This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the December 31, 2012 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 fiscal year ended June 30, 2012. 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. Operating results for the Company's private-label chilled ready meals and sandwich businesses, including the Daily BreadTM brand name, in the United Kingdom, have been reclassified as discontinued operations for all periods presented.

Overview
We manufacture, market, distribute and sell natural and organic products under brand names which are sold as "better-for-you," providing consumers with the opportunity to lead A Healthy Way of LifeTM. We are a leader in many natural food and personal care products categories, with an extensive portfolio of well-known brands. Our operations are organized and managed by geography, and are comprised of four operating segments: United States, United Kingdom, Canada and Europe. Our business strategy is to integrate the brands in each of our segments under one management team and employ uniform marketing, sales and distribution strategies where possible. We market our products through a combination of direct sales personnel, brokers and distributors. We believe that our direct sales personnel combined with brokers and distributors provide an effective means of reaching a broad and diverse customer base. 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, e-tailers, food service channels and club stores. We manufacture domestically and internationally and our products are sold in more than 50 countries.
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 or product lines an integral part of our business strategy. We believe that by integrating our various brands, we will continue to achieve economies of scale and enhanced market penetration. We seek to capitalize on the equity of our brands 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. We believe 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 LifeTM for the benefit of consumers, our customers, shareholders and employees.
The global economic environment has been uncertain and challenging and we expect that to continue. With the recent acquisitions we have made, a larger proportion of our sales take place outside of the United States. A deterioration in economic conditions in the areas in which we operate may have an adverse impact on our sales volumes and profitability. Our results are dependent on a number of factors impacting consumer confidence and spending, including but not limited to, general economic and business conditions and wage and employment levels. In the United States, we have experienced increased consumer consumption in recent years, which we expect to continue to support with expanded distribution, efficient use of promotional allowances and the introduction of innovative new products. In the United Kingdom, with the recent acquisition of the UK Ambient Grocery Brands and with the upcoming commencement of a long-term program with a major retailer, we have undertaken an evaluation of and implemented a program to discontinue certain of our sales which do not meet our profitability objectives. Energy and commodity prices continue to be volatile and we have experienced increases in select input costs. We expect that higher input costs will continue to affect future periods. We have taken, and will continue to take measures, to mitigate the impact of these challenging conditions and input cost increases with improvements in operating efficiencies, cost savings initiatives and price increases to our customers.

Recent Developments
On December 21, 2012, we acquired the assets and business of Zoe Sakoutis LLC, d/b/a BluePrint Cleanse ("BluePrint"), a nationally recognized leader in the raw juice category based in New York City, for $25.1 million, including $15.5 million in cash (which remains subject to a working capital adjustment) and 174,267 shares of the Company's common stock, valued at $9.5 million. Additionally, contingent consideration is payable based upon the achievement of specified operating results during the two annual periods ending December 31, 2013 and 2014. The BluePrint® brand, which is part of our United States operating segment, expands our product offerings into a new category.

During the third quarter of fiscal 2012, the Company made the decision to sell its private-label chilled ready meals ("CRM") business in the United Kingdom, which was acquired in October 2011 as part of the acquisition of the Daniels Group ("Daniels"). The sale of the CRM business was completed on August 20, 2012. Additionally, during the fourth quarter of fiscal 2012, the Company made the decision to dispose of its sandwich operations, including the Daily BreadTM brand name in the United Kingdom. The disposal of the sandwich business was completed on November 1, 2012 and resulted in an exchange of businesses with the other party, whereby the Company acquired the fresh prepared fruit products business of Superior Food Limited in the United Kingdom in exchange for the Company's sandwich business and a cash payment of £1.0 million (approximately $1.6 million at the transaction date exchange rate). Operating results for the CRM business, which have been included in the Company's consolidated financial statements for the period subsequent to the October 2011 acquisition, and the sandwich business have been classified as discontinued operations for all periods presented.

