| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| Delaware | 20-1266625 | |
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1610 Fifth Street Berkeley, CA | 94710 | |
| (Address of principal executive offices) | (Zip Code) | |
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| Large accelerated filer | Accelerated filer | |||||
| Non-accelerated filer | o | Smaller reporting company | ||||
30, 2013.
2014. and independent natural retailers in New England. Over the next 10 years, Annie’s Homegrown grew by expanding its line of natural macaroni and cheese across a broader national footprint in the mainstream grocery and natural retailer channels. Annie’s is real, authentic and trusted by consumers. As a company, we strive to build upon this legacy with every decision we make. Annie’s makes products that taste great and delight our consumers. Annie’s sources from places and people we trust, with an emphasis on quality and environmental sustainability. Annie’s is socially responsible, and we spread awareness and act as a positive role model for consumers and other businesses. Annie’s and its valued employees treat consumers, customers, suppliers, stockholders and each other with the same high degree of respect, fairness and honesty that we expect of others. Grants for Gardens, a program that offers small grants to community gardens, school gardens and other educational programs that educate children about the origins and benefits of healthy food. Cases for Causes, one of our oldest grassroots programs, which provides schools and non-profit organizations with free cases of our products. Sustainable Agriculture Scholarships, which provide financial assistance to students committed to studying sustainable and organic agriculture. sales in fiscal 2014. In the first quarter of fiscal 2015, we acquired the Joplin Plant, which was owned and operated by one of those contract manufacturers. The Joplin Plant has been the primary manufacturer of the Company’s cookie and cracker products for more than ten years. renegotiating tolling fees with existing manufacturers, managing in-bound freight, leveraging warehouse expenses and reducing ingredient and packaging costs through increased volume buys, contract consolidation, direct purchasing and price negotiation. manufacturers or our Joplin Plant and typically are shipped to this distribution center. We store and and Bernie Rabbit of Approval®, all of which are registered with the U.S. Patent and Trademark Office. Our trademarks are valuable assets that reinforce the distinctiveness of our brand and our consumers’ favorable perception of our products. We also have multiple trademark registrations or pending applications for products within each of our product categories. Certain of our marks are also registered in Canada. In addition to trademark protection, we own copyright registrations for the artwork depicted on our dressing labels and other product packaging. Our web content and the domain names www.annies.com and www.anniesnaturals.com are owned by us and copyright protected. We enter into distribution and other strategic arrangements with third-party retailers and other potential distributors of our products; continue to compete in conventional grocery and mass merchandiser retail channels in addition to the natural and organic channel; secure shelf space in mainstream aisles; increase our brand recognition; expand and maintain brand loyalty; and develop new product lines and extensions. We face increased competition in our markets due to increased adoption of natural and organic food products by consumers. in consumer preferences by introducing new products (including natural and organic products), reducing prices or increasing promotional activities, among other things. We also compete with other natural and organic packaged food brands and companies, including The Hain Celestial Group, Inc., Newman’s Own, Inc., Nature’s Path Foods, Inc., Clif Bar & Company, ingredients used in many of our products are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, frosts, earthquakes, hurricanes and pestilences. Adverse weather conditions (caused by climate change or otherwise) and natural disasters can lower crop yields and reduce crop size and quality, which in turn could reduce the available supply of, or increase the price of, our ingredients. For example, in fiscal and other trade secrets and copyright protection to develop and maintain our competitive position. Our continued success depends, to a significant degree, upon our ability to protect and preserve our intellectual property, including our trademarks, trade dress, trade secrets and copyrights. We rely on confidentiality agreements and trademark, trade secret and copyright law to protect our intellectual property rights. of any such disruption or potential disruption, including increasing inventory in anticipation of a potential supply or production interruption, may adversely affect our business, results of operations and financial condition. distributors, retailers and consumers. The loss of the services of any of these employees could have a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace them on a timely basis, if at all. In addition, any such departure could be viewed in a negative light by investors and analysts, which may cause the price of our common stock to decline. We do not carry key-person life insurance on any of our senior management. requiring a substantial portion of our cash flow to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flow available for working capital, capital expenditures, acquisitions and other general corporate purposes; increasing our vulnerability to adverse changes in general economic, industry and competitive conditions; exposing us to the risk of increased interest rates as borrowings under the credit facility will be at variable rates of interest; limiting our flexibility in planning for and reacting to changes in the industry in which we compete; limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements; placing us at a disadvantage compared to other, less leveraged competitors or competitors with comparable debt at more favorable interest rates; and increasing our cost of borrowing. market conditions or trends in the natural and organic packaged food sales industry or in the economy as a whole; seasonal fluctuations; actions by competitors; actual or anticipated growth rates relative to our competitors; the public’s response to press releases or other public announcements by us or third parties, including our filings with the Securities and Exchange Commission, or SEC; economic, legal and regulatory factors unrelated to our performance; speculation by the press or investment community regarding our business; litigation; changes in key personnel; and future sales of our common stock by our officers, directors and significant stockholders. turn could cause our stock price or trading volume to decline. Moreover, if our operating results do not meet the expectations of the investor community, one or more of the analysts who cover our company may change their recommendations regarding our company, and our stock price could decline. authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include voting, approval, dividend or other rights or preferences superior to the rights of the holders of our common stock; prohibit stockholders from acting by written consent; provide that our board of directors is expressly authorized to make, alter or repeal our amended and restated bylaws; establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; prohibit stockholders from calling special meetings; and provide our board of directors with the sole power to set the size of our board of directors and fill vacancies. First Quarter Second Quarter Third Quarter Fourth Quarter Although we Period January 1, 2013 - January 31, 2013 February 1, 2013 - February 28, 2013 March 1, 2013 - March 31, 2013 Total Consolidated Statements of Operations Data: Net sales Cost of sales Gross profit Operating expenses: Selling, general and administrative expenses Advisory agreement termination fee Total operating expenses Income from operations Interest expense Other income (expense), net Income before provision for (benefit from) income taxes Provision for (benefit from) income taxes Income from continuing operations Loss from discontinued operations(1) Loss from sale of discontinued operations(1) Net income (loss) Net income attributable to common stockholders from continuing operations(2) Net loss attributable to common stockholders from discontinued operations(2) Net income (loss) attributable to common stockholders(2) Net income (loss) per share attributable to common stockholders —Basic Continuing operations Discontinued operations Total basic net income (loss) per share attributable to common stockholders Net income (loss) per share attributable to common stockholders—Diluted Continuing operations Discontinued operations Total diluted net income (loss) per share attributable to common stockholders Weighted average shares of common stock outstanding used in computing net income (loss) per share attributable to common stockholders—Basic Weighted average shares of common stock outstanding used in computing net income (loss) per share attributable to common stockholders—Diluted Dividends per common share Other Financial Data: EBITDA(3) Adjusted EBITDA(3) Consolidated Balance Sheet Data: Cash Working capital Total assets Total debt(4) Convertible preferred stock warrant liability Convertible preferred stock Total stockholders’ equity (deficit) Net income (loss) Interest expense Provision for (benefit from) income taxes Depreciation and amortization EBITDA Net sales impact related to product recall(a) Cost of sales related to product recall(a) Administrative costs related to product recall(a) Secondary offering costs(b) Stock-based compensation(c) Loss from discontinued operations Loss from sale of discontinued operations Management fees(d) Advisory agreement termination fee(d) Change in fair value of convertible preferred stock warrant liability(e) Adjusted EBITDA Annie’s, Inc. is a natural and organic food company with a widely recognized brand fiscal 2013. Results of Operations Net sales Cost of sales Gross profit Operating expenses: Selling, general and administrative expenses Advisory agreement termination fee Total operating expenses Income from operations Interest expense Other income (expense), net Income before provision for (benefit from) income taxes Provision for (benefit from) income taxes Net income Product Categories: Meals Snacks Dressings, condiments and other Total Meals Snacks Dressings, condiments and other Net sales Net sales in fiscal 2013 also included a $1.4 million reduction in net sales and $0.4 million insurance recoveries related to the voluntary recall of our certified organic and made with organic pizza products. Cost of sales Gross profit Gross margin % Operating expenses: Selling, general and administrative expenses Advisory agreement termination fee Total operating expenses remained flat at 39.3%. Income from operations Income from operations as a percentage of net sales Interest expense Other income (expense), net Provision for income taxes Effective tax rate Net income Meals Snacks Dressings, condiments and other Net sales Cost of sales Gross profit Gross margin % Operating expenses: Selling, general and administrative expenses Advisory agreement termination fee Total operating expenses Income from operations Income from operations as a percentage of net sales Interest expense Other income (expense), net Provision for (benefit from) income taxes Effective tax rate Net income Net Sales Cost of sales Gross profit Income before provision for (benefit from) income taxes Net income Net Income per share attributable to common stockholders Net Income per share attributable to common stockholders—Basic Net Income per share attributable to common stockholders—Diluted Weighted average shares of common stock outstanding used in computing net income per share attributable to common stockholders—Basic Weighted average shares of common stock outstanding used in computing net income per share attributable to common stockholders—Diluted Cash Accounts receivable, net Accounts payable Related-party payable Accrued liabilities Working capital(1) capital expenditures. facility. Offsetting these cash outflows were $11.1 million of net proceeds costs, cash proceeds of $4.1 million from exercises of stock options and $8.1 million of excess tax benefit from stock-based 2013. Rent obligations(1) Equipment lease obligations(2) Total operating lease obligations Purchase commitments(3) Product formula obligations(4) Warehousing overheads obligations(5) Total extend credit to our retailers and distributors and do not require collateral. Our payment terms are typically net-30 with a discount for net-10 payment. We recognize sales net of estimated sales and promotion incentives, slotting, customer discounts and spoils. We have entered into contracts with various retailers granting an allowance for spoils and damaged products. Evaluating these Expected term (in years) Expected volatility Risk-free interest rate Dividend yield Total stock-based compensation rate. opinions. 2, 2014 Statements of Income ASSETS CURRENT ASSETS: Cash Accounts receivable, net Inventory Deferred tax assets Income tax receivable Prepaid expenses and other current assets Total current assets Property and equipment, net Goodwill Intangible assets, net Deferred tax assets, long-term Deferred initial public offering costs Other non-current assets Total assets LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable Related-party payable Accrued liabilities Total current liabilities Credit facility Convertible preferred stock warrant liability Other non-current liabilities Total liabilities Commitments and contingencies (Note 7) Convertible preferred stock, $0.001 par value—None authorized, issued and outstanding at March 31, 2013; 12,346,555 shares authorized, 12,281,553, shares issued and outstanding at March 31, 2012 (aggregate liquidation value $132,427 at March 31, 2012) STOCKHOLDERS’ EQUITY (DEFICIT): Preferred stock, $0.001 par value—5,000,000 shares authorized, none issued and outstanding at March 31, 2013; None authorized, issued and outstanding outstanding at March 31, 2012 Common stock, $0.001 par value—30,000,000 and 24,000,000 shares authorized at March 31, 2013 and 2012, respectively; 16,849,016 and 483,242 shares issued and outstanding at March 31, 2013 and 2012, respectively Additional paid-in capital Accumulated deficit Total stockholders’ equity (deficit) Total liabilities, convertible preferred stock and stockholders’ equity (deficit) Balance Sheets Net sales (net of product recall impact of $1,096 during fiscal 2013) Cost of sales (including costs associated with product recall of $1,080 during fiscal 2013) Gross profit Operating expenses: Selling, general and administrative (including costs associated with product recall of $171 during fiscal 2013) Advisory agreement termination fee Total operating expenses Income from operations Interest expense Other income (expense), net Income before provision for (benefit from) income taxes Provision for (benefit from) income taxes Net income Net income attributable to common stockholders Net income per share attributable to common stockholders —Basic —Diluted Weighted average shares of common stock outstanding used in computing net income per share attributable to common stockholders —Basic —Diluted Balance at March 31, 2010 Issuance of common stock upon exercise of stock options Stock-based compensation Dividends paid Net Income Balance at March 31, 2011 Repurchase of stock options for cash Reclassification of convertible preferred stock warrant liability (Note 2) Issuance of common stock upon exercise of stock options Stock-based compensation Excess tax benefit from stock-based compensation Dividends paid Net Income Balance at March 31, 2012 Reclassification of convertible preferred stock warrant liability upon consummation of IPO Conversion of convertible preferred stock into common stock upon consummation of IPO Shares issued upon consummation of IPO Shares repurchased and retired Exercise of stock options Excess tax benefit from stock-based compensation Net exercise of warrant to purchase shares of common stock Stock-based compensation Net Income Balance at March 31, 2013 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Stock-based compensation Allowances for trade discounts and other Inventory reserves Excess tax benefit from stock-based compensation Accretion of imputed interest on purchase of intangible asset Change in fair value of convertible preferred stock warrant liability Amortization of debt discount Amortization of deferred financing costs Loss on disposal of property and equipment Deferred taxes Changes in operating assets and liabilities: Accounts receivable, net Inventory Income tax receivable Prepaid expenses, other current and non-current assets Accounts payable Related-party payable Accrued expenses and other non-current liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from credit facility Payments to credit facility Proceeds from common shares issued in initial public offering, net of issuance costs Payment for intangible asset acquired by financing transaction Dividends paid Payment of deferred financing costs Payments of initial public offering costs Repayment of notes payable Repurchase of common stock Net repurchase of stock options Excess tax benefit from stock-based compensation Proceeds from exercises of stock options Net cash used in financing activities NET INCREASE (DECREASE) IN CASH CASH—Beginning of year CASH—End of year SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest Cash paid for income taxes NONCASH INVESTING AND FINANCING ACTIVITIES: Conversion of convertible preferred stock into common stock Purchase of property and equipment funded through accounts payable Deferred initial public offering costs funded through accounts payable and accrued expenses Intangible asset acquired by financing transaction evaluating financial performance. Fiscal Year Ended March 31, 2013 2012 2011 delivery or pick up of products by the customer and there is a reasonable assurance of collection of the sales proceeds. Generally, the Company extends uncollateralized credit to its retailers and distributors ranging up to 30 days and performs ongoing credit evaluation of its customers. The payment terms are typically net-30 with a discount for net-10 payment. The Company recognizes sales net of estimated trade allowances, slotting fees, sales incentives, cash discounts, returns and coupons. The costs of these activities are recognized at the time the related sales are recorded and are classified as a reduction of sales. The cost of these trade allowances, slotting fees and sales incentives is estimated using a number of factors, including estimated units sold, customer participation and redemption rates. The Company has entered into contracts with some retailers granting an allowance for spoils and damaged products. Amounts related to shipping and handling that are billed to customers are reflected in net sales and the related shipping and handling costs are reflected in selling, general and administrative expenses. The Company records insurance recoveries upon receipt of positive confirmation from the insurance company that certain recall-related costs have been approved for payment and the Company has reasonable confidence that the insurance company is financially capable of paying the Company. The insurance recoveries are recorded in the net sales, cost of sales or selling, general and administrative, as applicable, in the statement of income. 