This discussion and analysis deals with comparisons of material changes in the unaudited condensed consolidated financial statements for the three-month and nine-month periods ended January 31, 2013 and 2012. Results for the three and nine months ended January 31, 2013 and 2012, include the operations of the North American foodservice coffee and hot beverage business acquired from Sara Lee Corporation ("Sara Lee foodservice business") since the completion of the acquisition on January 3, 2012.

The Company is the owner of all trademarks, except for the following which are used under license: Pillsbury, the Barrelhead logo, and the Doughboy character are trademarks of The Pillsbury Company, LLC; Carnation® is a trademark of Société des Produits Nestlé S.A.; Dunkin' Donuts is a registered trademark of DD IP Holder, LLC; and Douwe Egberts and Pickwick® are registered trademarks of D.E Master Blenders 1753 N.V. Borden® and Elsie are also trademarks used under license.

Dunkin' Donuts brand is licensed to the Company for packaged coffee products sold in retail channels such as grocery stores, mass merchandisers, club stores, dollar stores, and drug stores. Information in this document does not pertain to Dunkin' Donuts coffee or other products for sale in Dunkin' Donuts restaurants. K-Cup® and K-Cups® are trademarks of Keurig, Incorporated.

Results of Operations



                                             Three Months Ended January 31,                 Nine Months Ended January 31,
                                             2013                     2012                   2013                    2012
                                                             (Dollars in millions, except per share data)
Net sales                               $       1,559.6          $       1,467.6        $      4,558.0          $      4,170.4
Gross profit                            $         536.2          $         465.7        $      1,547.9          $      1,395.4
% of net sales                                     34.4 %                   31.7 %                34.0 %                  33.5 %
Operating income                        $         258.3          $         200.4        $        696.4          $        592.7
% of net sales                                     16.6 %                   13.7 %                15.3 %                  14.2 %
Net income:
Net income                              $         154.2          $         116.8        $        413.9          $        355.6
Net income per common
share-assuming dilution                 $          1.42          $          1.03        $         3.78          $         3.12
Gross profit excluding special
project costs (1)                       $         537.4          $         478.8        $      1,555.5          $      1,431.7
% of net sales                                     34.5 %                   32.6 %                34.1 %                  34.3 %
Operating income excluding special
project costs (1)                       $         266.3          $         232.9        $        746.2          $        680.2
% of net sales                                     17.1 %                   15.9 %                16.4 %                  16.3 %
Net income excluding special
project costs: (1)
Income                                  $         159.4          $         138.3        $        446.8          $        413.5
Income per common share-assuming
dilution                                $          1.47          $          1.22        $         4.08          $         3.63

(1) Refer to "Non-GAAP Measures" located on page 32 for a reconciliation to the comparable GAAP financial measure.

Net sales in the third quarter and first nine months of 2013 increased six percent and nine percent, respectively, compared to 2012, due to the contribution from the acquired Sara Lee foodservice business and favorable sales
mix. Operating income increased 29 percent and 17 percent in the third quarter and first nine months of 2013, respectively, compared to 2012. Excluding the impact of restructuring, merger and integration, and certain pension settlement costs ("special project costs"), operating income increased 14

The Company's net income per diluted share was $1.42 and $1.03 for the third quarters of 2013 and 2012, respectively, and $3.78 and $3.12 for the first nine months of 2013 and 2012, respectively, an increase of 38 percent for the quarter and 21 percent for the first nine months. The Company's net income per diluted share excluding special project costs increased 20 percent in the third quarter of 2013 to $1.47, compared to $1.22 in the third quarter of 2012, and increased 12 percent for the first nine months of 2013 to $4.08, compared to $3.63 in 2012. In addition to gross profit improvements, net income per diluted share and net income per diluted share excluding special project costs for the third quarter and first nine months of 2013 benefited from a decrease in weighted-average shares outstanding as a result of the Company's share repurchase activity over the past year.