On October 27, 2012, the Company completed the acquisition of a portfolio of market-leading packaged grocery brands including Hartley's®, Sun-Pat®, Gale's®, Robertson's® and Frank Cooper's®, together with the manufacturing facility in Cambridgeshire, United Kingdom (the "UK Ambient Grocery Brands") from Premier Foods plc. The product offerings acquired include jams, fruit spreads and jelly, peanut butter, honey and marmalade. Consideration in the transaction consisted of £170 million in cash (approximately $273.7 million at the transaction date exchange rate) and 836,426 shares of the Company's common stock valued at $48.1 million, and is subject to a working capital adjustment. The cash portion of the consideration was funded with borrowings under our Credit Agreement. We believe this acquisition further expands our business in the United Kingdom and helps position the new expanded business as a top food and beverage supplier in the United Kingdom.

Results of Operations

THREE MONTHS ENDED DECEMBER 31, 2012

Net Sales
Net sales for the three months ended December 31, 2012 were $455.3 million, an increase of $90.5 million, or 24.8%, from net sales of $364.8 million for the three months ended December 31, 2011.

The net sales increase primarily resulted from an increase in sales of $21.3 million in the United States from improved consumption and expanded distribution as well as an increase of $63.8 million in the United Kingdom primarily due to the acquisitions of Daniels in the second quarter of the prior fiscal year and the UK Ambient Grocery Brands in the second quarter of the current fiscal year. Refer to the Segment Results section for additional discussion.

Gross Profit
Gross profit for the three months ended December 31, 2012 was $130.8 million, an increase of $26.2 million, or 25.0%, from gross profit of $104.6 million in last year's second quarter. Gross profit for both the three months ended December 31, 2012 and 2011 was 28.7% of net sales. Our gross profit percentage benefited from a favorable mix of product sales and productivity improvements, offset by the margin impact related to the inclusion of Daniels and the UK Ambient Grocery Brands (which operate at slightly lower relative margins) in the current year and increases in certain input costs.

Selling, General and Administrative Expenses Selling, general and administrative expenses were $75.7 million for the three months ended December 31, 2012, an increase of $12.3 million, or 19.4%, from $63.5 million in last year's quarter. Selling, general and administrative expenses have increased primarily as a result of the costs brought on by the businesses we acquired, including higher amortization expense related to identified intangible assets. Selling, general and administrative expenses as a percentage of net sales was 16.6% in the second quarter of the current fiscal year and 17.4% in last year's second quarter, a decrease of 80 basis points primarily related to the inclusion of Daniels and the UK Ambient Grocery Brands which operates with lower relative expenses, as well as the integration of certain functions in the United Kingdom into the Daniels operations and our continued focused on leveraging our existing expense base.

Acquisition Related Expenses and Integration Charges We incurred acquisition and integration related expenses aggregating $3.8 million for the three months ended December 31, 2012, which were primarily related to the acquisitions of the UK Ambient Grocery Brands and BluePrint, and to a lesser extent ongoing integration activities in the United Kingdom. We incurred acquisition and integration related expenses aggregating $4.9 million for the three months ended December 31, 2011, which was primarily related to the acquisition of Daniels.

Operating Income
Operating income for the three months ended December 31, 2012 was $51.2 million, an increase of $15.0 million, or 41.5%, from $36.2 million for the three months ended December 31, 2011. The increase in operating income resulted primarily from the increased sales and gross profit. Operating income as a percentage of net sales was 11.3% in the second quarter of fiscal 2013 compared with 9.9% in last year's second quarter. The increase in operating income percentage is attributable to the continued leverage of the Company's existing expense base and the decrease in acquisition related expenses recorded during fiscal 2013.

Interest and Other Expenses, net
Interest and other expenses, net (which includes foreign currency gains and losses) were $3.3 million for the three months ended December 31, 2012 compared to $4.6 million for the three months ended December 31, 2011. Net interest expense totaled $4.7 million for the three months ended December 31, 2012, which includes interest on the $150 million of 5.98% senior notes outstanding, interest related to borrowings under our revolving credit agreement, amortization of deferred financing costs and certain other interest charges, offset partially by interest income earned on cash equivalents. Net interest expense for the three months ended December 31, 2011 was $4.2 million. The increase in interest expense primarily resulted from higher average borrowings under our revolving credit facility, the net proceeds of which were used to purchase the UK Ambient Grocery Brands during the current quarter and Daniels during the second quarter of the prior fiscal year, offset partially by lower interest accretion on contingent consideration due to payments that were made during the first and second quarters of fiscal 2012. Other expenses, net, for the three months ended December 31, 2012 included approximately $1.3 million of realized gains on the forward purchases of British Pounds Sterling to fund the acquisition of the UK Ambient Grocery Brands.