2012, respectively. compensation no allowance for doubtful accounts as of March 31, 2014 and 2013. these misstatements. the right to purchase 176,615 shares of common stock to certain key management personnel prior to fiscal 2012, all of which were vested in full as of March 31, 2012. Vesting and exercise provisions were determined by the Board of Directors at the time of grant. Options granted vested according to the performance feature underlying the grant. Vested options can be exercised at any time and generally expire five to ten years after the grant date. In the event that an option holder’s continuous service terminates, the option holder generally has three months from the date of termination in which to exercise vested options. As of March 31, 2014, such key management personnel held options to purchase 86,758 shares of common stock under the non-plan stock option awards. Raw materials Work in process Finished goods Inventory Equipment and automotive Software Leasehold improvements Plates and dies Total property and equipment Less: Accumulated depreciation and amortization Construction in progress Property and equipment, net flexible metal mesh from a faulty screen at a third-party flour mill. The Company initiated the recall of all lots of pizza product manufactured with this supplier’s flour from its first purchase from the supplier in May 2012. Product formulas Other intangible assets Total intangible assets Less: accumulated amortization Intangible assets, net Payroll and employee-related expenses Accrued trade expenses Inventory received not invoiced Deferred rent Brokerage commissions Other accrued liabilities Total accrued liabilities Fiscal Year Ending March 31: 2014 2015 2016 2017 2018 2019 Total future minimum lease payments Series Series A 2002 Convertible Preferred Stock Series A 2004 Convertible Preferred Stock Series A 2005 Convertible Preferred Stock Total convertible preferred stock Fair value at March 31, 2012 Change in fair value recorded in other income (expense), net Fair value at April 2, 2012 Balance, March 31, 2012 Granted Cancelled Exercised Balance, March 31, 2013 Vested and expected to vest—March 31, 2013 Exercisable—March 31, 2013 Exercise Price $4.93—5.20 6.62—6.62 7.30—7.95 8.55—8.75 8.88—8.88 16.94—17.55 19.00—19.00 34.53—42.05 Expected term (in years) Expected volatility Risk-free interest rate Expected dividend rate Shares-Based Awards Unvested at March 31, 2012 Granted Vested Forfeited Unvested at March 31, 2013 Current Federal State Deferred Federal State Less: Valuation allowance Provision for (benefit from) income taxes Tax at federal statutory rate State income taxes, net of federal benefit Non-deductible permanent difference Effect of tax rate change Change in valuation allowance Other Provision for (benefit from) income taxes Deferred tax assets Credits and net operating loss carryforwards Share-based compensation expense Accrued compensation Reserves and allowances Capital loss carryforward Other, net Gross deferred tax assets Valuation allowance Total deferred tax assets Deferred tax liabilities Property, plant and equipment Total deferred tax liabilities Net deferred tax assets As of March 31, 2014, this capital loss expired and therefore, the associated deferred tax asset and corresponding valuation allowance have been removed from the balance sheet. Federal State of the Company exceeding 50% during a three-year period, the utilization of the Company’s NOL carryforwards may be limited. The business acquisitions in fiscal 2005 resulted in a change in stock ownership and, consequently, the Company’s NOLs generated prior to these ownership changes are subject to an annual limitation. Convertible preferred stock (on an as-if converted basis) Options to purchase common stock Restricted stock units Convertible preferred stock warrant Total Net income per share: Numerator Net income Less: Dividends paid to convertible preferred stockholders Undistributed income (loss) attributable to convertible preferred stockholders Net income attributable to common stockholders—basic and diluted Denominator Weighted average shares of common stock outstanding used in computing net income attributable to common stockholders—basic Potential dilutive options, as calculated using treasury stock method Potential restricted stock units, as calculated using treasury stock method Potential dilutive warrants, as calculated using treasury stock method Weighted average shares of common stock outstanding used in computing net income attributable to common stockholders—diluted Net income per share attributable to common stockholders —Basic —Diluted United States Canada Meals Snacks Dressings, condiments and other quarters presented: Reduction of net sales Incremental cost of sales Incremental administrative costs Total reduction to income before income taxes Impact on net income Impact on net income per diluted share FINANCIAL DISCLOSURES 2014. 2014. RELATED STOCKHOLDER MATTERS (Principal Financial and Accounting Officer) Signature Title Date /s/ John M. Foraker Chief Executive Officer and Director (principal executive officer) and Treasurer accounting officer) /s/ Molly F. Ashby Exhibit Description 3.1 3.2 4.1 4.2 4.3 4.4 4.5 4.6 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 Exhibit Description 10.11 10.12 10.13 10.14 10.15 10.16 10.17 10.18 10.19 10.20 10.21 10.22 10.23 Exhibit Description 10.24 10.25 10.26 10.27 10.28 10.29 10.30 10.31 10.32 10.33 10.34 10.35 10.36 10.37* 10.38* Exhibit Description 10.39* 10.40* 10.41* 10.42* 21.1 23.1* 24.1* 31.1* 31.2* 32.1* 101*PART I Item 1 1A Item 1B Item 2 Item 3 Item 4 PART II 1531313131PART II3234385657Item 9A 85Item 9B PART III 8585PART III8686868686PART IV PART IVSignatures 8788Operations”Income” and relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity, capital resources and other financial and operating information. We have used the words “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “future,” “will,” “seek,” “foreseeable” and similar terms and phrases to identify forward-looking statements in this Form 10-K.Overview#1number one natural and organic market position in four product lines: macaroni and cheese, snack crackers, fruit snacks and graham crackers.135145 products and are present in over 26,50035,000 retail locations in the United States and Canada. Over the past three years, we have significantly increased both the number of retail locations where our products can be found and the number of our products found in individual stores. We expect that increasing penetration of the mainstream grocery and mass merchandiser channels, combined with greater brand awareness, new product introductions, line extensions and favorable consumer trends, will continue to fuel our sales growth in all channels.$93.6$95.9 million in fiscal 20092010 to $170.0$204.1 million in fiscal 2013,2014, representing a 16.1%20.8% compound annual growth rate. Over the same period, our income from operations increased from $3.1$7.7 million in fiscal 20092010 to $20.0$26.1 million in fiscal 2013.In December 1999,At this time, Mr. Martin left Annie’s Homegrown.Homegrown and Annie Withey continued in her role as our Inspirational President.NaturalsNatural Foods, Inc. as well as Fantastic Foods, Inc. and Napa Valley Kitchens, Inc., two of Homegrown Natural Foods’ subsidiaries. We acquired the Annie’s Naturals brand of salad dressings in 2005. We sometimes refer to Solera Capital, LLC and its affiliates as Solera in this Form 10-K.In connection with our initial public offering, or IPO, that closed on April 2, 2012, ourbegan trading under the stock symbol BNNYis listed on the New York Stock Exchange or NYSE, on(“NYSE”) under the stock symbol BNNY and has been trading since March 28, 2012. Prior to such date, there was no public market for our common stock. In addition, we are an “emerging growth company” as defined in the JOBS Act.the company’sour founding, our original values still guide our business. Annie Withey remains involved in the business, writing the personal letters printed on the back of our boxes and responding to letters from our consumers. The company remainsWe remain a mission-driven business grounded in using natural and organic ingredients to make great-tasting products that consumers love.Responsibly—ActResponsibly-Act Responsibly. We offer great-tasting, high-quality natural and organic foods, while striving to act in a socially responsible and environmentally sustainable manner. We are committed to growing our business and profitability, while staying true to our mission and core values.asset. We believeasset and the more consumers trust us, the more willing they are to support our brand by purchasing our current products, trying our new products and recommending them to their friends and family. We believe that our culture has been, and we expect it will remain, a source of competitive advantage.2012 and 2011,2012, net sales from outside of the U.S. waswere 4%, 3%4% and 3%, respectively, of our total net sales.sales, respectively. All of our long-lived assets are located in the U.S.Industry OverviewAccording to a leading industry source, the U.S. is the world’s largest organic food market, with sales of natural and organic foods exceeding $45 billion in 2011. From 2000 to 2010, the U.S. natural and organic food market grew at a compound annual growth rate of approximately 12% and was found by the same industry source to have grown by approximately 10% in 2011. We believe growth rates for the U.S. natural and organic food market have been, and will continue to be, higher than those for the overall U.S. food market.We believe growth in the natural and organic food market is driven by various factors, including heightened awareness of the role that food and nutrition play in long-term health and wellness. Many consumers prefer natural and organic products due to increasing concerns over the purity and safety of food as a result of the presence of pesticide residues, growth hormones and artificial and genetically engineered ingredients in the foods we eat. The development and implementation of USDA standards for organic certification has increased consumer awareness of, and confidence in, products labeled as organic. According to a well-regarded consumer research firm, 75% of adults in the U.S. purchased natural or organic foods in 2010, with 33% of consumers using organic products at least once a month as compared to 22% ten years before.Products that are independently certified as organic in accordance with the USDA Organic Foods Production Act and its implementing regulations are made with ingredients generally free of synthetic pesticides, fertilizers, chemicals and, in the case of dairy products, synthetic growth hormones. The USDA’s NationalOrganic Program regulations include the National List of Allowed and Prohibited Substances for use in certified organic products, which is amended from time to time based on recommendations from the National Organic Standards Board. The USDA requires that certified organic products need to be composed of at least 95% organic ingredients, while “made with organic” products need to be composed of at least 70% organic ingredients. Although not certified, natural products are generally considered in the industry to be minimally processed and largely or completely free of artificial flavors and preservatives, synthetic colors and other non-naturally occurring chemicals.We believe growth in the natural and organic food market was historically anchored by a core of informed, health-conscious consumers, who remained committed to buying high-quality products for themselves and their families, even through the recent economic downturn. While the average consumer basket in dedicated organic and natural stores carries a price premium compared to the same basket in mainstream stores, according to a leading national business journal study, that premium is shrinking. As economic conditions improve, and natural and organic products become more readily available in the mainstream grocery and mass merchandiser channels, there is an opportunity for increased demand through expansion of the consumer base.Historically, natural and organic foods were primarily available at independent organic retailers or natural and organic retail chains. Mainstream grocery stores and mass merchandisers have expanded their natural and organic product offerings because of increasing consumer demand for natural and organic products, which generally command a higher margin for the retailer. The percentage of natural and organic food sales has been rising, and, according to an industry source, in 2010, 73% of consumers purchased organic products at grocery stores as compared to 25% at natural food stores. We believe the emergence of strong natural and organic brands, driven by a loyal and growing consumer base, will act as an additional catalyst for higher penetration in the mainstream grocery and mass merchandiser channels.#1number one natural and organic market position in four product lines: macaroni and cheese, snack crackers, fruit snacks and graham crackers. Our brand is reinforced by distinctive packaging that communicates the fun and whimsical nature of the brand with bright colors and our iconic mascot, Bernie, the “Rabbit of Approval.” Our commitment to high-quality and great-tasting products has led to proven success in the mainstream grocery, mass merchandiser and natural retailer channels, making us a successful crossover brand. successfully extended our brand into a number of large product lines, such as snack crackers, graham crackers, fruit snacks, and granola bars and frozen products. We have also introduced extensions of our existing product lines. One of our most recent new product innovations is frozen organic and made with organic rising crust pizza, which we introduced in January 2012 and June 2012, respectively. In October 2012, we expanded our selection of family-friendly snack options with organic graham crackers and cheddar squares. We have made acontinue to make sustained investmentinvestments in innovation and regularly validate product concepts with our consumers and customers. In February 2013, we announced a macaroni and cheese product line extension, Bernie’s Farm Macaroni & Cheese, which began shipping nationwide in spring 2013. In March 2013, we introduced ourWenew deluxe skillet meals, which will be available for initial shipment in summer 2013. We We consider our sourcing relationships and our knowledge of the complex organic supply chain to be a competitive advantage and barrier to entry. senior management team. Our Chief Executive Officer, John M. Foraker, has been with us since 1999 and has significant experience in the natural and organic food industry. The members of our senior management team, including Mark Mortimer our President, who has been with us since 2006, have extensive experience in the food industry and with leading consumer brands.capabilities.capabilities.We invest in our people, supply chain and systems to ensure that our business is scalable and profitable. Additionally, on April 2, 2014, we acquired the Joplin Plant, our primary manufacturer of cookie and cracker products since the inception of our snacks business. We expect to add new employees to our sales, marketing, operations and innovation teams as necessary to support our growth. We actively seek opportunities to invest in the specific capabilities of our supply chain partners to reduce costs, increase manufacturing efficiencies and improve quality. Additionally, weWe continue to invest in our systems and technology, including additional functionality to our enterprise resource planning (ERP) system, which we implemented in fiscal 2013 to support growth and increase efficiency.2013,2014, we estimate that over 80% of our net sales were generated by certified organic or products made with organic ingredients.135145 products across our product lines in various sizes. In fiscal 2013,2014, the break-down of our three product categories was as follows:
launchtest new products in the natural retailer channelwith one customer and then expand distribution into the mainstream grocery and mass merchandiserto other customers across channels. We also regularly review our current product offerings and determine if product extensions or reformulations are desirable.2012 and 2011,2012, we spent $2.3 million, $2.8 million $2.0 million and $2.1$2.0 million, respectively, in research and development expenses, which consisted primarily of market studies, consumer research and analyses, product development and employee-related expenses.In January 2012, we shippedfirst frozenrecently launched new product certified organic rising crust pizza, which is being distributed on a national basis through a major industry-leading natural retailer and in June 2012, we shippedlines and/or extensions of our pizzaexisting product line extension, rising crust frozen pizza “made with organic” ingredients. lines:announced our entry into the single-serve microwavable cup segment of the macaroni & cheese category. We also expect to develop additional frozen products over the coming years, including one new frozen product line targeted for the second half of fiscal 2014.In October 2012, we expanded our selection of family-friendly snack options with organic graham crackers, available in honey and cinnamon varieties, and cheddar squares, made with 100 percent real cheese and certified-organic wheat. In February 2013, we announced a macaroni and cheese product line extension, Bernie’s Farm Macaroni & Cheese, which began shipping nationwide in spring 2013. In March 2013, we introducedfirst shipped our new deluxe skillet meals, which will be available for initial shipment in summer 2013. meals.sizes, and ifsizes. If our new product introductions accelerate or reflect a larger percentage of our net sales, this could negatively impact our gross margin.2013,2014, approximately 4% of our net sales were from Canada. We sell our products through three primary channels: mainstream grocery, mass merchandiser/other and natural retailer. Because of our brand equity and high-quality products, we believe there are attractive growth prospects for us in each of these channels.•Mainstream Grocery: Our customers in this channel include large national chains such as Kroger, Ahold and Safeway and regional chains such as Wegmans, Harris Teeter, H-E-B and Raley’s. During fiscal 2013, we estimate that the mainstream grocery channel represented approximately 39% of our net sales.•Mass Merchandiser/Other Channels:Our customers in this channel include large national and regional retailers such as Target Stores, Costco Wholesale and Wal-Mart. We also sell a limited number of products through food service, military and e-commerce channels. During fiscal 2013, we estimate that the mass merchandiser channel, including the other channels mentioned above, represented approximately 36% of our net sales.•Natural Retailer:Our customers in this channel include large retailers such as Whole Foods Market and Trader Joe’s (where our products are sold under its own store brand), regional natural chains such as Sprouts Farmers Market and Earth Fare and independent natural foods cooperatives. During fiscal 2013, we estimate that the natural retailer channel represented approximately 25% of our net sales.•Direct Sales. The majority of our products are sold direct to retailers. We sell direct predominantly in the mass merchandiser channel, but we also maintain select direct relationships in the mainstream grocery channel. In fiscal 2013, 28% of our net sales were generated from sales to our top two customers, Target (17%) and Costco (11%). In some cases, we sell products to the same grocery chain using both direct relationships and distributors.•Distributors.Many of our products are sold through independent food distributors, including the majority sold to the natural retailer channel. Food distributors purchase products from us for resale to retailers, taking title to the products upon purchase. The prices their customers pay for these productsare set by our distributors, in their sole discretion, although we may influence the retail price with the use of promotional incentives. In fiscal 2013, 25% of our net sales were generated from sales to our largest distributor, United Natural Foods Inc., or UNFI.Working Capital PracticesWe generate cash from operations with which we finance the day-to-day operations of our business. We control credit risk through credit approvals, credit limits and monitoring procedures, and perform periodic credit evaluation of our customers. Our vendors offer us accelerated payment discounts, usually 1% for net-10 payment and we typically take advantage of accelerated payment discounts offered to us by our vendors.We also have a credit facility, which is available to us for future borrowings through August 1, 2016. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Indebtedness” for additional information regarding the credit facility.BacklogOur backlog of unshipped orders was $5.2 million and $3.7 million at March 31, 2013 and 2012, respectively.Independentmanufacturemanufactured all of our products. UtilizingIn general, utilizing contract manufacturers provides us with the flexibility to produce a large variety of products and the ability to enter new categories quickly and economically. Our contract manufacturers have been selected based on their production capabilities and their specific product category expertise, and we expect them to partner with us to improve and expand our product offerings. We regularly meet with our contract manufacturers to review costs and their performance and to set performance, quality and cost-saving targets. In many cases we enter into long-term contracts with our contract manufacturers. During fiscal 2013,Products manufactured by our four largest partners manufactured products accountingcontract manufacturers accounted for approximately 75%85% of our net sales.the third quarter of fiscal 2013,2014, we begancompleted the implementation of a transportation management system, or TMSwhich focused on increasing visibility within the supply chain while lowering freight costs for moving raw materials between suppliers and contract manufacturers, andmanufacturers. We are in the process of further optimizing the freight costs related to the movement of finished goods between contact manufacturers, distribution centers and customers. We expect that the TMS system will be fully implemented in fiscal 2014.manufacturers. In fiscal 2013, we invested approximately $1.3 million in manufacturing equipment, which is located at the facilities of our contract manufacturers and, remainsbeginning in fiscal 2015, our property.Joplin Plant. We expect to continue these investments in the future, as we believe this approach improves efficiency and creates shared cost reductions with our manufacturing partners.throughvia contract manufacturers from suppliers we have approved, at prices we have negotiated and based uponon our specifications. In order to mitigate commodity cost fluctuations, we enter, either directly or through our contract manufacturers, into purchase agreements with certain ingredient suppliers. In fiscal 2013,2014, our directly contracted ingredients represented approximately 50% of our materials costs and over 31%approximately 30% of our cost of sales. In addition, in fiscal 2013, we consolidated packaging purchases across multiple contract manufacturers, representing slightly more than half of our annual packaging requirements.readyprepare products for shipment for the majority of our North American retailers and distributors from this facility. In April 2012, in order to support our growing operations, reduce costs and facilitate order fulfillment, we relocated our existing distribution operations to a nearby larger facility owned and operated by the same third party. ConcurrentOur agreement with this move, we entered into an agreement in September 2011, which became effective in April 2012 and will remain in effectparty runs through June 2015. The agreement2015 and will automatically renew for an additional period of two years and two months, unless either party provides proper notice of non-renewal. Under the agreement, our products are stored and shipped on a cost-plus basis by the third-party.In June 2012, we entered into anOur agreement with this facility that will remain in effect untilthird party runs through September 2016. The agreement2016 and will automatically renew for an additional period of one year, unless either party provides proper notice of non-renewal. In addition to third-party distribution, a smaller portion of our products are shipped directly from our contract manufacturers to retailers or distributors.2013, 27.5%2014, 29% and 31.0%29% of our net sales, 27.4%28% and 31.6%28% of our gross profit and 31.9%34% and 38.4%34% of our operating income were generated in the second and fourth fiscal quarters, respectively. Accordingly, our results of operations for any particular quarter are not indicative of the results we expect for the full year. very large mainstream conventional packaged foods companies and natural and organic packaged foods companies. Many of these competitors enjoy significantly greater resources. Large mainstream conventional packaged foods competitors include Kraft Foods Group, Inc., General Mills, Inc., Mondelez International, Inc., Campbell Soup Company, PepsiCo, Inc., Nestle S.A. and Kellogg Company. Certain of these large mainstream conventional packaged food companies, including the Kraft Foods Group, Inc., compete with us by selling both conventional products and natural and/or organic products. Natural and organic packaged foods competitors include The Hain Celestial Group, Inc., Newman’s Own, Inc., Nature’s Path Foods, Inc., Clif Bar & Company, Amy’s Kitchen and Amy’s Kitchen.The WhiteWave Foods Company, which is the owner of the Horizon Organic brand. In addition to these competitors, in each of our categories we compete with many regional and small, local niche brands. Given limited retailer shelf space and merchandising events, competitors actively support their respective brands with marketing, advertising and promotional spending. In addition, most retailers market similar items under their own private label, which compete for the same shelf space.2013,2014, excluding interns, we had 106 full-time129 employees. On April 2, 2014, we acquired the Joplin Plant and added 125 additional employees to the Company’s workforce. Concurrent with the acquisition, the labor union that had represented many of the Joplin Plant employees under its prior ownership asked for recognition and eight part-time employees, including 47 in sales and marketing, 21 in finance, 25 in operations, seven in information technology, seven in innovation and seven in other departments. None of our employees is represented byon April 17, 2014, we entered into a labor union.collective bargaining agreement. We have never experienced a labor-related work stoppage.also rely on unpatented proprietary expertise, recipes and formulations, continuing innovation and other trade secrets to develop and maintain our competitive position.Although we believe we have a rigorous quality control process, thereThere can be no assurance that our products will always comply with the standards set for our products. For example, although we strive to keep our products free of genetically modified organisms, they may not be easily detected and contamination can occur through cross-pollination. Also, although we have historically used epoxy liningstransitioned our canned pasta meals to a can lining that does not contain bisphenol-A, commonly called BPA, as part of the protective barrier between the metal can and food contents in our canned pasta meals. Given the recent approval by the FDA of a BPA-free can lining suitable for use with ourproducts, all new production of our canned pasta meals are now in BPA-free cans. We are in the process of selling through existing inventory manufactured prior to this change. Although the Food and Drug Administration, or FDA, currently allows the use of BPA in food packaging materials, public reports and concerns regarding the potential hazards of BPA could contribute to a perceived safety risk for products packaged using BPA. Additionally, there is no guarantee that concerns regarding our new packaging will not develop in the future. Adverse publicity about the quality or safety of our products, whether or not ultimately based on fact, may discourage consumers from buying our products and have an adverse effect on our brand, reputation and operating results. recently carried out an FDA Class II recall for our frozen pizza products. See “—Our voluntary recallproducts due to the possible presence of certified organic and made with organic pizza products has affected our fiscal 2013 financial results and will continue to impact our financial results in future quarters.”fragments of flexible metal mesh from a faulty screen at a third-party flour mill. Even if a situation does not necessitate a recall or market withdrawal, product liability claims may be asserted against us. If the consumption of any of our products causes, or is alleged to have caused, a health-related illness, we may become subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful, the negative publicity surrounding any assertion that our products caused illness or physical harm could adversely affect our reputation with existing and potential distributors, retailers and consumers and our corporate image and brand equity. Moreover, claims or liabilities of this sort might not be covered by insurance or by any rights of indemnity or contribution that we may have against others. A product liability judgment against us or a product recall or market withdrawal could have a material adverse effect on our business, reputation and operating results.Our voluntary recall of certified organic and made with organic pizza products affected our fiscal 2013 financial results and will continue to impact our financial results in future quarters.In January 2013, we initiated a voluntary recall of our certified organic and made with organic pizza products due to the possible presence of fragments of flexible metal mesh from a faulty screen at a third-party flour mill. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Voluntary Product Recall.” We have accounted for the voluntary recall primarily as a reduction to net sales to account for customer and consumer returns and an increase in cost of sales to account for the destruction of finished goods and raw materials inventory. In addition, we recorded administrative costs associated with the recall, including fees and incentives to customers and legal expenses. Certain of these accounting charges were based on our best estimates and are subject to change based on actual results or revised estimates. We may alsoincur some additional costs in future quarters. While we have recovered a portion of the costs related to the voluntary recall through our existing recall insurance and expect to recover additional amounts in the future, we cannot guarantee that additional monies will be recovered or that the amounts we recover will cover all costs associated with the voluntary recall. While we restarted the production and began shipping replacement product into distributors and retailers in February 2013, we have not fully returned to our pre-recall distribution level. We may find it challenging to re-establish strong growth in pizza product sales for a period of time following the voluntary recall. Further, while there have been no illnesses or injuries reported to date, the occurrence of any illnesses or injuries could have serious consequences on pizza product sales and sales of our other products, our brand and reputation, any of which could harm our business.Disruptions in the worldwide economy may adversely affect our business, results of operations and financial condition.Adverse and uncertain economic conditions may impact distributor, retailer and consumer demand for our products. In addition, our ability to manage normal commercial relationships with our suppliers, contract manufacturers, distributors, retailers, consumers and creditors may suffer. Consumers may shift purchases to lower-priced or other perceived value offerings during economic downturns. In particular, consumers may reduce the amount of natural and organic products that they purchase where there are conventional offerings, which generally have lower retail prices. In addition, consumers may choose to purchase private label products rather than branded products because they are generally less expensive. Distributors and retailers may become more conservative in response to these conditions and seek to reduce their inventories. For example, during the economic downturn from 2007 through 2009, distributors and retailers significantly reduced their inventories, and inventory levels have not returned to, and are not expected to return to, pre-downturn levels. Our results of operations depend upon, among other things, our ability to maintain and increase sales volume with our existing distributors and retailers, to attract new consumers and to provide products that appeal to consumers at prices they are willing and able to pay. Prolonged unfavorable economic conditions may have an adverse effect on our sales and profitability.Consumer preferences for our products are difficult to predict and may change, and, if we are unable to respond quickly to new trends, our business may be adversely affected.Our business is focused on the development, manufacture, marketing and distribution of a line of branded natural and organic food products. If consumer demand for our products decreased, our business would suffer. In addition, sales of natural and organic products are subject to evolving consumer preferences. Consumer trends that we believe favor sales of our products could change based on a number of possible factors, including a shift in preference from organic to non-organic and from natural to non-natural products, a loss of confidence by consumers in what constitutes “organic,” economic factors and social trends. A significant shift in consumer demand away from our products could reduce our sales or the prestige of our brand, which would harm our business.and Amy’s Kitchen and The WhiteWave Foods Company, which is the owner of the Horizon Organic brand, and with smaller companies, which may be more innovative and able to bring new products to market faster and to more quickly exploit and serve niche markets. Retailers also market competitive products under their own private labels, which are generally sold at lower prices and compete with some of our products. In addition, Wal-Mart Stores, Inc., recently announced that it would begin carrying the Wild Oats line of organic products with pricing competitive to non-organic products. The entry of a retailer with the resources and scale of Wal-Mart Stores Inc. may have a significant effect on the market for organic products. As a result of competition, we may need to increase our marketing, advertising and promotional spending, refrain from increasing prices or decrease our prices to protect our existing market share, which may adversely impact our profitability. We may not have the financial resources to increase such spending when necessary.our most recent new product introductions such as frozen rising crust pizza and macaroni and cheese microwavable cups, will gain widespread market acceptance or be successful.consumer demand and changes in governmental trade and agricultural programs. We have experienced two consecutive years of commodity cost escalation,For example, in fiscal 2014, organic wheat prices did not moderate as we anticipated, due to increased demand and we expect that the cost of certain of our key ingredients will continue to increase.limited supply. Continued volatility in the prices of raw materials and other supplies we purchase could increase our cost of sales and reduce our profitability. Moreover, we may not be able to implement price increases for our products to cover any increased costs, and any price increases we do implement may result in lower sales volumes. Cost increases for organic and non-GMO raw materials that exceed cost increases for their conventional counterparts may exacerbate these risks. If we are not successful in managing our ingredient and packaging costs, if we are unable to increase our prices to cover increased costs or if such price increases reduce our sales volumes, then such increases in costs will adversely affect our business, results of operations and financial condition.2011,2014, organic wheat and sunflower oil werewas in shorter supply than we expected.expected, which impacted our costs. In addition, we purchase some ingredients offshore, and the availability of such ingredients may be affected by events in other countries, including Colombia, Paraguay, Thailand, Turkey and Brazil. We compete with other food producers in the procurement of organic ingredients, which are often less plentiful in the open market than conventional ingredients. This competition may increase in the future if consumer demand for organic or non-GMO products increases.increases, if the number of producers of organic or non-GMO products increases or if existing producers expand competition for organic and non-GMO ingredients. Retailer decisions, such as Wal-Mart’s recent announcement regarding the Wild Oats line, may drive increased production. If regulations are adopted requiring labeling of products that contain genetically modified organisms, the competition for non-GMO ingredients may increase. If supplies of organic and non-GMO ingredients are reduced or there is greater demand for such ingredients from us and others, we may not be able to obtain sufficient supply on favorable terms, or at all, which could impact our ability to supply products to distributors and retailers and may adversely affect our business, results of operations and financial condition.2013,2014, sales to our three largest customers represented approximately 25%22%, 17%15% and 11%13% of our net sales. Although the composition of our significant distributors and retailers will vary from period to period, we expect that most of our sales will continue to come from a relatively small number of distributors and retailers for the foreseeable future. We do not have commitments or minimum volumes that ensure future sales of our products. Consequently, our financial results may fluctuate significantly from period to period based on the actions or business performance of one or more significant distributors or retailers. For example, in the first quarter of fiscal 2010, sales to a significant customer were $3.2 million lower than in fiscal 2009,2014, one of our major customers reduced inventory carrying levels, which contributed to lower sales growth.growth from that customer. Furthermore, to the extent that our sales growth in the mass merchandiser/other channel exceeds growth in our other channels, our gross margin may be adversely impacted. A distributor or retailer may take actions that affect us for reasons that we cannot always anticipate or control, such as their financial condition, changes in their business strategy or operations, the introduction of competing products or the perceived quality of our products. These risks may be exacerbated by consolidation among retailers. Customers, such as supermarkets and food distributors in North America continue to consolidate. This consolidation has produced larger, more sophisticated organizations with increased negotiating and buying power that are able to resist price increases or demand increased promotional programs, as well as operate with lower inventories, decrease the number of brands that they carry and increase their emphasis on private label products, which could negatively impact our business. The consolidation of retail customers also increases the risk that a significant adverse impact on their business could have a corresponding material adverse impact on our business. In addition, despite operating in different channels, our retailers sometimes compete for the same consumers. As a result of actual or perceived conflicts resulting from this competition, retailers may take actions that negatively affect us. Our agreements with our distributors and retailers may be canceled or subject us to penalties or other charges if we materially breach the agreements or for other reasons, including reasons outside of our control. In addition, our distributors and retailers may seek to renegotiate the terms of current agreements or renewals. The loss of, or a reduction in sales or anticipated sales to, one or more of our most significant distributors or retailers may have a material adverse effect on our business, results of operation and financial condition.We deriveDuring fiscal 2013,Despite our acquisition of the Joplin Plant in April 2014, we paid $77.0 million incontinue to derive the aggregate tosignificant majority of our top foursales from products manufactured at manufacturing facilities owned and operated by our contract manufacturers. We do not have written contracts with all of our contract manufacturers, including Lucerne Foods, onemanufacturers. Production of many of our top threeproducts may involve more than one contract manufacturers that manufactures severalmanufacturer or a combination of our top sellingJoplin Plant and a contract manufacturer, particularly in connection with packaging. A substantial percentage of our products, andcalculated on net sales basis, are handled by Peacock Engineering, our largest packaging partner. Any of our contract manufacturers could seek to alter its relationship with us. Additionally, even where we have a written contract, pricing and other key terms may be subject to change. If we need to replace a contract manufacturer, there can be no assurance that additional capacity will be available when required on acceptable terms, or at all.affecteffect on our business, results of operations and financial condition.or contract manufacturers or the Joplin Plant to comply with food safety, environmental or other laws and regulations may disrupt our supply of products and adversely affect our business.or contract manufacturers or the Joplin Plant fail to comply with food safety, environmental or other laws and regulations, or face allegations of non-compliance, their or our operations may be disrupted. Any such failure could also cause us to recall our products. See “–OurFor example, in January 2013, we initiated a voluntary recall of our certified organic and made with organicmade-with-organic pizza products has affected our fiscal 2013 financial results and will continue to impact our financial results in future quarters.” For example, allproducts. All of our contract manufacturers and the Joplin Plant are required to be certified in the Safe Quality Food Program or the BRC Global Standard for Food Safety. Additionally, the USDA requires that our certified organic products be free of genetically modified organisms, but unavoidable cross-pollination at one of our suppliers may result in genetically modified organisms in our supply chain. In the event of actual or alleged non-compliance, we might be forced to find an alternative supplier or contract manufacturer.manufacturer or make changes at the Joplin Plant. As a result, our supply of raw materials or finished