1. GENERAL

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 and organic products under brand names which are sold as "better-for-you" products. We are a leader in many natural and organic food categories, with such well-known food brands as Earth's Best^®, Celestial Seasonings^®, Terra^®, Garden of Eatin'^®, Sensible Portions^®, Rice Dream^®, Soy Dream^®, Almond Dream^®, Imagine^®, WestSoy^®, The Greek Gods^®, Ethnic Gourmet^®, Rosetto^®, Arrowhead Mills^®, MaraNatha^®, SunSpire^®, Health Valley^®, Spectrum Naturals ^{amp;#174;/sup/font, Spectrum Essentialsfont style="font-family: Times New Roman;" class="_mt" size="1"sup style="position: relative; bottom: 0.8ex; vertical-align: baseline;"#174;/sup/font, Limafont style="font-family: Times New Roman;" class="_mt" size="1"sup style="position: relative; bottom: 0.8ex; vertical-align: baseline;"#174;/sup/font, Yves Veggie Cuisinefont style="font-family: Times New Roman;" class="_mt" size="1"sup style="position: relative; bottom: 0.8ex; vertical-align: baseline;"#174;/sup/font, DeBolesfont style="font-family: Times New Roman;" class="_mt" size="1"sup style="position: relative; bottom: 0.8ex; vertical-align: baseline;"#174;/sup/font, Linda McCartneyfont style="font-family: Times New Roman;" class="_mt" size="1"sup style="position: relative; bottom: 0.8ex; vertical-align: baseline;"#174;/sup t;/font (under license) and Daily Bread#8482;. Our natural personal care products are marketed under the Avalon Organicsfont style="font-family: Times New Roman;" class="_mt" size="1"sup style="position: relative; bottom: 0.8ex; vertical-align: baseline;"#174;/sup/font, Alba Botanicafont style="font-family: Times New Roman;" class="_mt" size="1"sup style="position: relative; bottom: 0.8ex; vertical-align: baseline;"#174;/sup/font, JASONfont style="font-family: Times New Roman;" class="_mt" size="1"sup style="position: relative; bottom: 0.8ex; vertical-align: baseline;"#174;/sup/font, Ziafont style="font-family: Times New Roman;" class="_mt" size="1"sup style="position: relative; bottom: 0.8ex; vertical-align: baseline;"#174;/sup/font, Queen Helenefont style="font-family: Times New Roman;" class="_mt" size="1"sup style="position: relative; bottom: 0.8ex; vertical-align: baseline;"#174;/sup/font, Tushiesfont style="font-family: Times New Roman;" class="_mt" size="1"sup style="position: relative; bottom: 0.8ex; vertical-align: baseline;"#174;/sup/font and Earth's Best TenderCarefont style="font-family: Times New Roman;" class="_mt" size="1"sup style="position: relative; bottom: 0.8ex; vertical-align: baseline;"#174;/sup/font brands. Our household cleaning products are marketed under the Martha Stewart Cleanfont style="font-family: Times New Roman;" class="_mt" size="1"sup style="position: relative; bottom: 0.8ex; vertical-align: baseline;"#8482;/sup/font (under license) brand. /font/p p style="margin-top: 12px; margin-bottom: 0px;"font style="font-family: Times New Roman;" class="_mt" size="2"We have a minority investment in Hain Pure Protein Corporationnbsp;("HPP" or "Hain Pure Protein"), which processes, markets and distributes antibiotic-free chicken and turkey products. We also have an investment in a joint venture in Hong Kong with Hutchison China Meditech Ltd. ("Chi-Med"), a majority owned subsidiary of Hutchison Whampoa Limited, a company listed on the Alternative Investment Market, a sub-market of the London Stock Exchange, to market and distribute co-branded infant and toddler feeding products and market and distribute selected Hain Celestial brands in Hong Kong, China and other markets. These investments are accounted for under the equity method of accounting. /font/p p style="margin-top: 12px; margin-bottom: 0px;"font style="font-family: Times New Roman;" class="_mt" size="2"We operate in one business segment: the manufacturing, distribution and marketing of natural and organic products. In our 2010 fiscal year, approximately 40% of our revenues were derived from products that were manufactured within our own facilities with 60% produced by various co-packers. /font/p p style="margin-top: 12px; margin-bottom: 0px;"font style="font-family: Times New Roman;" class="_mt" size="2"All dollar amounts in our condensed consolidated financial statements and tables have been rounded to the nearest thousand dollars, except share and per share amounts. /font/p p style="margin-top: 12px; margin-bottom: 0px;"font style="font-family: Times New Roman;" class="_mt" size="2"Management evaluated all events and transactions occurring after the balance sheet date through the filing of this quarterly report on Form 10-Q. /font/p /div}

3. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

Basic earnings per share excludes the dilutive effects of stock options and unvested restricted stock. Diluted earnings per share includes only the dilutive effects of common stock equivalents such as stock options. Anti-dilutive stock options, restricted stock and restricted stock units totaling 1,254 in fiscal 2011 and 2,612 in fiscal 2010 were excluded from our earnings per share calculations.

4. COMPREHENSIVE INCOME

The components of comprehensive income (loss) are as follows:

Accumulated other comprehensive income (loss) consisted of the following:

5. ACQUISITIONS

We account for acquisitions using the acquisition method of accounting. The results of operations of the acquisitions have been included in our consolidated results from their respective dates of acquisition. We allocate the purchase price of each acquisition to the tangible assets, liabilities, and intangible assets acquired based on their estimated fair values. The excess of the purchase price over the fair value of the identified assets and liabilities has been recorded as goodwill.

Fiscal 2011

On July 2, 2010, we acquired substantially all of the assets and business of 3 Greek Gods, L.L.C. ("Greek Gods"), including The Greek Gods brand of Greek-style yogurt products, and assumed certain liabilities for cash consideration of $16.3 million, 242,185 shares of the Company's common stock, valued at $4.8 million, plus up to $25.8 million of additional contingent consideration based upon the achievement of specified operating results in fiscal 2011 and 2012. The Company recorded $22.9 million as the fair value of the contingent consideration at the acquisition date, which is included in other noncurrent liabilities. Greek Gods develops, produces, markets and sells The Greek Gods brand of Greek-style yogurt products into various sales channels. The acquisition of The Greek Gods brand expands our refrigerated product offerings.

The following table summarizes the consideration paid for the Greek Gods acquisition and the amounts of assets acquired and liabilities assumed recognized at the acquisition date:

The purchase price allocation was based upon a provisional valuation, and the Company's estimates and assumptions are subject to change within the measurement period as valuations are finalized. Any change in the estimated fair value of the net assets, prior to the finalization of the more detailed analyses, but not to exceed one year from the date of acquisition, will change the amount of the purchase price allocable to goodwill. The fair values assigned to identifiable intangible assets acquired were based on assumptions and estimates made by management. Identifiable intangible assets acquired consisted of customer relationships and trade names. The trade name intangible relates to "The Greek Gods" brand name, which has an indefinite life, and therefore, is not amortized. The customer relationship intangible asset is being amortized on a straight-line basis over its estimated useful life. Significant assumptions utilized in the income approach were based on company specific information and projections, which are not observable in the market and are thus considered Level 3 measurements as defined by authoritative guidance. The goodwill of $23.7 million represents the future economic benefits expected to arise that could not be individually identified and separately recognized, including entry into the yogurt category and use of our existing infrastructure to expand sales of the acquired business products. The goodwill is expected to be deductible for tax purposes.

Acquisition costs related to Greek Gods have been expensed as incurred and are included in "Acquisition related expenses and restructuring charges" in the Condensed Consolidated Statement of Operations. Total acquisition related costs of approximately $0.8 million were expensed in the three months ended September 30, 2010.

Fiscal 2010

On June 15, 2010, we acquired substantially all of the assets and business of World Gourmet Marketing, L.L.C. ("World Gourmet"), including its Sensible Portions brand snack products and assumed certain liabilities for cash consideration of $50.9 million, 1,558,442 shares of the Company's common stock, valued at $35.4 million, plus up to $30.0 million of additional contingent consideration based upon the achievement of specified operating results in fiscal 2011, of which the Company recorded $26.6 million as the fair value at the acquisition date. During the quarter ended September 30, 2010, the Company completed its analysis of the fair values at the date of acquisition which resulted in a reallocation of $7.0 million from identified intangible assets to goodwill.