Income Before Income Taxes and Equity in Earnings of Equity-Method Investees Income before income taxes and equity in earnings of our equity-method investees for the three months ended December 31, 2012 and 2011 was $47.9 million and $31.6 million, respectively. The increase was due to the items discussed above.

Income Taxes
The provision for income taxes includes federal, foreign, state and local income taxes. Our income tax expense was $16.3 million for the three months ended December 31, 2012 compared to $11.3 million for the three months ended December 31, 2011. Our effective income tax rate from continuing operations was 34.0% of pre-tax income in the second quarter of fiscal 2013 compared to 35.7% in the prior year's second quarter.
The effective tax rate for the three months ended December 31, 2012 was lower than the comparable period of the prior year primarily as a result of the acquisitions of Daniels and the UK Ambient Grocery Brands in the United Kingdom and the increased income in their lower tax rate jurisdiction. The effective income tax rates differed from the federal statutory rate primarily due to the items noted previously, as well as the effect of state and local income taxes. There were no material changes in unrecognized tax benefits during the second quarter of fiscal 2013.

Equity in Earnings of Equity-Method Investees Our equity in the net income from our joint venture investments for the three months ended December 31, 2012 was $0.6 million compared to $0.8 million for the three months ended December 31, 2011. The income in the current and prior quarters relates to the income from HPP, offset partially by losses from HHO as they continue to develop the Asian markets for our products.

Income From Continuing Operations
Income from continuing operations for the three months ended December 31, 2012 and 2011 was $32.2 million and $21.1 million, or $0.68 and $0.46 per diluted share, respectively. The increase was attributable to the factors noted above.

Discontinued Operations
Our loss from discontinued operations for the three months ended December 31, 2012 was $0.6 million compared to a loss of $1.0 million for the three months ended December 31, 2011. Net sales included within discontinued operations was $3.1 million and $20.7 million during the three months ended December 31, 2012 and 2011, respectively. The decrease in sales

relates to the disposal of the CRM business on August 20, 2012. The operating loss included within discontinued operations was $0.7 million and $1.3 million for the respective periods.

Segment Results

The following table provides a summary of net sales and operating income by reportable segment for the three months ended December 31, 2012 and 2011.

Our operations are organized and managed by geography, and are comprised of four operating segments: United States, United Kingdom, Canada and Europe. The United States and the United Kingdom are currently reportable segments, while Canada and Europe do not currently meet the quantitative thresholds for reporting and are therefore combined and reported as "Rest of World." The Corporate category consists of expenses related to the Company's centralized administrative function which do not specifically relate to an operating segment. Such Corporate expenses are comprised mainly of the compensation and related expenses of certain of the Company's senior executive officers and other selected employees who perform duties related to our entire enterprise, as well as expenses for certain professional fees, facilities, and other items which benefit the Company as a whole. Additionally, acquisition related expenses and restructuring charges are included in Corporate and other. Refer to Note 16, Segment Information, for additional details.

(dollars in                                                                     Corporate and
thousands)              United States      United Kingdom     Rest of World       other (1)        Consolidated
Net sales - Three
months ended
12/31/12               $      280,415     $      120,167     $      54,737     $          -       $     455,319
Net sales - Three
months ended
12/31/11               $      259,153     $       56,417     $      49,267     $          -       $     364,837
% change                          8.2 %            113.0 %            11.1 %                               24.8 %

Operating income -
Three months ended
12/31/12               $       47,582     $       12,076     $       4,268     $    (12,682 )     $      51,244
Operating income -
Three months ended
12/31/11               $       41,760     $        3,362     $       2,630     $    (11,548 )     $      36,204
% change                         13.9 %            259.2 %            62.3 %                               41.5 %

Operating income
margin -
  Three months ended
12/31/12                         17.0 %             10.0 %             7.8 %                               11.3 %
Operating income
margin -
  Three months ended
12/31/11                         16.1 %              6.0 %             5.3 %                                9.9 %

(1) Includes $3.8 million and $4.9 million of acquisition related and integration expenses for the three months ended December 31, 2012 and 2011, respectively.