inventory could be disrupted or our costs could increase, which would adversely affect our business, results of operations and financial condition. Additionally, actions we may take to mitigate the impactShould we become subjectSuch a claim has recently been threatened against us with respect to similarour salad dressings. As a result of claims like these, consumers may avoid purchasing products from us or seek alternatives, even if the basis for the claim is unfounded. Adverse publicity about these matters may discourage consumers from buying our products. The cost of defending against any such claims could be significant. Any loss of confidence on the part of consumers in the truthfulness of our labeling or ingredient claims would be difficult and costly to overcome and may significantly reduce our brand value. Uncertainty as to the ingredients used in our products, regardless of the cause, may have a substantial and adverse effect on our brand and our business, results of operations and financial condition.unsaleable.unsaleable or be sold at discount. For example, in the second quarter of fiscal 2013, our forecasting and production planning processes underestimated demand such that we experienced product shortages in our top items. If we are unable to manage our supply chain effectively and ensure that our products are available to meet consumer demand, our operating costs could increase and our profit margins could decrease.Virtually all2013,2014, we begancompleted implementation of a transportation management system, which we expect to complete in fiscal 2014.system. Such initiatives, which we often refer to internally as “fat rabbit” projects, are important to our success. For example, in fiscal 2014, we did not meet our earnings goals in part due to delayed “fat rabbit” projects. If in the future we are not able to identify and complete initiatives designed to control or reduce costs and increase operating efficiency on time or within budget, our results of operations could be adversely impacted. In addition, if the cost savings initiatives we have implemented to date or any future cost-savings initiatives do not generate expected cost savings, our results of operations could be adversely affected.have significantly increased inventory levels, particularly in our top-selling items. Any unanticipated decline in demand for our products during our peak seasons could require us to sell excess inventory at a substantial markdown or write-off goods we are unable to sell, which could diminish our brand and adversely affect our results of operations.YouInvestors should not rely on the results of a single fiscal quarter or period as an indication of our annual results or our future performance.increase in turnover rates ofamong our employees may adversely affect our business, results of operations and financial condition.breaches.breaches, cyber-attacks and spear phishing. Our technology systems are primarily based in Berkeley,the San Francisco Bay area in California, which is prone to earthquakes. We do not have a detailed disaster recovery plan and we do not carry insurance for earthquakes. To the extent our systems are damaged or interrupted, and we are unable to implement an effective recovery plan, our business could be materially adversely affected. Alice.com and Amazon.com. The website operations of such third parties may be affected by reliance on third-party hardware and software providers, technology changes, risks related to the failure of computer systems through which these website operations are conducted, telecommunications failures, electronic break-ins and similar disruptions. Furthermore, the ability of our third-party partners to conduct these website operations may be affected by liability for online content and state and federal privacy laws. new enterprise resource planning (ERP) system could impact our ability to operate our business, lead to internal control and reporting weaknesses and adversely affect our results of operations and financial condition.future.future, including in connection with the integration of the Joplin Plant. A failure of the system to perform as we anticipate may result in transaction errors, processing and operational inefficiencies and the loss of sales, may otherwise disrupt our operations and materially and adversely affect our business, results of operations and financial condition and may harm our ability to accurately forecast sales demand, manage our supply chain and production facilities, fulfill customer orders and report financial and management information on a timely and accurate basis. In addition, due to the systemic internal control features within ERP systems, we may experience difficulties that may affect our internal control over financial reporting, which may create a material weakness in our overall internal controls. Any material weaknesses in our internal controls may impede our ability to produce timely and accurate financial statements, which could cause us to fail to file our periodic reports timely, result in inaccurate financial reporting or restatements of our financial statements, subject our stock to delisting and materially harm our business, results of operations, financial condition and stock price. The risks associated with our new ERP system are greater for us as a newly public company.An impairmentmay be exacerbated by efforts to integrate the Joplin Plant.In connection with the repurchase of 500,000 shares of our common stock concurrently with a secondary offering of our common stock in March 2013, we borrowed approximately $15.0 million under our credit facility. 2013,2014, we had approximately $7.0 million outstanding under our credit facility with additional borrowing availability of $33.0 million.$40.0 million under our revolving credit facility. Subject to the limitations contained in the credit agreement governing our credit facility, we may be able to incur substantial additional indebtedness from time to time to finance working capital, capital expenditures, investments or acquisitions, stock buybacks or for other purposes. If we do so, the risks related to our level of indebtedness, if any, could intensify. Specifically, our level of indebtedness could have important consequences, including:results;changes in financial estimatesresults or recommendations by any securities analysts who follow our common stock;Future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price.The market price of our common stock could decline significantly as a result of sales of a large number of shares of our common stock in the market. Such sales, or the perception that these sales might occur, could depress the market price of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.Pursuant to the Amended and Restated Registration Rights Agreement among us, Solera and certain of our other stockholders, dated as of November 14, 2005, some of our stockholders, including Solera, have the right to require us to register under the Securities Act of 1933, as amended, or the Securities Act, shares in our company held by such stockholders. If our existing stockholders sell substantial amounts of our common stock in the public market, or if the public perceives that such sales could occur, this could have an adverse impact on the market price of our common stock, even if there is no relationship between such sales and the performance of our business.Also, in the future, we may issue shares of our common stock in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock.We will continue to be significantly influenced by our sponsor, whose interests may conflict with those of our other stockholders.As of March 31, 2013, funds advised by Solera held approximately 15.1% of our voting power. So long as such funds continue to hold, directly or indirectly, shares of common stock representing a significant percentage of the voting power of our common stock, Solera will have significant power to influence all matters requiring stockholder approval, including the election of directors, amendment of our amended and restated certificate of incorporation and approval of significant corporate transactions, and will have significant influence over our management and policies. Solera’s control may have the effect of delaying or preventing a change in control of our company or discouragingothers from making tender offers for our shares, which could prevent stockholders from receiving a premium for their shares. The interests of Solera may not always coincide with the interests of other stockholders, and Solera may act in a manner that advances its best interests and not necessarily those of our other stockholders.Any material weaknesses in our internal controls may impede our ability to produce timely and accurate financial statements, which could cause us to fail to file our periodic reports timely, result in inaccurate financial reporting or restatements of our financial statements, subject our stock to delisting and materially harm our business, results of operations, financial condition and stock price.As a public company, we are required to file annual and quarterly periodic reports containing our financial statements with the SEC within prescribed time periods. As part of the New York Stock Exchange listing requirements, we are also required to provide our periodic reports, or make them available, to our stockholders within prescribed time periods. We may not be able to produce reliable financial statements or file these financial statements as part of a periodic report in a timely manner with the SEC or comply with the New York Stock Exchange listing requirements. In addition, we could make errors in our financial statements that could require us to restate our financial statements. If we are required to restate our financial statements in the future for any reason, any specific adjustment may be adverse and may cause our results of operations and financial condition, as restated, to be materially adversely impacted. As a result, we or members of our management could be the subject of adverse publicity, stockholder lawsuits and investigations and sanctions by regulatory authorities, such as the SEC. Any of the above consequences could cause our stock price to decline and could impose significant unanticipated costs on us.However, for as long as we remain an “emerging growth company,” or EGC, as defined in the Jumpstart our Business Startups Act of 2012, or JOBS Act, we intend to take advantage of the exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, which is applicable to other public companies that are not EGCs. We intend to take advantage of this reporting exemption, and possibly other reporting exemptions, until we are no longer an EGC. We will cease to be an EGC at the earliest of (A) the last day of the fiscal year in which we have total annual gross revenues of $1,000,000,000 (as indexed for inflation in the manner set forth in the Jobs Act) or more; (B) the last day of the fiscal year in which the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act occurs (March 31, 2018); (C) the date on which we have, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible debt; or (D) the date on which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, or any successor thereto.Once we cease to be an EGC, as of each fiscal year end thereafter, our independent registered public accounting firm will be required to evaluate and report on our internal controls over financial reporting in the event we are an accelerated filer or large accelerated filer. To the extent we find material weaknesses in our internal controls, we may determine that we have ineffective internal controls over financial reporting as of any particular fiscal year end, and we may receive an adverse assessment of our internal controls over financial reporting from our independent registered public accounting firm. Moreover, any material weaknesses or other deficiencies in our internal controls may delay the conclusion of an annual audit or a review of our quarterly financial results. From time to time, we have had significant deficiencies in our internal control over financial reporting. While no such deficiency has resulted in a material weakness to date, any significant deficiency that is not remediated could, on its own or in combination with other significant deficiencies, give rise to a material weakness.If we are not able to issue our financial statements in a timely manner, or if we are not able to obtain the required audit or review of our financial statements by our independent registered public accounting firm in a timely manner, we will not be able to comply with the periodic reporting requirements of the SEC and the listing requirements of the New York Stock Exchange. If these events occur, our common stock listing on the New York Stock Exchange could be suspended or terminated and our stock price could materially suffer. In addition, we or members of our management could be subject to investigation and sanction by the SEC and other regulatoryauthorities and to stockholder lawsuits, which could impose significant additional costs on us, divert management attention and materially harm our business, results of operations, financial condition and stock price.Some of our operating expenses will increase significantly as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations.Until March 27, 2012, the effective date of our IPO registration statement on Form S-1, we operated as a private company. Upon effectiveness, we became a public company. As a public company, we have incurred and will continue to incur additional legal, accounting, compliance and other expenses that we had not previously incurred as a private company. We are obligated to file annual and quarterly information and other reports with the SEC as required by the Exchange Act and applicable SEC rules. We are currently exempt from the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act as an EGC, therefore we expect our costs as a public company to further increase once such attestation is required. In addition, we are subject to other reporting and corporate governance requirements, including certain requirements of the New York Stock Exchange, which impose significant compliance obligations upon us.The Sarbanes-Oxley Act and the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules subsequently implemented by the SEC and the New York Stock Exchange, have imposed increased regulation and disclosure obligations and have required enhanced corporate governance practices of public companies. However, for so long as we qualify as an EGC under the JOBS Act, we may decide to make certain elections that would lessen such obligations. See “—We are an emerging growth company, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.” Nonetheless, our efforts to comply with evolving laws, regulations and standards are likely to result in increased administrative expenses and a diversion of management’s time and attention from sales-generating activities. These changes will require a significant commitment of additional resources. We may not be successful in implementing these requirements, and implementing them could materially adversely affect our business, results of operations and financial condition. If we do not implement or comply with such requirements in a timely manner, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC or the New York Stock Exchange. Any such action could harm our reputation and the confidence of investors and customers in our company and could materially adversely affect our business and cause our stock price to decline.We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.We are an EGC, as defined in the JOBS Act, and we intend to take advantage of the exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We intend to take advantage of this reporting exemption, and possibly other reporting exemptions, until we are no longer an EGC. We cannot predict if investors will find our common stock less attractive because we are relying or may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.Although, the JOBS Act permits an EGC such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies, we are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.classify our board of directors into three separate classes with staggered terms;• 3%3% or more of our total voting power;• 3%3% or more of our total voting power; Our board of directors intends to recommend that our amended and restated certificate of incorporation be amended to declassify the board of directors at the next annual meeting of stockholders to be held in September 2013. If our stockholders approve such a proposal, all of our directors would be elected annually and serve one-year terms.We do not own any real property. We leaseheadquarters at 1610 Fifth Street, Berkeley, California pursuant to a lease agreement that expires in February 2019 with an option to extend through February 2021. The approximately 33,500 square foot space includes our corporate headquartersprimary owned and our sample storage area. For additional information concerning the lease agreement for our headquarters, please see Note 7 to our consolidated financial statements included elsewhere in this Form 10-K. leased facilities:Facility Location Character Ownership Administrative offices Berkeley, California Corporate headquarters Leased Snack manufacturing plant Joplin, Missouri Snack manufacturing Owned Fromand assessments or other legal proceedings in the ordinary course of our business. We arebusiness, including product liability claims, employee claims, and other general liability claims. While it is not currently a partyfeasible to any litigation matterpredict or determine the ultimate outcome of these matters, we believe that none of these legal proceedings, individually or in the aggregate, is expected towill have a material adverse effect on our business, financial condition,position or results of operations orand cash flows. We do not accrue for legal fees that may be incurred in the future in connection with defending litigation.ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Fiscal 2013 Fiscal 2012 High Low High Low $ 45.00 $ 32.66 $ n/a $ n/a 48.87 35.50 n/a n/a 47.03 32.06 n/a n/a 43.10 33.05 40.00 31.00 Fiscal 2014 Fiscal 2013 High Low High Low First Quarter $ 43.51 $ 36.26 $ 45.00 $ 32.66 Second Quarter 51.46 40.50 48.87 35.50 Third Quarter 52.38 40.29 47.03 32.06 Fourth Quarter 44.92 34.90 43.10 33.05 28, 2013,31, 2014, the last day that the NYSE was open for public trading during fiscal 2013,2014, the last reported sale price of our common stock on the NYSE was $38.26.$40.19. As of March 31, 2013,2014, there were 13 holders of record of our common stock. A substantially greater number of stockholders may be “street name” or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions.During fiscal 2012, we paid cash dividends on our capital stock of $1,518,809 ($0.097 per share) in August 2011, $2,279,518 ($0.145 per share) in November 2011 and $9,751,271 ($0.621 per share) in December 2011. have paid cash dividends on our capital stock from time to time in the past while we were a privately held company, we currently expect to retain all future earnings for use in the operation and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. The declaration and payment of any dividends in the future will be determined by our board of directors, in its discretion, and will depend on a number of factors, including our earnings, capital requirements, overall financial condition and contractual restrictions, including covenants under our revolving credit facility and other indebtedness we may incur.Issuer Purchases of Equity SecuritiesThe following table provides information regarding our purchases of common stock, $0.001 par value per share, during the fourth quarter of fiscal 2013: (a) Total Number
of Shares (or
Units) Purchased (b) Average
Price Paid per
Share (or Unit) (c) Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs (d) Maximum Number (or
Approximate Dollar Value)
of Shares (or Units) that May
Yet Be Purchased Under the
Plans or Programs — $ — — $ — — $ — — $ — 500,000 (1) $ 38.25 500,000 (1) $ — 500,000 $ 38.25 500,000 $ — (1)Pursuant to the Repurchase Agreement, publicly announced, whereby the Company entered into an agreement with Solera Partners, L.P. and SCI Partners, L.P. to repurchase shares of its common stock, concurrently with the closing of its secondary offering on March 18, 20132013.2014. Although our common stock was initially listed at $19.00 per share on the date our common stock was first listed on the NYSE, March 28, 2012, the $19.00 price is not reflected in the graph. Instead, the figures represented below assume an investment of $100 in our common stock at the closing price of $35.92 on March 28, 2012 and in the NYSE Composite and the Russell 3000 on March 28, 2012 and the reinvestment of dividends into shares of common stock. The comparisons in the table are required by the SEC and are not intended to forecast or be indicative of possible future performance of our common stock.
