, but may be subject to further fluctuation.

As we previously announced, our 50.1%-owned Hain Pure Protein unit converted its Plainville, New York facility to meet the growing demand for natural, antibiotic-free, vegetarian-fed, kosher poultry products. The Company's first kosher products, under the Kosher Valley™ brand, were processed in late April. To accommodate this conversion, the Plainville production of antibiotic-free turkeys and turkey products was integrated into Hain Pure Protein's New Oxford, Pennsylvania facility. The integration of the existing Plainville production into New Oxford is expected to generate additional cost benefits. Hain Pure Protein has been challenged in recent quarters by higher feed costs and softening prices, particularly in the market for conventional (non-antibiotic-free) turkey products. Hain Pure Protein is in the process of de-emphasizing sales of lower margin conventional turkey and chicken products while it focuses on antibiotic-free products to improve its mix of sales for future periods.

In the United Kingdom, we are addressing the challenges of the under-utilization of our Fakenham production facility with new frozen meat-free and dessert products, which we expect will bring new sales into that plant. We are also undertaking to recover the volume decline resulting from the phased reduction of a supply arrangement with the exclusive customer for products from our fresh-prepared food-to-go factory. We have introduced a new brand, Pick-Me (under license) targeted at new retail customers and seek to further expand our recently acquired Daily Bread brand. We are also in discussions with numerous British retailers to become a supplier of their food-to-go products.

In addition to ongoing weak global economic conditions, we have been unfavorably impacted by changes in exchange rates with the significant strengthening of the U.S. dollar since the end of our last fiscal year. If the U.S. dollar continues to strengthen, there will be a continuing adverse impact on our future results.

During the quarter ended March 31, 2009, based on a combination of factors, including a sustained decline in the Company's market capitalization below the Company's carrying value during the fiscal quarter ended March 31, 2009, coupled with challenging macro-economic conditions, we concluded that sufficient indicators existed to require us to

Table of Contents

perform an interim goodwill impairment analysis. Although we have not yet completed this analysis, we have concluded that an impairment loss is probable and can be reasonably estimated. Accordingly, we recognized non-cash impairment charges for goodwill and other intangibles of $52.6 million during the third quarter of fiscal 2009. We currently expect to finalize the goodwill impairment analysis during our fourth fiscal quarter. There could be adjustments to the goodwill impairment charge, which could be material, when the goodwill impairment test is completed.

Our corporate website is www.hain-celestial.com. The information 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 SEC.

Results of Operations

Three months ended March 31, 2009

Net sales for the three months ended March 31, 2009 were $267.7 million, an increase of $3.1 million, or 1.2%, over net sales of $264.6 million in the March 31, 2008 quarter. The weakening of foreign currencies decreased reported sales by $12.7 million, or 4.8%. Sales were also impacted by distributors and retailers inventory de-stocking efforts and the peanut recall in the United States. Sales in North America increased $11.8 million, or 5.3%, from the year ago quarter, reflecting increases in sales of our grocery brands, including continued strong performance from Earth's Best, and the addition of sales from the MaraNatha and SunSpire brands from our March 2008 nSpired Natural Foods acquisition. Sales at our Hain Pure Protein unit increased $9.3 million, or 44%, from the year ago period. Sales in Europe decreased $8.7 million, or 20.8%, primarily as a result of unfavorable changes in foreign currency exchange rates. Sales in local currencies at our continent-based operations increased 5.2% and sales in our United Kingdom-based operations increased 8.4% in local currency, excluding the addition of sales from our April 2008 Daily Bread acquisition.

Gross profit for the three months ended March 31, 2009 was $62.8 million, a decrease of $5.9 million from last year's quarter. Gross profit as a percentage of net sales was 23.5% for the three months ended March 31, 2009 compared to 26.0% of net sales for the March 31, 2008 quarter. The decrease in gross profit was primarily attributable to the increased sales at our Hain Pure Protein unit, which, coupled with an unfavorable sales mix between higher margin antibiotic-free and conventional product and decreased gross margins resulting from higher feed costs, unfavorably impacted gross margin by 360 basis points. We continue to experience an unfavorable impact related to under-absorbed overhead at our Fakenham frozen meat-free facility as a result of the expiration of a co-pack agreement with the former owner, impacting gross profit by approximately $1.5 million, or 54 basis points. Last year's third quarter was impacted by approximately $1.8 million (67 basis points) for start-up costs associated with the integration of the Haldane product line into the Fakenham facility. The timing of advertising, promotional and other discounts, such as consumer coupons, which are recorded as a reduction to sales, may cause fluctuations in our gross margin percentage from period to period. Increased advertising, promotional and other discounts compared to the corresponding period of the prior fiscal year negatively impacted gross margin by approximately 66 basis points in this year's third quarter. These gross margins reductions were offset by the performance of our US-based operations (other than HPP) where margins improved by 132 basis points. The increases in input costs we experienced in recent quarters have begun to ease and have been offset by favorable pricing and productivity improvements.