Our net sales in the United States for the three months ended December 31, 2012 were $280.4 million, an increase of $21.3 million, or 8.2%, from net sales of $259.2 million in the prior year's quarter. The sales increase was directly related to continued improved consumption and expanded distribution with strong contributions from many of our brands, including Celestial Seasonings, Earth's Best, Garden of Eatin', Imagine, MaraNatha, The Greek Gods and Alba Botanica. Operating income in the United States for the three months ended December 31, 2012 was $47.6 million, an increase of $5.8 million, or 13.9%, from operating income of $41.8 million in the prior year's second quarter. Additionally, operating income as a percentage of net sales in the United States increased to 17.0% from 16.1% during these periods. The improvement primarily resulted from the continued leverage of the Company's expense base, price increases and productivity improvements, offset partially by certain higher input costs. Additionally, sales in the United States were impacted by the shift in sales responsibilities in Canada for the Sensible Portions brand to the Company's Canadian operations in fiscal year 2013, which accounted for $2.8 million included in United States sales for the second quarter of fiscal year 2012. Our net sales in the United Kingdom for the three months ended December 31, 2012 were $120.2 million, an increase of $63.8 million, or 113.0%, from net sales of $56.4 million in the prior year's quarter. The sales increase was primarily a result of the acquisition of the UK Ambient Grocery Brands during the current quarter, which accounted for $48.2 million of net sales, and to a lesser extent the acquisition of Daniels during the prior year's quarter. Operating income in the United Kingdom for the three months ended December 31, 2012 was $12.1 million, an increase of $8.7 million, from operating income of $3.4 million

in the prior year's quarter. The increase is a result of the aforementioned acquisitions, which both generate operating income, offset partially by losses incurred for the Company's pre-existing business as integration activities in the segment are ongoing.
Our net sales in the Rest of World were $54.7 million for the three months ended December 31, 2012, an increase of $5.5 million, or 11.1%, from the prior year's quarter. The increase was primarily the result of expanded distribution and increased promotional activity. Operating income as a percentage of net sales increased to 7.8% from 5.3%, reflecting the continued leveraging of the existing cost structure.

SIX MONTHS ENDED DECEMBER 31, 2012

Net Sales
Net sales for the six months ended December 31, 2012 were $815.1 million, an increase of $163.5 million, or 25.1%, from net sales of $651.7 million for the six months ended December 31, 2011.

The net sales increase primarily resulted from an increase in sales of $40.3 million in the United States from improved consumption and expanded distribution as well as an increase of $110.5 million in the United Kingdom primarily due to the acquisition of Daniels in the second quarter of the prior fiscal year and the UK Ambient Grocery Brands in the second quarter of the current fiscal year. Refer to the Segment Results section for additional discussion.

Gross Profit
Gross profit for the six months ended December 31, 2012 was $226.0 million, an increase of $41.6 million, or 22.6%, from gross profit of $184.4 million in last year's period. Gross profit for the six months ended December 31, 2012 was 27.7% of net sales compared to 28.3% of net sales in last year's period. The change in gross profit percentage resulted from the mix of product sales, including the margin impact related to the inclusion of Daniels and the UK Ambient Grocery Brands (which operate at slightly lower relative margins) in the current year. In addition, we experienced increases in certain input costs, offset partially by productivity improvements.

Selling, General and Administrative Expenses Selling, general and administrative expenses were $138.0 million for the six months ended December 31, 2012, an increase of $20.1 million, or 17.1%, from $117.9 million in last year's period. Selling, general and administrative expenses have increased primarily as a result of the costs brought on by the businesses we acquired, including higher amortization expense related to identified intangible assets. Selling, general and administrative expenses as a percentage of net sales was 16.9% in the first quarter of the current fiscal year and 18.1% in the prior fiscal year, a decrease of 120 basis points primarily related to the inclusion of Daniels which operates with lower relative expenses, as well as the integration of certain functions in the United Kingdom into the Daniels operations and our continued focused on leveraging our existing expense base.