$100 Investment in stock or index Ticker 3/28/2012 3/31/2012 6/30/2012 9/30/2012 12/31/2012 3/31/2013 6/30/2013 9/30/2013 12/31/2013 3/31/2014 Annie’s BNNY $ 100.00 $ 96.99 $ 116.54 $ 124.83 $ 93.07 $ 106.51 $ 118.99 $ 136.69 $ 119.82 $ 111.89 NYSE Composite NYA 100.00 100.23 95.28 100.77 103.12 111.22 111.29 117.50 127.01 128.57 Russell 3000 RUA 100.00 100.15 96.50 101.98 101.63 112.33 114.77 121.46 133.08 135.07 statementsstatement of operationsincome data for the fiscal years ended March 31, 2014, 2013 2012 and 20112012 and the consolidated balance sheetssheet data as of March 31, 20132014 and 20122013 from our audited consolidated financial statements appearing elsewhere in this filing. The consolidated statementsstatement of operationsincome data for the fiscal years ended March 31, 20102011 and 20092010 and the consolidated balance sheetssheet data as of March 31, 2012, 2011 2010 and 20092010 have been derived from our auditedrevised historical consolidated financial statements not included in this filing. Fiscal Year Ended March 31, 2013 2012 2011 2010 2009 (in thousands, except share and per share amounts) $ 169,977 $ 141,304 $ 117,616 $ 96,015 $ 93,643 104,566 85,877 71,804 63,083 64,855 65,411 55,427 45,812 32,932 28,788 45,461 36,195 30,674 25,323 25,693 — 1,300 — — — 45,461 37,495 30,674 25,323 25,693 19,950 17,932 15,138 7,609 3,095 (168 ) (161 ) (885 ) (1,207 ) (1,279 ) 87 (1,594 ) 155 21 (289 ) 19,869 16,177 14,408 6,423 1,527 8,318 6,588 (5,747 ) 400 56 11,551 9,589 20,155 6,023 1,471 — — — — (579 ) — — — — (1,865 ) $ 11,551 $ 9,589 $ 20,155 $ 6,023 $ (973 ) $ 11,551 $ 290 $ 596 $ 177 $ 43 — — — — (72 ) $ 11,551 $ 290 $ 596 $ 177 $ (29 ) $ 0.67 $ 0.62 $ 1.29 $ 0.38 $ 0.09 — — — — (0.16 ) $ 0.67 $ 0.62 $ 1.29 $ 0.38 $ (0.07 ) Fiscal Year Ended March 31, 2013 2012 2011 2010 2009 (in thousands, except share and per share amounts) $ 0.65 $ 0.26 $ 0.50 $ 0.20 $ 0.06 — — — — (0.16 ) $ 0.65 $ 0.26 $ 0.50 $ 0.20 $ (0.10 ) 17,129,334 469,089 461,884 461,248 461,154 17,707,839 1,111,088 1,201,125 899,539 766,290 $ — $ 0.86 $ 0.80 $ 0.22 $ — Fiscal Year Ended March 31, 2013 2012 2011 2010 2009 (in thousands) $ 21,102 $ 17,183 $ 15,787 $ 7,975 $ 728 25,765 21,315 16,560 9,277 4,407 March 31, 2013 2012 2011 2010 2009 (in thousands) $ 4,930 $ 562 $ 7,333 $ 8,550 $ 3,693 31,925 16,427 13,035 16,538 13,195 90,212 72,429 67,261 58,794 53,612 7,007 12,796 — 5,856 5,713 — 2,157 — — — — 81,373 81,373 81,373 81,373 65,929 (34,436 ) (30,148 ) (38,173 ) (41,620 ) Fiscal Year Ended March 31, 2014 2013 (Revised) 2012 (Revised) 2011 (Revised) 2010 (Revised) (in thousands, except share and per share amounts) Consolidated Statement of Income Data: Net sales $ 204,104 $ 169,472 $ 141,481 $ 117,389 $ 95,899 Cost of sales 128,475 104,566 85,877 71,804 63,083 Gross profit 75,629 64,906 55,604 45,585 32,816 Selling, general and administrative expenses 49,509 45,461 37,790 30,663 25,144 Income from operations 26,120 19,445 17,814 14,922 7,672 Interest expense (335 ) (168 ) (161 ) (885 ) (1,207 ) Other income (expense), net 41 87 (1,076 ) (398 ) 100 Income before provision for (benefit from) income taxes 25,826 19,364 16,577 13,639 6,565 Provision for (benefit from) income taxes 10,537 8,112 6,541 (5,836 ) 426 Net income(1) $ 15,289 $ 11,252 $ 10,036 $ 19,475 $ 6,139 Net income attributable to common stockholders(2) $ 15,289 $ 11,252 $ 303 $ 574 $ 180 Earnings per share —Basic $ 0.90 $ 0.66 $ 0.65 $ 1.24 $ 0.39 —Diluted $ 0.88 $ 0.64 $ 0.27 $ 0.48 $ 0.20 Weighted average shares of common stock outstanding used in computing earnings per share —Basic 16,926,827 17,129,334 469,089 461,884 461,248 —Diluted 17,412,548 17,707,839 1,111,088 1,201,125 899,539 Dividends per common share $ — $ — $ 0.86 $ 0.80 $ 0.22 Fiscal Year Ended March 31, 2014 2013 (Revised) 2012 (Revised) 2011 (Revised) 2010 (Revised) (in thousands) Other Financial Data: EBITDA(3) $ 27,627 $ 20,597 $ 17,583 $ 15,018 $ 8,117 Adjusted EBITDA(3) 27,251 25,260 21,492 16,333 9,161 Fiscal Year Ended March 31, 2014 2013 (Revised) 2012 (Revised) 2011 (Revised) 2010 (Revised) (in thousands) Consolidated Balance Sheet Data: Cash $ 17,308 $ 4,930 $ 562 $ 7,333 $ 8,550 Working capital 43,886 31,078 15,879 12,263 15,904 Total assets 103,641 89,535 71,881 66,489 58,160 Total debt(4) — 7,007 12,796 — 5,856 Convertible preferred stock warrant liability — — 2,157 949 396 Convertible preferred stock — — 81,373 81,373 81,373 Total stockholders’ equity / (deficit) 84,912 65,082 (34,984 ) (31,438 ) (38,772 ) (1) In November 2008, we sold Fantastic, a manufacturerOur previously reported net income was overstated by $0.1 million and $69,000 for the fiscal years ended March 31, 2011 and 2010, respectively, due to the misstatements relating to certain trade allowances as described in Note 2 of instant soups and packaged meals,our Notes to an unrelated third party for $1.7 million, netConsolidated Financial Statements in Item 8 of working capital adjustments. We considered Fantastic a business component, and thus, the results of operations of Fantastic are separately reported as discontinued operations in fiscal 2009. The lossthis Annual Report on sale of Fantastic is reported as a loss on sale of discontinued operations in fiscal 2009.Form 10-K.(2) Net income (loss) attributable to common stockholders for fiscal years prior to fiscal 2013 was allocated using the two-class method since our capital structure included common stock and convertible preferred stock with participating rights. Under the two-class method, we reduced income from continuing operations by (i) the dividends paid to convertible preferred stockholders and (ii) the rights of the convertible preferred stockholders in any undistributed earnings based on the relative percentage of weighted average shares of outstanding convertible preferred stock to the total number of weighted average shares of outstanding common and convertible preferred stock. Under the two-class method, during any period in which we had income from continuing operations, the income from continuing operations and the loss from discontinued operations were allocated between the common and preferred stockholders.(3) EBITDA and Adjusted EBITDA are not financial measures prepared in accordance with GAAP. As used herein, EBITDA represents net income (loss) plus interest expense, provision for (benefit from) income taxes and depreciation and amortization. As used herein, Adjusted EBITDA represents EBITDA plus the pre-tax impact of the pizza recall and related insurance recoveries; costs associated with the Joplin Plant acquisition; secondary offering costs; stock-based compensation; management fees; advisory agreement termination fee; and the change in fair value of convertible preferred stock warrant liability.(4) Total debt includes outstanding borrowings on our credit facility and, prior to March 31, 2011, the outstanding principal balance of our term loan, which was repaid in August 2010. Fiscal Year Ended March 31, 2014 2013 (Revised) 2012 (Revised) 2011 (Revised) 2010 (Revised) (in thousands) Net income $ 15,289 $ 11,252 $ 10,036 $ 19,475 $ 6,139 Interest expense 335 168 161 885 1,207 Provision for (benefit from) income taxes 10,537 8,112 6,541 (5,836 ) 426 Depreciation and amortization 1,466 1,065 845 494 345 EBITDA 27,627 20,597 17,583 15,018 8,117 (Benefit to) / reduction of net sales related to product recall(a) (1,071 ) 1,096 — — — (Benefit to) / incremental cost of sales related to product recall(a) (628 ) 1,080 — — — Incremental selling, general and administrative costs related to product recall(a) 24 171 — — — Costs associated with Joplin Plant acquisition(b) 546 — — — — Secondary offering costs(c) 288 1,239 — — — Stock-based compensation(d) 465 1,064 801 362 723 Management fees(e) — — 600 400 400 Advisory agreement termination fee(e) — — 1,300 — — Change in fair value of convertible preferred stock warrant liability(f) — 13 1,208 553 (79 ) Adjusted EBITDA $ 27,251 $ 25,260 $ 21,492 $ 16,333 $ 9,161 (a) Represents impact on net sales, cost of sales and selling, general and administrative expenses due to product recall; secondary offering costs; stock-based compensation; loss from discontinued operations; loss from sale of discontinued operations; management fees; advisory agreement termination fee; and change in fair value of convertible preferred stock warrant liability.We present EBITDA and Adjusted EBITDA because we believe each of these measures provides an additional metric to evaluate our operations and, when considered with both our GAAP results and the reconciliation to net income (loss) set forth below, provides a more complete understanding of our business than could be obtained absent this disclosure. We use EBITDA and Adjusted EBITDA, together with financial measures prepared in accordance with GAAP, such as sales and net income, to assess our historical and prospective operating performance, to provide meaningful comparisons of operating performance across periods, to enhance our understanding of our core operating performance and to compare our performance to that of our peers and competitors.EBITDA and Adjusted EBITDA are presented because we believe they are useful to investors in assessing the operating performance of our business without the effect of non-cash depreciation and amortization expenses and, in the case of Adjusted EBITDA, the adjustments described above.EBITDA and Adjusted EBITDA should not be considered in isolation or as alternatives to net income (loss), income from operations or any other measure of financial performance calculated and presented in accordance with GAAP. Neither EBITDA nor Adjusted EBITDA should be considered as a measure of discretionary cash available to us to invest in the growth of our business. Our Adjusted EBITDA may not be comparable to similarly titled measures of other organizations because other organizations may not calculate Adjusted EBITDA in the same manner as we do. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring items. We recognize that both EBITDA and Adjusted EBITDA have limitations as analytical financial measures. For example, neither EBITDA nor Adjusted EBITDA reflects:our capital expenditures or future requirements for capital expenditures;the interest expense, or the cash requirements necessary to service interest or principal payments, associated with indebtedness;depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, nor does EBITDA or Adjusted EBITDA reflect any cash requirements for such replacements; andchanges in, or cash requirements for, our working capital needs.The following table provides a reconciliation of EBITDA and Adjusted EBITDA to net income (loss), which is the most directly comparable financial measure presented in accordance with GAAP. Fiscal Year Ended March 31, 2013 2012 2011 2010 2009 (in thousands) $ 11,551 $ 9,589 $ 20,155 $ 6,023 $ (973 ) 168 161 885 1,207 1,279 8,318 6,588 (5,747 ) 400 56 1,065 845 494 345 366 21,102 17,183 15,787 7,975 728 1,096 — — — — 1,080 — — — — 171 — — — — 1,239 — — — — 1,064 506 373 902 835 — — — — 579 — — — — 1,865 — 600 400 400 400 — 1,300 — — — 13 1,726 — — — $ 25,765 $ 21,315 $ 16,560 $ 9,277 $ 4,407 (a)Represents impact on net sales, as adjusted for $0.4 million recovery from insurance as of May 31, 2013, cost of sales and selling, general and administrative expenses due to voluntary productpizza recall announced in January 2013.2013 and related insurance recoveries.(b) Represents secondary offeringslegal, consulting and other administrative costs associated with acquisition of snack manufacturing plant in Joplin, Missouri, which was completed in April 2014.(c) Represents offering costs for two rounds of secondary public offerings closed on August 6, 2012, and March 18, 2013 and November18, 2013 in which certain stockholders including Solera sold shares of common stock. The Company did not receive any proceeds from these secondary offerings.(c)(d) Represents non-cash, stock-based compensation expense. (d)(e) Represents management fees and advisory agreement termination fee payable to Solera pursuant to an agreement. The agreement, which was terminated upon the consummation of our IPO in exchange for a payment of $1.3 million.(e)(f) Represents non-cash charge / (benefit) due to the increase / (decrease) in fair value of a warrant to purchase 65,000 shares of our convertible preferred stock. See Note 9 to our consolidated financial statements included elsewhere in this Form 10-K. (4)Total debt includes the outstanding principal balance of our term loan, which was repaid in August 2010, and outstanding borrowings on our credit facility.ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOverviewoffering consumers great-tasting products in large packaged foods categories. We sell premium products made from high-quality ingredients at affordable prices.sold across the mainstream grocery, mass merchandiser and natural retailer channels. We have the #1number one natural and organic market position in four product lines: macaroni and cheese, snack crackers, fruit snacks and graham crackers.Our loyal and growing consumer following has enabled us to migrate from our natural and organic roots to a brand sold across the mainstream grocery, mass merchandiser and natural retailer channels. We offer over 135 products and are present in over 26,500 retail locations in the United States and Canada.driven by our meals and snacks categories, resulting from our focus on supporting our best-selling items and the introduction of new products.in these categories. We have reduced our offerings in our dressingscontinues to rise due to increasing concerns over the purity and condiments lines and discontinued our cereal product line in the fourth quartersafety of fiscal 2012,food as a result of the presence of pesticide residues, growth hormones and artificial and genetically engineered ingredients in the foods we eat. In this growing market, we expect competition from other natural and organic packaged food companies as well as mainstream conventional packaged food companies to increase, as they may seek to introduce or have introduced products in our key categories or seek to make existing products more attractive to the natural and organic consumer.that category have been flatbrand awareness, consumer trial and, most importantly, household penetration. Our household penetration, as measured by IRI, now stands at 8.8%, up nearly a percentage point over the prior year.the most recentsocial and digital programs, along with other grassroots marketing initiatives. year.Gross profit is net2014 resulting from several factors, including: input cost inflation; more limited price increases compared to prior years; a faster pace of product innovation, which drove unfavorable product mix changes and increased inventory obsolescence; customer mix changes; and increased spending to drive continued distribution and market share growth in a competitive food retailing environment. Although commodity costs for many conventional ingredients moderated or declined during our fiscal 2014, we continue to experience cost inflation in certain key commodities, particularly for organic wheat and dairy.which consistsin fiscal 2014. We source directly for ingredients where scale or in-house expertise enables us to purchase competitively.ingredientsapproximately $0.3 million in the manufacture of products, contract manufacturing fees, inventory write-off, packaging costs and in-bound freight charges. Ingredients account for the largest portion of the cost of sales, followed by contract manufacturing fees and packaging costs.Our selling, general and administrative expenses consist primarily of marketing and advertising expenses, freight and warehousing, wages, related payroll and employee benefit expenses, stock-based compensation, commissionsfiscal 2014 as compared to outside sales representatives, legal and professional fees, travel expenses, other facility related costs, such as rent and depreciation, and consulting expenses. The primary components of our marketing and advertising expenses include trade advertising, samples, consumer events, sales data, consumer research and search engine and digital advertising.frozenpizza and made with organic pizza in January 2012 and made with organic frozen pizza first shipped during second quarter of fiscal 2013.2013, respectively. In January 2013, we announced a voluntary product recall of our certified organic and made with organic pizza products. The voluntary product recall was a result of our contract manufacturer for pizza crusts identifying small metal fragments in the pizza dough during a manufacturing run and in some finished pizza crusts made on the same day. We immediately halted production and began investigating the issue. Soon thereafter, we determined that the small metal fragments originated at the third-party flour mill from where we sourcesourced our pizza flour. We then initiated a recall of all lots of pizza product manufactured with this supplier’s flour from our first purchase from the supplier in May 2012.Directofor recoveries associated with the voluntary product recall include customerrecall.consumer returns, costs associated with returned product, costs incurred byfourth fiscal quarters than in the first and third fiscal quarters due to our contract manufacturers, incremental costs associated with short-term sourcingcustomers’ and retailers’ merchandising and promotional activities around the back-to-school and spring seasons. Concurrently, inventory levels and working capital requirements generally increase during the first and third fiscal quarters of replacement flour, destruction charges and inventory write-off, retailer margin and customer fees and incentives.each fiscal year to support higher levels of net sales in the subsequent quarters. We also incurred administrative costs such as legal expenses, accounting fees and public relations expenses.As a result of the voluntary product recall, we recorded chargesanticipate that negatively impactedthis seasonal impact on our net sales and working capital is likely to continue. Accordingly, our results of operations for any particular quarter are not indicative of the results we expect for the full year.$1.1 million$0.5 million.