On June 15, 2010, we also acquired Churchill Food Products Limited, a manufacturer and distributor of food-to-go products in the United Kingdom. The acquisition of Churchill was completed for cash consideration of £1.3 million (approximately $1.9 million based on the transaction date exchange rate) plus up to £1.8 million (approximately $2.8 million) of additional contingent consideration based upon the achievement of specified operating results in fiscal 2011 and 2012, of which the Company recorded £1.3 million (approximately $2.0 million) as the fair value at the acquisition date.

The following table provides unaudited pro forma results of operations for the three months ended September 30, 2009 as if all of the above acquisitions had been completed at the beginning of that fiscal year. The following pro forma combined results of operations have been provided for illustrative purposes only, and do not purport to be indicative of the actual results that would have been achieved by the Company for the periods presented or that will be achieved by the combined company in the future.

This information has not been adjusted to reflect any changes in the operations of the businesses subsequent to its acquisition by us. Changes in operations of the acquired businesses include, but are not limited to, discontinuation of products, integration of systems and personnel, changes in trade practices, application of our credit policies, changes in manufacturing processes or locations, and changes in marketing and advertising programs. Had any of these changes been implemented by the former managements of the businesses acquired prior to acquisition by us, the sales and net income information might have been materially different than the actual results achieved and from the pro forma information provided. In management's opinion, these unaudited pro forma results of operations are not intended to represent or to be indicative of the actual results that would have occurred had the acquisitions been consummated at the beginning of the period presented or of future operations of the combined companies under our management.

6. INVENTORIES

Inventories consisted of the following:

8. 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 performed.

Changes in the carrying amount of goodwill for the three months ended September 30, 2010 were as follows:

The addition to goodwill in the three months ended September 30, 2010 of $23.7 million related to the acquisition of the assets and business of 3 Greek Gods L.L.C. During the three months ended September 30, 2010, we also reallocated $7.0 million preliminarily allocated to other intangibles related to the acquisition of the assets and business of World Gourmet Marketing L.L.C. to goodwill, based on our completed analysis of the fair values at acquisition date.

At September 30, 2010, included in trademarks and other intangible assets are approximately $31.7 million of intangible assets deemed to have a finite life, which are being amortized over their estimated useful lives. The following table reflects the components of trademarks and other intangible assets:

Amortization of intangible assets with finite lives amounted to $1.6 million in the three months ended September 30, 2010. The expected aggregate amortization expense in each of the next five fiscal years is $6.2 million in 2011, $5.4 million in 2012, $4.0 million in 2013, $3.2 million in 2014 and $2.9 million in 2015.

9. SENIOR NOTES AND CREDIT FACILITY

We have outstanding $150 million in aggregate principal amount of 10 year senior notes due May 2, 2016, which were issued in a private placement. The notes bear interest at 5.98%, payable semi-annually on November 2^nd and May 2^nd. We also have a credit agreement which provides us with a $400 million revolving credit facility (th e "Credit Agreement") expiring in July 2015. The Credit Agreement provides for an uncommitted $100 million accordion feature, under which the facility may be increased to $500 million, provided certain conditions are met. The Credit Agreement and the notes are guaranteed by substantially all of our current and future direct and indirect domestic subsidiaries. Loans under the Credit Agreement bear interest at a base rate (greater of the 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, 2010, there were $107.6 million of borrowings outstanding under the Credit Agreement. We are required by the terms of the Credit Agreement and the notes to comply with customary affirmative and negative covenants for facilities and notes of this nature.

10. INCOME TAXES

The effective income tax rate was 44.5% for the three months ended September 30, 2010. The effective tax rate for the first quarter of fiscal 2011 was higher than the comparable period of the prior year primarily as a result of the losses incurred in the United Kingdom for which no tax benefits are currently being recorded. Until an appropriate level of profitability is attained, we expect to continue to record and maintain a valuation allowance on our net deferred tax assets related to future United Kingdom tax benefits. If the Company is able to realize any of these deferred tax assets in the future, the provision for income taxes will be reduced by a release of the corresponding valuation allowance. The fiscal 2011 and 2010 effective income tax rates differed from the federal statutory rate primarily due to the items noted previously, as well as the effect of state income taxes and the mix of pretax earnings by jurisdiction. There were no material changes in unrecognized tax benefits during the first three months of fiscal 2011.