Net Sales



                                                  Three Months Ended January 31,                            Nine Months Ended January 31,
                                                                       Increase                                                  Increase
                                          2013           2012         (Decrease)        %          2013           2012          (Decrease)        %
                                                                                    (Dollars in millions)
Net sales                               $ 1,559.6      $ 1,467.6     $       91.9         6 %    $ 4,558.0      $ 4,170.4      $      387.6         9 %
Adjust for certain noncomparable
items:
Acquisition                                 (59.7 )          -              (59.7 )      (4 )       (237.1 )          -              (237.1 )      (6 )
Divestiture                                    -             -                 -          0            -             (8.0 )             8.0         0
Foreign exchange                             (3.4 )          -               (3.4 )      (0 )          0.0            -                 0.0         0

Net sales adjusted for the
noncomparable impact of acquisition,
divestiture, and foreign exchange       $ 1,496.5      $ 1,467.6     $       28.9         2 %    $ 4,320.9      $ 4,162.5      $      158.4         4 %

Amounts may not add due to rounding.

Net sales increased $91.9 million, or six percent, in the third quarter of 2013, compared to the third quarter of 2012, primarily due to the Sara Lee foodservice business acquisition and favorable sales mix. As a result of the acquisition in January 2012, an additional two months of net sales, totaling $59.7 million, were recognized in the third quarter of 2013. Favorable sales mix in the quarter was driven by the Company's K-Cups and peanut butter products, which are higher priced per pound, compared to other products within the Company's portfolio. Overall net price realization was lower primarily due to price declines on coffee taken earlier in the fiscal year. Volume gains realized in Jif peanut butter and Smucker's fruit spreads were offset by decreases in the Pillsbury brand and the Canadian Robin Hood® and Five Roses® flour brands. Overall volume, based on weight and excluding the incremental impact of the acquisition, decreased one percent in the third quarter of 2013, compared to the third quarter of 2012.

Net sales for the first nine months were $4,558.0 million in 2013, and increased $387.6 million, or nine percent, compared to the first nine months of 2012, due primarily to the incremental impact of the acquired Sara Lee foodservice business and favorable sales mix. Overall net price realization was slightly higher for the first nine months of 2013, compared to 2012, as price increases taken on peanut butter during fiscal 2012 more than offset the impact of coffee price declines. Overall volume, based on weight and excluding acquisition, was flat for the first nine months of 2013, compared to 2012. Volume gains were realized in Jif peanut butter, Folgers coffee, and Robin Hood and Five Roses flour in Canada but were offset by volume declines in Pillsbury baking mixes and Bicks® pickles. Favorable sales mix for the first nine months was driven by volume growth in the Company's coffee brands, including K-Cups.

Operating Income

The following table presents the components of operating income as a percentage
of net sales.



                                           Three Months Ended January 31,                  Nine Months Ended January 31,
                                           2013                      2012                  2013                     2012
Gross profit                                    34.4 %                    31.7 %                34.0 %                   33.5 %
Selling, distribution, and
administrative expenses:
Marketing                                        4.8 %                     4.8 %                 5.1 %                    5.1 %
Selling                                          3.3                       3.2                   3.3                      3.2
Distribution                                     2.6                       2.6                   2.6                      2.8
General and administrative                       5.4                       4.7                   5.3                      5.1

Total selling, distribution, and
administrative expenses                         16.1 %                    15.3 %                16.2 %                   16.3 %

Amortization                                     1.6                       1.5                   1.6                      1.5
Other restructuring, merger and
integration, and special project
costs                                            0.4                       1.3                   0.9                      1.2
Loss on divestiture                              0.0                       0.0                   0.0                      0.3
Other operating income-net                      (0.3 )                    (0.1 )                (0.1 )                   (0.0 )

Operating income                                16.6 %                    13.7 %                15.3 %                   14.2 %

Amounts may not add due to rounding.

Gross profit increased $70.5 million, or 15 percent, in the third quarter of 2013, compared to 2012, and gross margin increased from 31.7 percent to 34.4 percent over the same period. The increase in gross profit was due to favorable mix, lower commodity costs, the impact of an additional two months of the Sara Lee foodservice business, and a decrease in special project costs. Lower commodity costs were driven by green coffee offset somewhat by higher peanut costs. Excluding special project costs, gross profit increased $58.6 million, or 12 percent, and improved to 34.5 percent of net sales in the third quarter of 2013, compared to 32.6 percent in the third quarter of 2012.