Selling, general and administrative expenses decreased by $1.3 million, or 2.6%, to $50.0 million for the three months ended March 31, 2009 as compared to $51.3 million in the March 31, 2008 quarter. Selling, general and administrative expenses decreased from last year's quarter primarily as a result of the restructuring actions previously taken and a $3.0 million insurance reimbursement recorded for professional fees previously incurred in connection with the investigation of our stock option practices. These were partially offset by $2.0 million of increased stock based compensation expense. Selling, general and administrative expenses as a percentage of net sales decreased to 18.7% in the third quarter of fiscal 2009 as compared to 19.4% in the third quarter of last year, resulting from the decrease in total selling, general and administrative costs and the increased sales contribution of Hain Pure Protein, which operates with a lower operating expense base.

We recognized non-cash impairment charges for goodwill and other intangibles of $52.6 million during the third quarter of fiscal 2009. The charges included $49.6 million for goodwill, net of minority interest of $7.6 million, and $3.0 million for other intangibles, as described below.

Table of Contents

would more likely than not reduce the fair value of any of its reporting units below its carrying value, an interim test is performed. The Company completed its annual impairment analysis during the fourth quarter of fiscal year 2008 and determined that no impairment existed as of the date of that analysis. Based upon a combination of factors including a sustained decline in the Company's market capitalization below the Company's carrying value during the fiscal quarter ended March 31, 2009, coupled with challenging macro-economic conditions, the Company concluded that sufficient indicators existed to require it to perform an interim goodwill impairment analysis at March 1, 2009. Accordingly, the Company performed an interim first step of its goodwill impairment test for each of its six reporting units. For purposes of this analysis, our estimates of fair values are based on a combination of the income approach, which estimates the fair value of each reporting unit based on the future discounted cash flows, and the market approach, which estimates the fair value of the reporting units based on comparable market prices. The income approach requires that assumptions be made for, among others, forecasted revenues, gross profit margins, operating profit margins, working capital cash flow, perpetual growth rates and long-term discount rates, all of which require significant judgments by management. As a result of this step one analysis, the Company determined that the carrying value of its Protein and Europe reporting units exceeded their estimated fair values, indicating potential goodwill impairment existed. Having determined that the goodwill of these two reporting units was potentially impaired, the Company began performing the second step of the goodwill impairment analysis which involves calculating the implied fair value of its goodwill by allocating the estimated fair value of a reporting unit to its assets and liabilities other than goodwill (including both recognized and unrecognized intangible assets) and comparing the residual amount to the carrying value of goodwill. Accordingly, during the third quarter of fiscal 2009, the Company recognized an estimated pre-tax non-cash goodwill impairment charge of $49.6 million, net of $7.6 million attributed to the minority interest of its Hain Pure Protein joint venture, to write off all of the goodwill related to its Protein and Europe reporting units. The non-cash charge has no impact on the Company's compliance with debt covenants, its cash flows or available liquidity.

Due to the complexities involved in determining the fair value of the goodwill of each reporting unit, the Company recorded this charge based on a preliminary assessment and will continue to evaluate the valuations of tangible and intangible assets and the allocation of fair value to the reporting units' assets and liabilities. The Company currently expects to finalize its goodwill impairment analysis during its fourth fiscal quarter. There may be adjustments to the goodwill impairment charge, which may be material, when the goodwill impairment test is completed. Any adjustments to our preliminary estimates as a result of completing this evaluation will be recorded in our financial statements for the fiscal year ended June 30, 2009.

In April 2009, the Company was informed by the exclusive customer of its fresh prepared sandwich business in the United Kingdom that the customer's purchases from the Company would be significantly reduced in phases beginning July 2009, with further reductions through April 2010, after which the Company could potentially supply certain specialty food-to-go products which are currently in a test phase with this customer. In accordance with the provisions of SFAS No. 144, "Accounting for the Disposal or Impairment of Long-Lived Assets," the Company performed an impairment test on the related intangible asset, which was being amortized. The projected undiscounted future cash flows related to this customer relationship were determined to be less than the carrying value, and as a result, the Company recognized a full impairment loss of $3.0 million in the third quarter of fiscal 2009.