$1.4 million, respectively, for the fiscal year ended March 31, 2013, includingAnalysis of Financial Condition and Results of Operations have been corrected to reflect the impact of $0.4 million recovered, asthe revisions for all periods presented.our increased penetration of the mainstream grocery and mass merchandiser channels;our improved placement in the mainstream grocery channel;our continued innovation, including adding new flavors and sizes to existing lines and introducing new product lines; andgreater consumer demand for natural and organic food products and increasing awareness of the Annie’s brand and our offerings.Over the past three years, we have significantly increased both the number of retail locations where our products can be found and the number of our products found in individual stores. From time to time, we review our product lines to remove items not meeting our sales or profitability expectations and to make room for new products. We expect that increasing penetration of the mainstream grocery and mass merchandiser channels, combined with greater brand awareness, new product introductions and line extensions and favorable consumer trends, will continue to fuel our sales growth in all channels.We offer a variety of sales and promotion incentives to our customers and to consumers, such as price discounts, consumer coupons, volume rebates, cooperative marketing programs, slotting fees and in-store displays. Our net sales are periodically influenced by the efficiency of trade promotions and the introduction and discontinuance of sales and promotion incentives. We anticipate that promotional activities will continue to impact our net sales and that changes in such activities will continue to impact period-over-period results.Gross ProfitOver the past three years, despite increasing volatility in commodity prices, our gross margin has benefited each year from a combination of commodity management practices, productivity improvements, cost reductions in our supply chain and price increases.We purchase finished products from our contract manufacturers. With an industry-wide commodity cost escalation starting in fiscal 2008, we became more directly involved in the sourcing of the ingredients for our products. This allowed us to consolidate ingredient sourcing across contract manufacturers in order to negotiate more favorable pricing on ingredients and, in some cases, to lock in ingredient pricing for typically six to twelve months through non-cancelable purchase commitments, directly or through contract manufacturers. We have increased the percentage of our cost of sales represented by these contracted ingredients from an estimated 5% in fiscal 2008 to approximately 31% in fiscal 2013. These efforts mitigated the impact of volatile and increasing commodity costs on our business. We plan to continue to expand our portfolio of contracted ingredients and negotiate pricing agreement for future purchases to allow us sufficient time to respond to changes in our ingredient costs over time.Over the past three years, we have invested significant time and energy to improve gross margins and achieve permanent cost reductions and productivity improvements in our supply chain. These efficiency projects have focused on selecting more cost-effective contract manufacturers, negotiating lower tolling fees, consolidating in-bound freight, leveraging warehouse expense and reducing ingredient and packaging costs through increased volume buys, contract consolidation, direct purchasing and price negotiation. To further drive these initiatives, we plan to selectively invest capital for the purchase of equipment to be used by certain of our contract manufacturers to drive down costs, improve throughput and improve product quality. In fiscal 2013, we invested approximately $1.3 million in manufacturing equipment, which is located at the facilities of our contract manufacturers and remains our property.Our gross margins have also benefited from the impact of price increases taken over the past three years. We typically effect new pricing to our customers annually or semi-annually. We consider many factors when evaluating pricing action, including cost of sales increases, competitive pricing strategy, elasticity and the price-value equation to our consumers. We have historically been able to execute price increases to cover higher ingredient costs. We believe this is due to our strong brand loyalty and our perceived value relative to competitive products.Our new product introductions tend to have a lower margin than our established products due to the small initial production run sizes, and if our new product introductions accelerate or reflect a larger percentage of our net sales, this could negatively impact our gross margin.Selling, General and Administrative ExpensesWe have made significant investments in headcount and infrastructure over the past three years which have resulted in higher selling, general and administrative expenses. In addition, we have incurred higher general and administrative expenses related to operating as a public company. Selling, general and administrative expenses as a percentage of net sales have benefited slightly over the past three years from lower freight and warehousing costs and selling expenses. Marketing expenses have remained relatively flat as a percentage of net sales but are expected to increase in the future as we invest to support new product releases and drive greater brand awareness, attract new customers and increase household penetration.To support our growth, we continue to increase headcount, particularly in the sales, marketing and innovation departments. This increased headcount will drive higher payroll and employee-related expenses as well as higher stock-based compensation expense. We also continue to invest in product development to support innovation and fuel sales growth and in information technology to increase productivity. We expect our selling, general and administrative expenses to continue to increase in absolute dollars as we incur increased costs related to the growth of our business and our operation as a public company. We expect selling, general and administrative expenses as a percentage of net sales to decrease slightly over time as sales increase and we lap investments made to support our growth.InflationInflationary factors, such as increases in the cost of sales and selling, general and administrative expenses, may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net sales if the selling prices of our products do not increase with these increased costs. Fiscal Year ended March 31, % of Net Sales 2013 2012 2011 2013 2012 2011 (in thousands, except for percentages) $ 169,977 $ 141,304 $ 117,616 100.0 % 100.0 % 100.0 % 104,566 85,877 71,804 61.5 % 60.8 % 61.0 % 65,411 55,427 45,812 38.5 % 39.2 % 39.0 % 45,461 36,195 30,674 26.7 % 25.6 % 26.1 % — 1,300 — — 0.9 % — 45,461 37,495 30,674 26.7 % 26.5 % 26.1 % 19,950 17,932 15,138 11.7 % 12.7 % 12.9 % (168 ) (161 ) (885 ) (0.1 )% (0.1 )% (0.8 )% 87 (1,594 ) 155 0.1 % (1.1 )% 0.1 % 19,869 16,177 14,408 11.7 % 11.4 % 12.3 % 8,318 6,588 (5,747 ) 4.9 % 4.7 % (4.9 )% $ 11,551 $ 9,589 $ 20,155 6.8 % 6.8 % 17.1 % Fiscal Year ended March 31, % of Net Sales 2014 2013 2012 2014 2013 2012 (in thousands, except for percentages) Net sales $ 204,104 $ 169,472 $ 141,481 100.0% 100.0% 100.0% Cost of sales 128,475 104,566 85,877 62.9 % 61.7 % 60.7 % Gross profit 75,629 64,906 55,604 37.1 % 38.3 % 39.3 % Selling, general and administrative expenses 49,509 45,461 37,790 24.3 % 26.8 % 26.7 % Income from operations 26,120 19,445 17,814 12.8 % 11.5 % 12.6 % Interest expense (335 ) (168 ) (161 ) (0.2)% (0.1)% (0.1)% Other income (expense), net 41 87 (1,076 ) 0.0 % 0.1 % (0.8 )% Income before provision for income taxes 25,826 19,364 16,577 12.7 % 11.4 % 11.7 % Provision for income taxes 10,537 8,112 6,541 5.2 % 4.8 % 4.6 % Net income $ 15,289 $ 11,252 $ 10,036 7.5 % 6.6 % 7.1 % Fiscal Year ended March 31, % of Net Sales 2013 2012 2011 2013 2012 2011 (in thousands, except for percentages) $ 79,270 $ 60,624 $ 49,168 47 % 43 % 42 % 66,844 56,789 44,687 39 % 40 % 38 % 23,863 23,891 23,761 14 % 17 % 20 % $ 169,977 $ 141,304 $ 117,616 100 % 100 % 100 % Fiscal Year ended March 31, % of Net Sales 2014 2013 2012 2014 2013 2012 (in thousands, except for percentages) Product Categories: Meals $ 99,004 $ 79,006 $ 60,680 48 % 47% 43% Snacks 79,074 66,662 56,868 39 % 39% 40% Dressings, condiments and other 26,026 23,804 23,933 13 % 14% 17% Total $ 204,104 $ 169,472 $ 141,481 100 % 100% 100% Annual Report on Form 10-K includes certain adjusted net sales, gross profit and gross margin figures that exclude the impact of our voluntary product recall of pizza products announced in January 2013.figures. These figures are non-GAAP financial measures. We calculate these non-GAAP figures by eliminating the impact of our January 2013 voluntary product recall and related insurance recoveries, which we do not consider to be indicative of our ongoing operations. We believe these non-GAAP figures provide additional informationmetrics to facilitateevaluate our operations and, when considered with both our GAAP results and the comparisonrelated reconciliation to the most directly comparable GAAP measure, provide a more complete understanding of our pastbusiness than could be obtained absent this disclosure. We use these non-GAAP figures, together with financial measures prepared in accordance with GAAP, to assess our operating performance, to provide meaningful comparisons of operating performance across periods, to enhance our understanding of our core operating performance and present financial resultsto compare our performance to that of our peers and better visibility intocompetitors. We believe that these non-GAAP figures are also useful to investors in assessing the operating performance of our normal operating results by isolatingbusiness without the effectseffect of the voluntary product recall.items described above. These non-GAAP financial measuresfigures are subject to inherent limitation as they reflect the exercise of judgment by management in determining how they are formulated. Further, our computation of these non-GAAP figures is likely to differ from methods used by other companies in computing similarly titled or defined terms, limiting the usefulness of these measures. These non-GAAP figures should not be considered in isolation or as alternatives to GAAP financial measures and investors should not rely on any single financial measure to evaluate our business. Fiscal Year ended March 31, 2014 Fiscal Year ended March 31, 2013 Net Sales Gross Profit Net Sales Gross Profit GAAP financial measures $ 204,104 $ 75,629 $ 169,472 $ 64,906 Increase / (decrease) of net sales reserve related to product recall (134 ) (134 ) 1,446 1,446 Incremental cost of sales related to product recall — 279 — 1,080 Recoveries from insurance carrier related to product recall: — Net sales (937 ) (937 ) (350 ) (350 ) Cost of sales — (907 ) — — Non-GAAP figures $ 203,033 $ 73,930 $ 170,568 $ 67,082 Fiscal Year Ended March 31, Change $ % (in thousands, except for percentages) Meals $ 99,004 $ 79,006 $ 19,998 25.3 % Snacks 79,074 66,662 12,412 18.6 % Dressings, condiments and other 26,026 23,804 2,222 9.3 % Net sales $ 204,104 $ 169,472 $ 34,632 20.4 % Fiscal Year Ended March 31, Change 2014 2013 $ % (in thousands, except for percentages) Cost of sales $ 128,475 $ 104,566 $ 23,909 22.9 % Gross profit $ 75,629 $ 64,906 $ 10,723 16.5 % Gross margin % 37.1 % 38.3 % Fiscal Year Ended March 31, Change 2014 2013 $ % (in thousands, except for percentages) SG&A $ 49,509 $ 45,461 $ 4,048 8.9 % SG&A as a percentage of net sales 24.3 % 26.8 % Fiscal Year Ended March 31, Change 2014 2013 $ % (in thousands, except for percentages) Interest expense $ (335 ) $ (168 ) $ (167 ) 99.4% Fiscal Year Ended March 31, Change 2014 2013 $ % (in thousands, except for percentages) Provision for income taxes $ 10,537 $ 8,112 $ 2,425 29.9 % Effective tax rate 40.8 % 41.9 % Fiscal Year Ended March 31, Change 2012 $ % (in thousands, except for percentages) Meals $ 79,006 $ 60,680 $ 18,326 30.2 % Snacks 66,662 56,868 9,794 17.2 % Dressings, condiments and other 23,804 23,933 (129 ) (0.5 )% Net sales $ 169,472 $ 141,481 $ 27,991 19.8 % Fiscal Year Ended March 31, Change 2013 2012 $ % (in thousands, except for percentages) $ 79,270 $ 60,624 $ 18,646 30.8 % 66,844 56,789 10,055 17.7 % 23,863 23,891 (28 ) (0.1 )% $ 169,977 $ 141,304 $ 28,673 20.3 % Net sales increased $28.7 million, or 20.3%, to $170.0 million in fiscal 2013 compared to $141.3 million in fiscal 2012.$1.1$1.4 million reduction in net of recovery from insurance ofsales and $0.4 million as of May 31, 2013, dueinsurance recoveries related to voluntary recall of our certified organic and made with organic pizza products. product recall. increase was primarily driven by volume with approximately 300 basis pointsthree percent of growth driven by higher average selling prices. Distribution gains and our mainline placement initiative contributed to the volume increase, primarily impacting mainstream grocery and mass merchandiser channels.reflects an $18.6reflected increases of $18.3 million and a $10.1$9.8 million increase in net sales of meals and snacks, respectively. The increase in meals was predominantly driven by strong growth in natural macaroni and cheese products. The increase in snacks was primarily due to growth in our fruit snacks, mixed snacks, grahams, crackers and snack mix product lines. The dressings, condiments and other category remained flatdecreased slightly in fiscal 2013, reflecting high single digit growth in dressings offset by the discontinuance of our cereal line in fiscal 2012.$29.8$29.1 million, or 21.1%20.6%, to $171.1$170.6 million during fiscal 2013 compared to $141.3$141.5 million during fiscal 2012. Fiscal Year Ended March 31, Change 2013 2012 $ % (in thousands, except for percentages) $ 104,566 $ 85,877 $ 18,689 21.8 % $ 65,411 $ 55,427 $ 9,984 18.0 % 38.5 % 39.2 % Gross profit increased $10.0 Fiscal Year Ended March 31, Change 2013 2012 $ % (in thousands, except for percentages) Cost of sales $ 104,566 $ 85,877 $ 18,689 21.8 % Gross profit $ 64,906 $ 55,604 $ 9,302 16.7 % Gross margin % 38.3 % 39.3 % or 18.0%, to $65.4 million in fiscal 2013 from $55.4 million in fiscal 2012. The increase in gross profit was primarily driven by the increase in net sales, partially offset by the negative impact of the product recall.Gross margin decreased 0.7points to 38.5% in fiscal 2013 from 39.2% in fiscal 2012. Thepoint decrease in gross margin ispercentage was primarily attributable to a $1.1 million reduction in net sales and a $1.1 million increase in cost of sales associated with our January 2013 voluntary product recall. The estimated costs associated with the voluntary product recall included a finished goods inventory write-off of $0.5 million, and raw material and work-in-process charges and associated production costs incurred by our contract manufacturers of $0.6 million.$12.2$11.5 million or 21.9%, to $67.6$67.1 million for fiscal 2013 from $55.4$55.6 million for fiscal 2012 and gross margin percentage would have increased 0.3 percentage points to 39.5% from 39.2% during fiscal 2013 compared to fiscal 2012 due to higher average selling prices and the cumulative benefit of various cost reduction initiatives, which were partially offset by higher commodity costs.Operating Expenses Fiscal Year Ended March 31, Change 2013 2012 $ % (in thousands, except for percentages) $ 45,461 $ 36,195 $ 9,266 25.6 % — 1,300 (1,300 ) nm $ 45,461 $ 37,495 $ 7,966 21.2 % Fiscal Year Ended March 31, Change 2013 $ % (in thousands, except for percentages) SG&A $ 45,461 $ 37,790 $ 7,671 20.3 % SG&A as a percentage of net sales 26.8 % 26.7 % Selling, general and administrativeincreased $9.3 million, or 25.6%, to $45.5 million in fiscal 2013, from $36.2 million in fiscal 2012. This increase was primarily due primarily to an increase in payroll expense resulting from increased headcount to support our growth and operations as a public company. Additionally, public company-related expenses impacted selling, general and administrative expensesSG&A during fiscal 2013 compared with fiscal 2012. Further, during fiscal 2013, we incurred $1.2 million for legal, accounting and printing costs and various other fees associated with the registration and sale of common stock sold by certain stockholders, including Solera, in connection with two secondary public offerings. We did not receive any proceeds from the sale of shares by the selling stockholders in these secondary public offerings. Selling, general and administrative expensesSG&A during fiscal 2013 also included $0.2 million administrative costs associated with the voluntary product recall. As a percentage of net sales, selling, general and administrative expenses increased 1.1 percentage points to 26.7% in fiscal 2013 from 25.6% in fiscal 2012.Advisory Agreement Termination FeeIn fiscal 2012, we incurred a one-time fee of $1.3 million to Solera in connection with the termination of its advisory services agreement with us.Income from Operations Fiscal Year Ended March 31, Change 2013 2012 $ % (in thousands, except for percentages) $ 19,950 $ 17,932 $ 2,018 11.3 % 11.7 % 12.7 % As a result of the factors above, income from operations increased $2.0 million, or 11.3%, to $20.0 million in fiscal 2013 from $18.0 million in fiscal 2012. Income from operations as a percentage of net sales decreased 1.0 percentage points to 11.7% in fiscal 2013, from 12.7% in fiscal 2012. Fiscal Year Ended March 31, Change 2013 2012 $ % (in thousands, except for percentages) $ (168 ) $ (161 ) $ (7 ) 4.3 % Fiscal Year Ended March 31, Change 2013 2012 $ % (in thousands, except for percentages) Interest expense $ (168 ) $ (161 ) $ (7 ) nm Fiscal Year Ended March 31, Change 2013 2012 $ % (in thousands, except for percentages) $ 87 $ (1,594 ) $ 1,681 nm Fiscal Year Ended March 31, Change 2013 2012 $ % (in thousands, except for percentages) Other income (expense), net $ 87 $ (1,076 ) $ 1,163 nm $1.7$1.2 million related to the increase in the fair value of our convertible preferred stock warrant liability partially offset by royalty income. for Income Taxes Fiscal Year Ended March 31, Change 2013 2012 $ % (in thousands, except for percentages) $ 8,318 $ 6,588 $ 1,730 26.3 % 41.9 % 40.7 % Our provision for income taxes was $8.3 million in fiscal 2013 compared to $6.6 million in fiscal 2012. Our effective tax rate for fiscal 2013 was 41.9% compared to 40.7% for fiscal 2012. Fiscal Year Ended March 31, Change 2013 2012 $ % (in thousands, except for percentages) Provision for income taxes $ 8,112 $ 6,541 $ 1,571 24.0 % Effective tax rate 41.9 % 39.5 % costs incurred in fiscal 2013.Net Income Fiscal Year Ended March 31, Change 2013 2012 $ % (in thousands, except for percentages) $ 11,551 $ 9,589 $ 1,962 20.5 % As a result of the factors above, net income increased $2.0 million, or 20.5%, to $11.6 million in fiscal 2013 from $9.6 million in fiscal 2012.Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011Net Sales Fiscal Year Ended March 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 60,624 $ 49,168 $ 11,456 23.3 % 56,789 44,687 12,102 27.1 % 23,891 23,761 130 0.5 % $ 141,304 $ 117,616 $ 23,688 20.1 % Net sales increased $23.7 million, or 20.1%, to $141.3 million in fiscal 2012 compared to $117.6 million in fiscal 2011. This increase primarily reflects a $12.1 million and an $11.5 million increase in net sales of snacks and meals, respectively. The increase in meals was driven by strong growth in the macaroni and cheese product line partially offset by lower sales of pasta meals due to reduced offerings. The dressings, condiments and otherheld relatively flat across each category. Distribution gains also contributed to net sales growth, primarily in the mainstream grocery and mass merchandiser channels. The net sales increase was primarily driven by volume combined with slightly higher average selling prices to offset rising commodity costs.Gross Profit Fiscal Year Ended March 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 85,877 $ 71,804 $ 14,073 19.6 % $ 55,427 $ 45,812 $ 9,615 21.0 % 39.2 % 39.0 % Gross profit increased $9.6 million, or 21.0%, to $55.4 million in fiscal 2012 from $45.8 million in fiscal 2011. Gross margin increased 0.2 percentage points to 39.2% in fiscal 2012, from 39.0% in fiscal 2011. The increase in net sales was the primary driver of the increase in gross profit. Cost reduction initiatives also contributed to the higher gross profit, although to a lesser extent than higher net sales. Higher commodity and other cost of sales were offset by price increases and cost reduction initiatives, primarily the negotiation of lower tolling fees from a key contract manufacturer.Operating Expenses Fiscal Year Ended March 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 36,195 $ 30,674 $ 5,521 18.0 % 1,300 — 1,300 nm $ 37,495 $ 30,674 $ 6,821 22.2 % Selling, General and Administrative ExpensesSelling, general and administrative expenses increased $5.5 million, or 18.0%, to $36.2 million in fiscal 2012, from $30.7 million in fiscal 2011. This increase was due primarily to a $1.6 million increase in wages and salary expense, due to increasing headcount to support our growth, and a $1.1 million increase in professional services due to increased spending on legal, accounting and auditing services in connection with our preparation to become a public company. As a percentage of net sales, selling, general and administrative expenses decreased 0.5 percentage points to 25.6% in fiscal 2012, from 26.1% in fiscal 2011.Advisory Agreement Termination FeeWe paid a one-time fee of $1.3 million to Solera upon consummation of our IPO in connection with the termination of its advisory services agreement with us.Income from Operations Fiscal Year Ended March 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 17,932 $ 15,138 $ 2,794 18.5 % 12.7 % 12.9 % As a result of the factors above, income from operations increased $2.8 million, or 18.5%, to $17.9 million in fiscal 2012, from $15.1 million in fiscal 2011. Income from operations as a percentage of net sales decreased 0.2 percentage points to 12.7% in fiscal 2012, from 12.9% in fiscal 2011.Interest Expense Fiscal Year Ended March 31, Change 2012 2011 $ % (in thousands, except for percentages) $ (161 ) $ (885 ) $ 724 nm Interest expense decreased $0.7 million to $0.2 million in fiscal 2012 from $0.9 million in fiscal 2011. The decrease in interest expense was primarily due to lower interest expense resulting from repayment of the term loan in August 2010 and decreased average borrowings on our credit facility during fiscal 2012 offset by higher interest rates in fiscal 2012.Other Income (Expense), Net Fiscal Year Ended March 31, Change 2012 2011 $ % (in thousands, except for percentages) $ (1,594 ) $ 155 $ (1,749 ) nm Other income (expense), net increased $1.8 million to $1.6 million in expense in fiscal 2012 from $0.2 million in income in fiscal 2011. Other income (expense), net primarily reflects a non-recurring, non-cash charge of $1.7 million related to the increase in the fair value of our convertible preferred stock warrant liability offset by royalty income.Provision for (Benefit from) Income Taxes Fiscal Year Ended March 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 6,588 $ (5,747 ) $ 12,335 nm 40.7 % (39.9 )% Our provision for income taxes was $6.6 million in fiscal 2012 compared to a benefit of $5.7 million in fiscal 2011. The benefit in fiscal 2011 was the result of a reversal of our valuation allowance on net deferred tax assets of $11.3 million net of a provision for income taxes related to earnings for the period.As of March 31, 2010, we recorded a valuation allowance for the full amount of the net deferred tax assets as we had assessed our cumulative loss position and determined that the future benefits were not more likely than not to be realized as of these dates. Due to our profitability during fiscal 2011 and projected operating results, we determined during fiscal 2011 that it was more likely than not that the deferred tax assets would be realized, and we therefore released substantially all of the valuation allowance. This resulted in our recording a tax benefit during fiscal 2011.Our effective tax rate for fiscal 2012 was 40.7% and differs from the federal statutory rate primarily due to state income taxes and the impact of a significant permanent tax difference resulting from a $1.7 million non-cash charge in fiscal 2012 due to an increase in the fair value of our convertible preferred stock warrant liability. The effective tax rate for fiscal 2012 is not comparable to the rate for fiscal 2011 primarily due to the valuation allowance reversal recorded in fiscal 2011.Net Income Fiscal Year Ended March 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 9,589 $ 20,155 $ (10,566 ) (52.4 )% As a result of the factors above, net income decreased $10.6 million, or 52.4%, to $9.6 million in fiscal 2012 from $20.2 million in fiscal 2011.SeasonalityHistorically, we have experienced greater net sales in the second and fourth fiscal quarters than in the first and third fiscal quarters due to our customers’ merchandising and promotional activities around the back-to-school and spring seasons. Concurrently, inventory levels and working capital requirements increase during the first and third fiscal quarters of each fiscal year to support higher levels of net sales in the subsequent quarters. We anticipate that this seasonal impact on our net sales and working capital is likely to continue. In fiscal 2013, 27.5% and 31.0% of our net sales, 27.4% and 31.6% of our gross profit and 31.9% and 38.4% of our operating income were generated in the second and fourth fiscal quarters, respectively. Accordingly, our results of operations for any particular quarter are not indicative of the results we expect for the full year.Selected Quarterly Financial DataThe following quarterly consolidated statement of operations data for the eight fiscal quarters ended March 31, 2013 has been prepared on a basis consistent with our audited annual consolidated financial statements and includes, in the opinion of management, all normal recurring adjustments necessary for a fair statement of the financial information contained herein. The following quarterly data should be read together with our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Fiscal Year 2013 Fiscal Year 2012 Mar. 31,
2013 Dec. 31,
2012 Sept. 30
2012 June 30,
2012 Mar. 31,
2012 Dec. 31,
2011 Sept. 30
2011 June 30,
2011 (in thousands, except for share and per share amounts) $ 52,715 $ 36,283 $ 46,686 $ 34,293 $ 42,984 $ 30,838 $ 38,872 $ 28,610 32,027 23,267 28,786 20,486 25,843 18,275 24,737 17,022 20,688 13,016 17,900 13,807 17,141 12,563 14,135 11,588 7,587 2,320 6,357 3,605 3,591 3,734 6,069 2,783 $ 4,234 $ 1,401 $ 3,785 $ 2,131 $ 1,929 $ 2,232 $ 3,616 $ 1,812 $ 4,234 $ 1,401 $ 3,785 $ 2,131 $ 58 $ 69 $ 107 $ 54 $ 0.25 $ 0.08 $ 0.22 $ 0.13 $ 0.12 $ 0.15 $ 0.23 $ 0.12 $ 0.24 $ 0.08 $ 0.21 $ 0.12 $ 0.05 $ 0.07 $ 0.11 $ 0.04 17,262,253 17,249,536 17,070,327 16,936,007 474,781 471,554 465,045 464,994 17,724,131 17,781,720 17,702,516 17,600,908 1,160,185 1,037,657 1,018,359 1,236,410 In the fourth quarter of fiscal 2013, we recorded a $124,000 for reversal of excess net sales reserved, a $350,000 for recovery from insurance, a $390,000 for incremental cost of sales and $171,000 for administrative costs associated with the January 2013 voluntary product recall. Additionally, in the third quarter of fiscal 2013, we recorded $1,570,000 for reduction in net sales and $690,000 for incremental costs of sales associated with the January 2013 voluntary product recall.In the fourth and second quarters of fiscal 2013, we recorded $535,000 and $704,000 for secondary offering costs, respectively.In the first quarter of fiscal 2013, and the fourth, second and first quarters of fiscal 2012, we recorded non-cash charges of $13,000, $1,188,000, $20,000, and $518,000, respectively, due to the increase in fair value of the convertible preferred stock warrant.In the fourth quarter of fiscal 2012, we recorded a one-time fee of $1,300,000 to Solera in connection with the termination of its advisory services agreement with us. March 31, 2013 2012 (in thousands) $ 4,930 $ 562 20,015 11,870 4,342 861 — 1,305 12,021 7,452 31,925 16,427 (1)Working capital consists of total current assets less total current liabilitiesfromprovided by operations and borrowings under our credit facility. We typically take advantage of accelerated payment discounts offered to us by our vendors and contract manufacturers, usually 1% for net-10 payment.$4.4$12.4 million during fiscal 2013.2014. In fiscal 2013,2014, we generated $8.7$17.2 million cash from operations. Our working capital was $31.9 million at March 31, 2013, an increase of $15.5 million from $16.4 million at the end of fiscal 2012. The increase was due primarily to an increase in accounts receivable of $8.1 million, an increase in inventory of $4.9 million, a decrease in related-party payable of $1.3 million, offset by an increase in accrued liabilities of $4.6 million and an increase in accounts payable of $3.5 million.2013,2014, we invested approximately $2.8$1.6 million in property and equipment and on April 2, 2014, we funded our acquisition of the Joplin Plant with approximately $7.4 million in cash on hand and restricted cash of $0.3 million deposited previously in an escrow account. In fiscal 20142015 we expect our capital expenditures to be approximately $2.5$5.0 million to $3.0$7.0 million.The following table sets forth, for the periods indicated, our beginning balanceActivities.OurActivitiesprovidedof $8.7 million of cashwas primarily due to our net income of $11.6$11.3 million, which included non-cash charges totaling $2.8$2.5 million, comprised primarily of a $1.1 million for depreciation and amortization and a $1.1 million for stock-based compensation, a $0.5 million increase in inventory reserves due to inventory write-off associated with the product recall and a $0.1 million in accretion of imputed interest on purchase of product formulas.compensation. Changes in operating assets and liabilities provided an additional $2.2$3.1 million of net cash, which primarily comprised of a $8.3$8.2 million increase in accrued expenses and other non-current liabilities, a $3.9 million increase in income tax receivable, a $3.4 million increase in accounts payable and a $1.5 million increase in prepaid expenses, other current and non-current assets offset by a $8.1$7.6 million increase in accounts receivable, a $5.4$4.9 million increase in inventory and a $1.3 million decrease in related-party payable, resulting from the termination of our advisory services agreement with Solera upon consummation of our IPO. These increases in cash were offset by the excess tax benefit from stock-based compensation of $8.1 million. The increase in accrued expenses was driven by the purchases of inventory, which had been received as of March 31, 2013 but not yet invoiced. The increase in income tax receivable was attributable to “excess” tax benefit from stock option exercises, which resulted in minimal cash payments of only $0.2 million for income taxes during fiscal 2013. The increase in accounts payable was related to the timing of invoices received and increased inventory levels in fiscal 2013 driven by volume. The increase in accounts receivable was related to larger volume of net sales towards the year end.Ourend due to Easter timing.providedof $1.3 million of cash,was primarily due to our net income of $9.6$10.0 million offset by a decrease in accounts payable of $9.5 million and an increase in accounts receivable, net of $2.9$3.1 million. The decrease in accounts payable was a result of paying down outstanding vendor balances that remained unpaid at fiscal year end.2011 year-end. The higher accounts receivable was driven by year-over-year net sales growth. We also had net non-cash charges of $3.7$3.0 million, which included $1.7$1.2 million due to an increase in the fair value of the convertible preferred stock warrant liability.Our operating activities in fiscal 2011 provided $18.2 million of cash, primarily due to our net income of $20.2 million. We also had net non-cash items of $3.3 million, which included a $7.1 million increase in deferred tax assets and a $2.5 million increase in trade discount allowances.Activities.In fiscal 2013, 2012 and 2011,Activities$0.9 million,2012, respectively, which was primarily related to purchases of property and equipment. In fiscal 2013, our $2.8 million investment in property and equipment included $1.3 million in manufacturing equipment, which is located at the facilities of our contract manufacturers and remains our property, and $1.0 million in construction projects at our headquarters to create additional office space.Activities.InActivitiescashand $4.5 million in fiscal 2012.byin financing activities totaled $1.6in fiscal 2014 included $7.0 million which comprised of:in net repayments against our credit facility with funds generated from operations. Offsetting this outflow were cash proceeds of $2.0 million from exercises of stock options and $2.1 million of excess tax benefit from stock-based compensation.$19.1Cash used in financing activities in fiscal 2013 included $19.1 million paid to Solera for repurchase of common stock;net pay down ofstock and $5.8 million ofin net repayments against our credit facility; of $11.1 million received from common shares issued in the IPO, net of issuance costs;compensation of $8.1 million; andproceeds of $4.1 million received from exercises of stock options.InCash used in financing activities in fiscal 2012 our financing activities used cash of $4.5 million, which primarily consisted ofincluded $13.6 million in dividend payments and $3.4 million in payments of initial public offering costs partially offset by proceeds ofcosts. Offsetting these cash outflows was $12.8 million fromin net borrowings under our credit facility.In fiscal 2011, our financing activities used cash of $18.6 million and consisted primarily of $12.5 million in dividend payments and $6.0 million term loan repayment.On August 25, 2010, we entered into an amended and restated bank line of credit agreement with Bank of America, N.A., as lender. credit facilityloan agreement (as amended from time to time, the “Credit Agreement”) with Bank of America, N. A. that, among other things, provided total borrowing availability offor an increase in our revolving credit facility to $20.0 million and aan extension of the term through August 2014. OnIn March 7, 2013, we entered into an amendmentamended the Credit Agreement to the second amended and restated credit facility that providedprovide for, among other things, an increase in our line ofthe credit facility to $40.0 million and an extension of the term through August 2016. OurOn November 5, 2013, we amended second amendedour Credit Agreement to provide for, among other things, consent for us to create a limited liability company and restatedguarantee performance of the limited liability company in the event and to the extent wefacility is referredand revises our certain covenants and representations and warranties under the Credit Agreement. In connection with this amendment, Annie’s Baking, LLC, became a party to herein as the credit facility.Credit Agreement pursuant to a Joinder Agreement dated November 22, 2013. The credit facility is collateralized by substantially all of our assets.(as defined in the credit facility) plus 1.25%, (ii) IBOR (as defined in the credit facility) plus 1.25% or (iii) Prime Rate (as each such term is defined in the credit facility)Credit Agreement). The interest rate was 1.5% as of March 31, 2013. We are required to pay a commitment fee on the unused credit facility commitments, if the outstanding balance is less than half the commitment, at an annual rate of betweenranging from 0.25% to 0.40%, tiered depending on ourthe utilization rate. TheAs of March 31, 2014, there were no amounts outstanding under our credit facility with borrowing availability of $40.0 million.credit facilityCredit Agreement also limits our ability to make capital expenditures in excess of $15.0 million. The credit facilityCredit Agreement requires that we maintain a Funded Debt (as defined in the credit facility) to Adjusted EBITDA (as defined in the credit facility) ratio of not more than 2.75 to 1.0 and a minimum Net Worth (as defined in the credit facility) equal to at least $50.0 million, plus 30% of earnings after taxes earned each quarter (if positive), beginning with the June 2013 quarterly earnings from(as each such term is defined in the first quarter of fiscal 2014. As of March 31, 2013, we had approximately $7.0 million outstanding under our credit facility with additional borrowing availability of $33.0 millionCredit Agreement). The Credit Agreement requires us to submit interim and annual financial statements by specified dates after each reporting period. We were in compliance with allthe covenants under the credit facility.In March 2008, we entered into a loan and security agreement for a term loan with Hercules Technology II, L.P., or Hercules. Asas of March 31, 2010, we had $6.0 million in total borrowings under the term loan. The term loan was repaid in August 2010. In connection with the term loan, we granted to the lender a warrant to purchase 65,000 shares of our Series A 2005 convertible preferred stock at an exercise price of $10.00 per share. The warrant was scheduled to expire on the earlier of 10 years from the date of issuance or five years after our IPO. Upon the consummation of the IPO, the warrant became a warrant to purchase common stock. Pursuant to the terms of the warrant, the stock dividend we effected altered the number of shares issuable upon the exercise of the warrant2014 and as a result, 80,560 shares of common stock were issuable upon the exercise of the warrant at an exercise price of $8.07. On April 12, 2012, Hercules exercised the warrant in full using the net issuance method permitted under its terms. As a result, we issued Hercules 63,193 shares of common stock.2013: Payments Due by Period Total Less Than
One Year 1-3 Years 3-5 Years More than