Selling, distribution, and administrative ("SD&A") expenses increased 12 percent in the third quarter of 2013, compared to the third quarter of 2012, and increased as a percentage of net sales from 15.3 percent to 16.1 percent. Marketing, selling, and distribution expenses increased six percent, 10 percent, and five percent, respectively, and were primarily driven by the acquired Sara Lee foodservice business. General and administrative expenses increased 21 percent due to increased incentive compensation and employee benefit costs.

Restructuring and merger and integration costs decreased $24.5 million in the third quarter of 2013, compared to the third quarter of 2012, due primarily to the closing of several facilities included in the Company's restructuring plan during 2012.

Operating income increased $57.9 million, or 29 percent, in the third quarter of 2013, compared to 2012, and operating margin increased from 13.7 percent to 16.6 percent over the same period. Excluding the impact of special project costs in both periods, operating income increased $33.4 million, or 14 percent, and increased from 15.9 percent of net sales in 2012 to 17.1 percent in 2013.

Gross profit increased $152.5 million, or 11 percent, in the first nine months of 2013, compared to 2012, and gross margin increased from 33.5 percent to 34.0 percent over the same period. The increase in gross profit was primarily due to the acquired Sara Lee foodservice business, favorable mix, and a $12.9 million increase in the benefit of unrealized mark-to-market adjustments on derivative contracts, which increased to a gain of $8.9 million in the first nine months of 2013 from a loss of $4.0 million in the first nine months of 2012. Overall commodity costs were relatively flat for the first nine months of 2013, compared to 2012, as lower green coffee costs were offset by higher costs for peanuts. The impact of lower green coffee costs was mostly offset by lower net price realization as a result of a coffee price decline in May 2012. Price increases taken on peanut butter during fiscal 2012 more than offset the impact of higher peanut costs. Excluding special project costs,

SD&A expenses in the first nine months of 2013 increased nine percent, compared to the first nine months of 2012, but were relatively flat as a percentage of net sales. Marketing and selling expenses increased eight and 12 percent, respectively, generally in line with the increase in net sales and driven in part by the acquired Sara Lee foodservice business. General and administrative expenses increased 13 percent primarily due to increased incentive compensation and employee benefit costs.

Restructuring and merger and integration costs decreased $44.4 million in the first nine months of 2013, compared to 2012, due primarily to the closing of several facilities included in the Company's restructuring plan during 2012.

Higher amortization expense was recognized in the first nine months of 2013, compared to 2012, primarily related to intangibles associated with the Sara Lee foodservice business acquisition.

Operating income increased $103.7 million, or 17 percent, in the first nine months of 2013, compared to 2012, and operating margin increased from 14.2 percent to 15.3 percent over the same period. Excluding the impact of special project costs in both periods, operating income increased $66.0 million, or 10 percent, and was 16.4 percent of net sales in the first nine months of 2013, compared to 16.3 percent in 2012. Both operating income measures include a loss on divestiture of $11.3 million in 2012.

Other

Interest expense increased $13.9 million in the first nine months of 2013, compared to 2012, primarily representing the cost of higher average debt outstanding due to the Company's October 2011 public debt issuance.

Income taxes increased $19.4 million and $30.0 million in the third quarter and first nine months of 2013, respectively, compared to 2012, in line with the increase in income before taxes. The effective tax rate remained consistent during both the third quarter and first nine months of 2013, compared to 2012.

Restructuring

In calendar 2010, the Company announced its plan to restructure its coffee, fruit spreads, and Canadian pickle and condiments operations as part of its ongoing efforts to enhance the long-term strength and profitability of its leading brands. The initiative includes capital investments for a new state-of-the-art food manufacturing facility in Orrville, Ohio; consolidation of coffee production in New Orleans, Louisiana; and the transition of the Company's pickle and condiments production to third-party manufacturers and is a long-term investment to optimize production capacity and lower the overall cost structure.