We had an operating loss of $39.7 million in the three months ended March 31, 2009 compared to operating income of $17.4 million in the March 31, 2008 quarter. The decrease in operating income resulted primarily from the goodwill and intangibles impairment charges.

Interest and other expenses, net were $1.1 million for the three months ended March 31, 2009 compared to $3.5 million for the three months ended March 31, 2008. Interest expense totaled $3.4 million in this year's third quarter, which was primarily related to interest on the $150 million of 5.98% senior notes outstanding and borrowings under our credit facility made to fund acquisitions and working capital needs. We also incurred $0.6 million for a settlement of a pre-acquisition contingency which could not be estimated at the time of the acquisition and $0.4 million of foreign exchange costs. This was offset by $3.4 million of minority interest income related to losses in the Company's Hain Pure Protein joint venture. Net interest expense in last year's third quarter was approximately $2.9 million. Our net interest expense increased as a result of higher average borrowings during this year related to acquisitions funded in the latter part of fiscal 2008.

In the third quarter of fiscal 2009, we recognized tax expense of $0.3 million on a pre-tax loss of $40.8 million. The tax provision was impacted by the impairment losses recognized, of which approximately $40.7 million is nondeductible for tax purposes, and which are treated as discrete tax items, which do not factor into the calculation of our estimated annual effective tax rate. Our effective income tax rate related to income before tax excluding these discrete items was 38.3% for the three months ended

Table of Contents

March 31, 2009. Our effective income tax rate was 40.2% for the three months ended March 31, 2008. The effective tax rate for the third quarter of fiscal 2009 was lower than the comparable period of the prior year as a result of changes in geographic income distribution. 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.

We had a net loss for the three months ended March 31, 2009 of $41.2 million compared to net income of $8.3 million in the March 31, 2008 quarter. The decrease in earnings was primarily attributable to the impairment charges.

Nine months ended March 31, 2009

Net sales for the nine months ended March 31, 2009 were $872.6 million, an increase of $94.5 million, or 12.1%, over net sales of $778.1 million in the March 31, 2008 nine-month period. The weakening of foreign currencies decreased reported sales by $22.6 million, or 2.9%. Sales in North America increased $107.7 million from the year ago period, reflecting strong performance by our grocery brands, including Earth's Best, Imagine, Arrowhead Mills and Rosetto, and the addition of sales from the MaraNatha and SunSpire brands from our March 2008 nSpired Natural Foods acquisition. Sales at our Hain Pure Protein unit increased $72.3 million, or 124.9%, from the year ago period. Sales in Europe decreased $13.2 million, or 10.3%, primarily as a result of unfavorable changes in exchange rates. Sales in local currencies at our continent-based operations decreased 8.2% in the first nine months. Sales in the United Kingdom increased as a result of the April 2008 acquisition of Daily Bread, which were partially offset by lower sales in our other United Kingdom-based operations.

Gross profit for the nine months ended March 31, 2009 was $207.9 million, a decrease of $8.8 million from last year's nine-month period. Gross profit for the nine months ended March 31, 2009 was 23.8% of net sales as compared to 27.9% of net sales for the March 31, 2008 period. The decrease in gross profit was principally the result of a change in the mix of sales and product contribution. Increased sales at our Hain Pure Protein unit, coupled with an unfavorable sales mix between antibiotic-free and conventional product and decreased gross margins resulting from higher feed costs, unfavorably impacted gross margin by 266 basis points. We continue to experience an unfavorable impact related to under-absorbed overhead at our Fakenham frozen meat-free facility as a result of the expiration of a co-pack agreement with the former owner, impacting gross profit by approximately $6.6 million, or 76 basis points. Last year's nine month period was impacted by approximately $5.0 million (64 basis points) for start-up costs associated with the integration of the Haldane product line into Fakenham. In addition, reduced sales of our fresh prepared products and changes in product mix in the United Kingdom resulted in a 64 basis point unfavorable impact on gross margin. Higher input costs impacted our overall business, both directly, as a result of increased commodity costs, such as corn, wheat, soybeans, canola oil, fruit and fuel, and indirectly, with the pass-through of costs from our suppliers of packaging and other major components of our finished products. We believe we have been able to offset the impact through a combination of pricing, cost reduction initiatives and productivity improvements.