Acquisition Related Expenses and Integration Charges We incurred acquisition and integration related expenses aggregating $4.4 million for the six months ended December 31, 2012, which were primarily related to the acquisitions of the UK Ambient Grocery Brands and BluePrint, and to a lesser extent ongoing integration activities in the United Kingdom. We incurred acquisition and integration related expenses aggregating $6.5 million for the six months ended December 31, 2011, which was primarily related to the acquisition of Daniels and to a lesser extent $0.9 million of additional contingent consideration related to the Sensible Portions acquisition.

Operating Income
Operating income for the six months ended December 31, 2012 was $83.5 million, an increase of $23.5 million, or 39.1%, from $60.0 million for the six months ended December 31, 2011. The increase in operating income resulted primarily from the increased sales and gross profit. Operating income as a percentage of net sales was 10.2% in the first six months of fiscal 2013 compared with 9.2% in the prior year period. The increase in operating income percentage is attributable to the continued leverage of the Company's existing expense base and the decrease in acquisition related expenses recorded during fiscal 2013.

Interest and Other Expenses, net
Interest and other expenses, net (which includes foreign currency gains and losses) were $7.2 million for the six months ended December 31, 2012 compared to $8.2 million for the six months ended December 31, 2011. Net interest expense totaled $8.7 million for the six months ended December 31, 2012, which includes interest on the $150 million of 5.98% senior notes

outstanding, interest related to borrowings under our revolving credit agreement, amortization of deferred financing costs and certain other interest charges, offset partially by interest income earned on cash equivalents. Net interest expense for the six months ended December 31, 2011 was $7.3 million. The increase in interest expense primarily resulted from higher average borrowings under our revolving credit facility, the net proceeds of which were used to purchase the UK Ambient Grocery Brands during the current quarter and Daniels during the second quarter of the prior fiscal year, offset partially by lower interest accretion on contingent consideration due to payments that were made during the first and second quarters of fiscal 2012. Other expenses, net, for the six months December 31, 2012 included approximately $1.3 million of realized gains on the forward purchases of British Pounds Sterling to fund the acquisition of the UK Ambient Grocery Brands.

Income Before Income Taxes and Equity in Earnings of Equity-Method Investees Income before income taxes and equity in earnings of our equity-method investees for the six months ended December 31, 2012 and 2011 was $76.3 million and $51.9 million, respectively. The increase was due to the items discussed above.

Income Taxes
The provision for income taxes includes federal, foreign, state and local income taxes. Our income tax expense was $24.2 million for the six months ended December 31, 2012 compared to $19.0 million for the six months ended December 31, 2011. Our effective income tax rate from continuing operations was 31.7% of pre-tax income in the first six months of fiscal 2013 compared to 36.6% in the prior year period.
The effective tax rate for the six months ended December 31, 2012 was lower than the comparable periods of the prior year primarily as a result of the acquisitions of Daniels and the UK Ambient Grocery Brands in the United Kingdom and the increased income in their lower tax rate jurisdiction. Additionally, a discrete adjustment of $1.8 million was recorded during the six months ended December 31, 2012 primarily consisting of a reduction in the carrying value of net deferred tax liabilities resulting from a reduction in the statutory tax rate in the United Kingdom enacted in the first quarter of fiscal 2013. The effective income tax rates differed from the federal statutory rate primarily due to the items noted previously, as well as the effect of state and local income taxes. There were no material changes in unrecognized tax benefits during the first six months of fiscal 2013.

Equity in Earnings of Equity-Method Investees Our equity in the net income from our joint venture investments for the six months ended December 31, 2012 was a loss of $0.1 million compared to income of $0.8 million for the six months ended December 31, 2011. The loss in the current period was primarily due to HHO as they continue to develop the Asian markets for our products, which more than offset the current earnings from HPP.

Income From Continuing Operations
Income from continuing operations for the six months ended December 31, 2012 and 2011 was $52.0 million and $33.7 million, or $1.11 and $0.74 per diluted share, respectively. The increase was attributable to the factors noted above.

Discontinued Operations
Our loss from discontinued operations for the six months ended December 31, 2012 was $4.0 million compared to a loss of $2.0 million for the six months ended . . .