Upon completion, the restructuring plan will result in a reduction of approximately 850 full-time positions and the closing of five of the Company's facilities. As of January 31, 2013, approximately 80 percent of the 850 full-time positions have been reduced and the Sherman, Texas; Dunnville, Ontario; Delhi Township, Ontario; and Kansas City, Missouri facilities have been closed. The Ste. Marie, Quebec facility is anticipated to close in the next fiscal year. The Company's pickle and condiments production was transitioned to third-party manufacturers during fiscal 2012. The consolidation of coffee production in New Orleans is complete. Approximately one-half of the retail fruit spreads production has been transitioned to the new manufacturing facility in Orrville with the remaining production expected to be transitioned by the end of calendar 2013. The overall restructuring initiative is delivering the savings expected to date.

The Company expects to incur restructuring costs of approximately $245.0 million, of which $218.9 million has been incurred through January 31, 2013. Restructuring costs of $5.4 million and $30.1 million have been incurred in the third quarter and first nine months of 2013, respectively, compared to $25.6 million and $67.3 million in the third quarter and first nine months of 2012, respectively.

Upon completion of the conversion of the Memphis facility, the Company also intends to relocate its natural peanut butter production, currently produced at its New Bethlehem, Pennsylvania facility, to the Memphis facility. The New Bethlehem facility will then be converted to produce specialty nut butters, which are currently produced by third-party manufacturers. The total capital investment for these peanut and nut butter projects is estimated at approximately $60.0 million. Additional restructuring costs will approximate $10.0 million, increasing the total estimated restructuring costs to approximately $255.0 million. The Company expects the majority of the spend related to this initiative to occur through fiscal 2015. The decision to utilize the Memphis facility for peanut butter production does not impact the total savings originally estimated related to the fruit spreads restructuring plan.

Segment Results



                                             Three Months Ended January 31,                        Nine Months Ended January 31,
                                                                         % Increase                                           % Increase
                                       2013               2012           (Decrease)            2013             2012          (Decrease)
                                                                            (Dollars in millions)
Net sales:
U.S. Retail Coffee                  $     627.7        $     637.9                (2 )%    $    1,771.0       $ 1,755.5                 1 %
U.S. Retail Consumer Foods                581.3              556.5                 4            1,729.0         1,631.2                 6
International, Foodservice, and
Natural Foods                             350.6              273.2                28            1,058.0           783.7                35
Segment profit:
U.S. Retail Coffee                  $     175.2        $     138.3                27 %     $      459.8       $   418.0                10 %
U.S. Retail Consumer Foods                106.2              106.6                (0 )            325.1           301.6                 8
International, Foodservice, and
Natural Foods                              49.9               39.0                28              148.7           116.6                28
Segment profit margin:
U.S. Retail Coffee                         27.9 %             21.7 %                               26.0 %          23.8 %
U.S. Retail Consumer Foods                 18.3               19.2                                 18.8            18.5
International, Foodservice, and
Natural Foods                              14.2               14.3                                 14.1            14.9

U.S. Retail Coffee

The U.S. Retail Coffee segment net sales decreased two percent in the third quarter of 2013, compared to the third quarter of 2012, reflecting price declines taken over the past year. Segment volume increased one percent in the third quarter of 2013, compared to the third quarter of 2012, led by K-Cups, Café Bustelo, and Café Pilon. Volume of the overall Folgers brand was flat as the growth experienced in K-Cups was offset by a slight decline in roast and ground that was attributed to a supply constraint for certain retail coffee canisters that arose in the second quarter. The constraint was resolved by the end of the third quarter and did not have a material effect on the financial results for fiscal 2013. Dunkin' Donuts packaged coffee volume decreased two percent, reflecting increased competitive activities. The impact of sales mix was favorable due to K-Cups. Net sales of K-Cups increased $30.4 million, or 51 percent, compared to the third quarter of 2012, and contributed five percentage points of growth to segment net sales, while contributing only one percentage point of growth to volume.