Selling, general and administrative expenses increased by $8.9 million, or 5.9%, to $160.6 million for the nine months ended March 31, 2009 compared to $151.7 million in the March 31, 2008 nine-month period. Selling, general and administrative expenses increased from last year's comparable period primarily as a result of $4.6 million of increased stock based compensation expense, $1.0 million of increased severance and restructuring expenses and a $1.4 million charge to settle a personal injury litigation matter. These were partially offset by a $3.0 million insurance reimbursement recorded for professional fees previously incurred in connection with the investigation of our stock option practices. Selling, general and administrative expenses have also increased as a result of costs brought on by the businesses we acquired since the third quarter of fiscal 2008. Selling, general and administrative expenses as a percentage of net sales decreased to 18.4% in the first nine months of fiscal 2008 as compared to 19.5% in the first nine months of last year, resulting from the increased sales contribution of Hain Pure Protein, which operates with a lower operating expense base.

In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," the Company performs its annual goodwill impairment test on the first day of its fiscal fourth quarter. In addition, if and when events or circumstances change that would more likely than not reduce the fair value of any of its reporting units below its carrying value, an interim test is

Table of Contents

performed. The Company completed its annual impairment analysis during the fourth quarter of fiscal year 2008 and determined that no impairment existed as of the date of that analysis. Based upon a combination of factors including a sustained decline in the Company's market capitalization below the Company's carrying value during the fiscal quarter ended March 31, 2009, coupled with challenging macro-economic conditions, the Company concluded that sufficient indicators existed to require it to perform an interim goodwill impairment analysis at March 1, 2009. Accordingly, the Company performed an interim first step of its goodwill impairment test for each of its six reporting units. For purposes of this analysis, our estimates of fair values are based on a combination of the income approach, which estimates the fair value of each reporting unit based on the future discounted cash flows, and the market approach, which estimates the fair value of the reporting units based on comparable market prices. The income approach requires that assumptions be made for, among others, forecasted revenues, gross profit margins, operating profit margins, working capital cash flow, perpetual growth rates and long-term discount rates, all of which require significant judgments by management. As a result of this step one analysis, the Company determined that the carrying value of its Protein and Europe reporting units exceeded their estimated fair values, indicating potential goodwill impairment existed. Having determined that the goodwill of these two reporting units was potentially impaired, the Company began performing the second step of the goodwill impairment analysis which involves calculating the implied fair value of its goodwill by allocating the estimated fair value of a reporting unit to its assets and liabilities other than goodwill (including both recognized and unrecognized intangible assets) and comparing the residual amount to the carrying value of goodwill. Accordingly, during the third quarter of fiscal 2009, the Company recognized an estimated pre-tax non-cash goodwill impairment charge of $49.6 million, net of $7.6 million attributed to the minority interest of its Hain Pure Protein joint venture, to write off all of the goodwill related to its Protein and Europe reporting units. The non-cash charge has no impact on the Company's compliance with debt covenants, its cash flows or available liquidity.

We had an operating loss of $5.3 million in the nine months ended March 31, 2009 compared to operating income of $65.0 million in the March 31, 2008 comparable period. The decrease in operating income is a result of the impairment charges recognized, the decrease in gross profit and increased selling, general and administrative expenses.

Interest and other expenses, net were $10.9 million for the nine months ended March 31, 2009 compared to $8.8 million for the nine months ended March 31, 2008. Interest expense totaled $11.6 million in this year's first nine months, which was primarily related to interest on the $150 million of 5.98% senior notes outstanding and borrowings under our credit facility made to fund acquisitions and working capital needs, and was partially offset by $0.6 million of interest income earned. Interest expense in last year's first nine months was approximately $9.9 million and was partially offset by interest income earned of $1.3 million. Our net interest expense increased as a result of higher average borrowings during this year related to acquisitions funded in the latter part of fiscal 2008. The minority interest in the net loss of our Hain Pure Protein joint venture was income of $2.8 million compared to expense of $1.7 million in the prior year's quarter. We experienced approximately $2.0 million of increased foreign exchange losses in the first nine months of fiscal 2009. We incurred $0.6 million in the third quarter of fiscal 2009 for a settlement of a pre-acquisition contingency which could not be estimated at the time of the acquisition. We recognized a gain of approximately $2.0 million in the first quarter of fiscal 2008 on the sale of an equity interest in a joint venture which manufactures rice cakes in Belgium.

. . .