The U.S. Retail Coffee segment profit increased $36.8 million, or 27 percent, in the third quarter of 2013, compared to the third quarter of 2012. Green coffee costs were significantly lower in the third quarter of 2013, compared to the third quarter of 2012. The Company reduced coffee prices in May 2012 with the expectation that it would recognize lower green coffee costs as it progressed through its fiscal year. The majority of these lower costs was recognized during the quarter and, in large part, offset the unfavorable impact realized earlier in the year. Mix also contributed to the increase in segment profit in the third quarter of 2013, compared to

For the first nine months of 2013, net sales for the U.S. Retail Coffee segment increased one percent, compared to the first nine months of 2012, as favorable sales mix driven primarily by K-Cups and increased volume more than offset the impact of price declines taken since the third quarter of 2012. Segment volume increased four percent in the first nine months of 2013, compared to the first nine months of 2012, as the Folgers and Café Bustelo brands increased three percent and 21 percent, respectively, and Dunkin' Donuts packaged coffee increased six percent. Net sales of K-Cups increased $97.4 million, compared to the first nine months of 2012. K-Cups represented six percentage points of segment net sales growth, while contributing only one percentage point growth to volume.

Segment profit for the first nine months of 2013 increased $41.8 million, or 10 percent, compared to the first nine months of 2012, primarily due to favorable mix and volume growth. The net impact of lower prices and green coffee costs did not have a material effect on segment profit. Unrealized mark-to-market adjustments on derivative contracts, which were a gain of $3.9 million in the first nine months of 2013, compared to a loss of $0.6 million in 2012, represented $4.5 million of the segment profit increase. Segment profit margin was 26.0 percent in the first nine months of 2013, compared to 23.8 percent in 2012.

In February 2013, in response to sustained declines in green coffee costs, the Company announced an additional price decline of approximately six percent on the majority of its packaged coffee products sold in the United States, primarily consisting of items sold under the Folgers and Dunkin Donuts brands.

U.S. Retail Consumer Foods

The U.S. Retail Consumer Foods segment net sales increased four percent in the third quarter of 2013, compared to the third quarter of 2012, as the impact of favorable sales mix and higher net price realization offset a one percent decline in segment volume. Jif brand net sales increased 21 percent in the third quarter of 2013, compared to 2012, reflecting a 17 percent volume increase. Jif peanut butter volume in last year's third quarter was impacted by the 30 percent price increase at the beginning of that quarter along with the consumer buy-in that occurred in advance of it. Smucker's fruit spreads net sales and volume increased five percent and nine percent, respectively, in the third quarter of 2013, compared to 2012, due to more competitive pricing and increased promotional activities. Net sales and volume of Smucker's Uncrustables® frozen sandwiches both increased 38 percent during the same period, benefiting from new distribution and new product introductions. Net sales for the Pillsbury brand decreased four percent, while volume decreased nine percent, in the third quarter of 2013, compared to 2012, with approximately one-half of the volume decline due to the tonnage impact of the previously announced cake mix downsizing. Canned milk net sales and volume decreased 10 percent and five percent, respectively, during the third quarter of 2013, compared to 2012.

The U.S. Retail Consumer Foods segment profit was flat in the third quarter of 2013, compared to the third quarter of 2012 which benefited from the timing of peanut butter pricing actions. Segment profit was positively impacted by mix along with decreases in marketing and selling expenses. Overall raw material costs recognized were higher in the third quarter of 2013, compared to 2012, primarily due to peanuts. Although elevated peanut costs are expected to continue in the fourth quarter due to long-term contracts in place, it is expected that the size and quality of the calendar 2012 U.S. peanut crop will lead to lower peanut costs in the future. In anticipation of lower peanut costs in future periods, the Company decreased peanut butter prices by approximately 10 percent late in the third quarter. As a result, higher peanut costs were not fully recovered by net price realization and contributed to the flat quarter-over-quarter segment profit. However, the Company believes that the price decline properly reflects its role as the peanut butter category leader and achieves the Company's desired pricing objective based on its anticipated peanut costs over the course of the upcoming fiscal year. Segment profit margin was 18.3 percent in the third quarter of 2013, compared to 19.2 percent in 2012.

Net sales for the U.S. Retail Consumer Foods segment increased six percent in the first nine months of 2013, compared to the first nine months of 2012, due primarily to higher net price realization and favorable sales mix, offset partially by a two percent decline in segment volume. Jif brand net sales increased 29 percent in the