Five Years (in thousands) $ 3,727 $ 601 $ 1,261 $ 1,279 $ 586 144 32 60 52 — 3,871 633 1,321 1,331 586 10,396 10,254 142 — — 1,850 150 300 1,400 — 450 200 250 — — $ 16,567 $ 11,237 $ 2,013 $ 2,731 $ 586 Payments Due by Period Total 1-3 Years 3-5 Years (in thousands) Rent obligations(1) $ 3,154 $ 646 $ 1,283 $ 1,225 $ — Equipment lease obligations(2) 133 37 73 23 — Total operating lease obligations 3,287 683 1,356 1,248 — Purchase commitments(3) 20,413 20,263 150 — — Product formula obligations(4) 1,700 150 300 1,250 — Warehousing overhead obligations(5) 250 200 50 — — Total $ 25,650 $ 21,296 $ 1,856 $ 2,498 $ — (1) We lease approximately 33,500 square feet of space that houses our corporate headquarters and a storage area at 1610 Fifth Street, Berkeley, California pursuant to a lease agreement or Lease that was originally scheduled to expireexpires in February 2016. In September 2012, we entered into an amendment to the Lease and extended the initial term of the lease for three additional years to February 2019. The lease includes a provision to adjust the rent for the additionalfinal three years and provides that the rent will be equal to 95% of the then fair market rental rate for the property, however,provided, the monthly rent payable will not be less than the monthly rent payable during the immediately preceding month of the initial term. The landlord is required to deliver to us a notice of the fair market rental rate for the property no later than August 1, 2015. The table above assumes rent for the additionalfinal three years under the lease at the monthly rental rate applicable to last month’s rate of the original Lease.lease agreement.(2) We lease equipment under non-cancelable operating leases. These leases expire at various dates through 2019, excluding extensions at our option, and contain provisions for rental adjustments. (3) We have non-cancelable purchase commitments, directly or through contract manufacturers, to purchase ingredients and packaging materials to be used in the future to manufacture products. (4) This represents our obligation, to one of our contract manufacturers, for the purchase of product formulas. Of these amounts, $1.1 million is included inThe total liabilities in our consolidated balance sheet as of March 31, 2013.2014, included $1.1 million of these amounts on a discounted basis.(5) We have an agreement with our contract warehousing company to pay minimum overhead fees through June 2015. GAAP.accounting principles generally accepted in the United States of America. To prepare these financial statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities, sales, costs and expenses. We base our estimates on historical expenses and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are likely to occur from period to period. Actual results could be significantly different from these estimates. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgment and estimates.Sales of our products are recognizedpersuasive evidence of an arrangement exists,we have a contract or purchase order from a customer with a fixed price, the price is fixed or determinable, ownershiptitle and risk of loss have been transferredtransfers to the customerbuyer either upon delivery to or pick up of products by the customer and therecollectability is a reasonable assurance of collection of the sales proceeds.reasonably assured. Generally, weestimated returns and collectability assumptionsestimates requires management judgment, and if our assumptions are not correct, our sales, cost of sales and net income would be impacted.sales.sales, other than trade advertising, which is recorded in SG&A. The recognition of the costs of these programs involves judgments related to performance and redemption rates, which are made based on historical experience. Actual expenses may differ if redemption rates and performance vary from our estimates. Differences between estimated sales and promotion incentive costs and actual costs are recognized as a change in sales and promotion incentive accrual in a subsequent period.Product RecallWe establish reserves for product recalls on a product-specific basis when circumstances giving rise to the recall becomedifference becomes known. When establishing reserves for a product recall, we consider cost estimates for any fees and incentives to customers for their effort to return the product, freight and destruction charges for returned products, warehouse and inspection fees, repackaging materials, point-of-sale materials and other costs including costs incurred by contract manufacturers. Additionally, we estimate product returns from consumers and customers across distribution channels, utilizing third-party data and other assumptions. These factors are updated and reevaluated each period and the related reserves are adjusted when these factors indicate that the recall reserves are either insufficient to cover or exceed the estimated product recall expenses.Significant changes in the assumptions used to develop estimates for product recall reserves could affect key financial information, including accounts receivable, inventory, accrued liabilities, net sales, gross profit, operating expenses and net income. In addition, estimating product recall reserves requires a high degree of judgment in areas such as estimating consumer returns, shelf and in-stock inventory at retailers across distribution channels, fees and incentives to be earned by customers for their effort to return the products, future freight rates and consumers’ claims.InventoriesOur inventory is comprised of finished goods, raw materials and work-in-process, and is valued at the lower of the cost and the current estimated market value of the inventory. We regularly review our inventory quantities on hand and adjust inventory values for finished goods expected to be non-saleable due to age. We also make provisions for ingredients and packaging that are slow moving and at risk to become obsolete. Additionally, our estimates of product demand and market value require management judgment that may significantly affect the ending inventory valuation, as well as gross profit.Impairment of Long-lived AssetsLong-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management must exercise judgment in assessing whether or not circumstances require a formal evaluation of the recoverability of our long-lived assets. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. These estimates involve inherentuncertainties, and the measurement of the recoverability of the cost of a potentially impaired asset is dependent on the accuracy of the assumptions used in making the estimates and how these estimates compare to our future operating performance. There have been no impairments of long-lived assets in fiscal 2013, 2012 or 2011.GoodwillFor accounting purposes, we have one reporting unit, which is the whole company. Goodwill is tested for impairment annually in the fourth fiscal quarter and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Triggering events that may indicate impairment include, but are not limited to, significant adverse change in customer demand or business climate that could affect the value of an asset or significant decrease in expected cash flows at the reporting unit. In our annual impairment evaluation, we first assess qualitative factors to determine whether it is more likely than not that the fair value of our sole reporting unit is less than its carrying amount as a basis to determine whether it is necessary to perform the two-step goodwill impairment test. The qualitative factors assessed by us included our assessment of any adverse changes in legal factors or business climate, unanticipated competition, a loss of key personnel and/or an adverse action or assessment by a regulator. Additionally, we considered macroeconomic conditions including general deterioration in general economic conditions, limitations on accessing capital, industry and market conditions, cost factors, our overall financial performance and share price of our common stock. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. The goodwill impairment test involves a two-step process and is tested at our sole reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. If the carrying amount of the reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. We estimate the fair value of our reporting unit using a discounted cash flow approach. This evaluation requires use of internal business plans that are based on our judgments and estimates regarding future economic conditions, product demand and pricing, costs, inflation rates and discount rates, among other factors. These judgments and estimates involve inherent uncertainties, and the measurement of the fair value is dependent on the accuracy of the assumptions used in making the estimates and how those estimates compare to our future operating performance.byof the recipient based on the grant date fair value of the award. The fair value of restricted stock units and performance share units is determined based on the number of units granted and the closing price of the Company’s common stock as of the grant date. Additionally, stock-based compensation related to performance share units reflects the estimated probable outcome at the end of the performance period. The fair value of options is determined as of the grant date using the Black-Scholes option pricing model. We recognize the fair value of each award as an expense on a straight-line basis over the requisite service period, generally the vesting period of the equity grant. The benefits of tax deductions in excess of recognized compensation costs are reported as a credit to additional paid-in capital, but only when such excess tax benefits are realized by a reduction to current taxes payable.rate and the estimated forfeitures of unvested stock options. The following table summarizes the variables used to determine the fair value of stock options: Fiscal Year Ended March 31, 2013 2012 2011 5.2 5.2—6.9 N/A 39.8%—40.8% 41%—42% N/A 0.8%—1.1% 1.1%—3.1% N/A 0% 0% N/A Fair Value of Common StockUnder our Omnibus Incentive Plan, the fair value of the shares of common stock underlying the stock options is defined as the closing price of our common stock on the date of the grant.Prior to our IPO, the fair value of the shares of common stock underlying the stock options had historically been determined by our board of directors. Because there had been no public market for our common stock prior to our listing on the NYSE, our board of directors determined the fair value of our common stock at the time of grant of the option by considering a number of objective and subjective factors, including valuations of comparable companies, sales of our convertible preferred stock to unrelated third parties, our operating and financial performance and general and industry specific economic outlook.Weighted-average Expected TermWe derive the expected term using several factors including the ratio of market value to the strike price, volatility, proximity to recent vesting and the remaining option term. In addition, we consider behavioral factors including portfolio diversification, liquidity considerations, risk aversion and tax planning in our model to determine the expected term. Additionally, we consider historical experience in determining the expected term.VolatilitySince there had been no public market for our common stock prior to our IPO and we have limited company-specific historical volatility, we determine the share price volatility for options granted based on an analysis of the volatility of a group of similar entities, referred to as peer companies. In evaluating similarity, we consider factors such as industry, stage of life cycle and size.Risk-free Interest RateThe risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for zero-coupon U.S. Treasury notes with remaining terms similar to the expected term of the options.Dividend YieldAlthough we have paid dividends in the past while we were a privately held company, future dividends are not expected to be available to benefit option holders. Accordingly, we currently use an expected dividend yield of zero in the valuation model.We are required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ or are expected to differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record stock based compensation expense only for those awards that are expected to vest. To the extent actual forfeitures differ from the estimates, the difference will be recorded as a cumulative adjustment in the period that the estimates are revised.The total intrinsic value of options exercised during fiscal 2013, 2012 and 2011 was $21.4 million, $635,000 and $37,000, respectively. The intrinsic value is calculated as the difference between the exercise price and the fair value of the common stock on the exercise date.As of March 31, 2013, there was approximately $3.3 million of total unrecognized compensation cost related to unvested share-based compensation arrangements which is expected to be recognized over a weighted average period of 3.4 years.The following table summarizes the amount of stock-based compensation expense recognized in selling, general and administrative expenses in our statements of operations for the periods indicated: Fiscal Year Ended March 31, 2013 2012 2011 (in thousands) $ 1,064 $ 506 $ 373 We expect stock-based compensationapproximately $1.6 million in fiscal 2014.Income TaxesWe account for income taxesraw materials, work-in-process and finished goods, and is valued at the lower of the cost (determined under the assetfirst-in-first-out method) or market. We regularly review our inventory quantities on hand and liability method. Deferred tax assets and liabilities are recognizedadjust inventory values for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary differences arefinished goods expected to be recoverednon-saleable due to age. We also make provisions for ingredients and packaging that are slow moving and at risk to become obsolete. Additionally, our estimates of product demand and market value require management judgment that may significantly affect the ending inventory valuation, as well as gross profit.settled. The effect on deferred tax assetschanges in circumstances indicate that the carrying amount may be impaired. In assessing whether events or changes in circumstances have occurred, we perform a qualitative assessment as a determinant for whether the two-step annual goodwill impairment test should be performed. In performing the qualitative assessment, we consider macroeconomic conditions, industry and liabilities of a changemarket considerations, cost factors, overall financial performance, changes in tax rates is recognizedmanagement or key personnel, changes in incomestrategy, changes in customers and changes in the period that includesshare price of our common stock. If, after assessing the enactment date. Deferred tax assets are recognized when, based upon available evidence, realizationtotality of the assets is more likely than not. Reserves for tax-related uncertainties are established based on estimates whenevents or circumstances, we believedetermine that it is more likely than not that those positions may not be fully sustained upon review by tax authorities. The reserves are adjusted in light of changing facts and circumstances, such as the outcome of an income tax audit.WarrantWe accounted for the outstanding warrant to purchase shares of our convertible preferred stock as a liability at fair value, because this warrant could be redeemed under certain circumstances, such as a change of control. The warrant was subjected to remeasurement to fair value at each balance sheet date, and any change in fair value was recognized in other income (expense), net, in the consolidated statements of operations. See “Out-of-period Adjustment” below. The liability was adjusted for changes in fair value until the earliest of the exercise, expiration of the convertible preferred stock warrant or conversion to a warrant to purchase common stock. Upon the consummation of the IPO, the warrant became exercisable into shares of our common stock and as such, the related convertible preferred stock liability of $2.2 million as of April 2, 2012, was reclassified to additional-paid in capital. The warrant was exercised on April 12, 2012.Out-of-period AdjustmentDuring fiscal 2012, we corrected an error in the measurement of the convertible preferred stock warrant liability. The correction increased the fair value of our sole reporting unit is greater than its carrying amount, then the convertible preferred stock warrant liabilitytwo-step goodwill impairment test is not performed.$949,000the reporting unit. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of goodwill over the calculated fair value of the goodwill.decreased additional paid-in capitaltrademarks, which are amortized on a straight-line basis over their useful lives ranging from five to twenty five years.$431,000 with a corresponding increase in expense of $518,000, which wascomparing its carrying value to the total future undiscounted cash flows that the asset is expected to generate. If it is determined that an asset is not recoverable, an impairment loss is recorded in other income (expense), net in the accompanying statementamount by which the carrying value of operations during fiscal 2012. The correction was an accumulationthe asset exceeds its estimated fair value.TheseIn fiscal 2014, these ingredients arewere generally purchased through our contract manufacturers, who typically pass through actual costs to us at the time we purchase finished products. These ingredients are subject to price fluctuations that may create price risk. A hypothetical 10% increase or decrease in the weighted-average cost of our primary ingredients contracted directly or through contract manufacturers in fiscal 20132014 would have resulted in an increase or decrease to cost of sales of approximately $3.3$4.2 million. We seek to mitigate the impact of ingredient cost increases by negotiating purchase agreements or taking physical delivery of future ingredient needs. We strive to offset the impact of ingredient cost increases with a combination of cost savings initiatives and efficiencies and price increases to our customers.2013, we had $7.0 million of borrowings.2014, there were no amounts outstanding under the credit facility. We may select from three interest rate options for borrowings under the credit facility: (i) LIBOR plus 1.25%, (ii) IBOR plus 1.25% or (iii) Prime Rate (as each such term is defined in the Credit Agreement).We currently do not engage in any interest rate hedging activity and currently have no intention to do so in the foreseeable future. Based on the average interest rate on the credit facility during fiscal 2013, and to the extent that borrowings were outstanding, we do not believe that a 10% change in the interest rate would have a material effect on our results of operations or financial condition.Foreign Exchange RiskOur sales and costs are denominated in U.S. dollars and are not subject to foreign exchange risk. However, to the extent our sourcing strategy changes or we commence generating net sales outside Page 5859Consolidated Statements of Operations for the years ended March 31, 2013, 2012 and 201160616263Annie’s,operations,income, convertible preferred stock and stockholders’ equity / (deficit), and cash flows present fairly, in all material respects, the financial position of Annie’s, Inc. and its subsidiaries at March 31, 20132014 and 2012,2013, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 20132014 in conformity with accounting principles generally accepted in the United States of America. TheseAlso in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of March 31, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because a material weakness in internal control over financial reporting related to an insufficient complement of finance and accounting resources, including employee turnover, within the organization resulted in design deficiencies in certain areas in which the controls were not precise enough to detect misstatements that in the aggregate could be material to the consolidated financial statements areexisted as of that date. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the responsibilityannual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management's Report on Internal Control over Financial Reporting appearing in Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2014 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s management.internal control over financial reporting does not affect our opinion on those consolidated financial statements. The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in management’s report referred to above. Our responsibility is to express an opinionopinions on these financial statements and on the Company's internal control over financial reporting based on our audits.audits (which was an integrated audit in fiscal 2014). We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.14, 2013Balance Sheets March 31, 2013 2012 $ 4,930 $ 562 20,015 11,870 15,147 10,202 2,558 1,995 588 164 5,050 1,252 48,288 26,045 6,138 4,298 30,809 30,809 1,116 1,176 3,704 4,650 — 5,343 157 108 $ 90,212 $ 72,429 $ 4,342 $ 861 — 1,305 12,021 7,452 16,363 9,618 7,007 12,796 — 2,157 913 921 24,283 25,492 — 81,373 — — 17 1 93,190 4,392 (27,278 ) (38,829 ) 65,929 (34,436 ) $ 90,212 $ 72,429 Fiscal Year Ended March 31, 2014 2013 2012 Net sales $ 204,104 $ 169,472 $ 141,481 Cost of sales 128,475 104,566 85,877 Gross profit 75,629 64,906 55,604 Selling, general and administrative expenses 49,509 45,461 37,790 Income from operations 26,120 19,445 17,814 Interest expense (335 ) (168 ) (161 ) Other income (expense), net 41 87 (1,076 ) Income before provision for income taxes 25,826 19,364 16,577 Provision for income taxes 10,537 8,112 6,541 Net income $ 15,289 $ 11,252 $ 10,036 Net income attributable to common stockholders $ 15,289 $ 11,252 $ 303 Earnings per share —Basic $ 0.90 $ 0.66 $ 0.65 —Diluted $ 0.88 $ 0.64 $ 0.27 Weighted average shares of common stock outstanding used in computing earnings per share —Basic 16,926,827 17,129,334 469,089 —Diluted 17,412,548 17,707,839 1,111,088 Statements of Operations Fiscal Year Ended March 31, 2013 2012 2011 $ 169,977 $ 141,304 $ 117,616 104,566 85,877 71,804 65,411 55,427 45,812 45,461 36,195 30,674 — 1,300 — 45,461 37,495 30,674 19,950 17,932 15,138 (168 ) (161 ) (885 ) 87 (1,594 ) 155 19,869 16,177 14,408 8,318 6,588 (5,747 ) $ 11,551 $ 9,589 $ 20,155 $ 11,551 $ 290 $ 596 $ 0.67 $ 0.62 $ 1.29 $ 0.65 $ 0.26 $ 0.50 17,129,334 469,089 461,884 17,707,839 1,111,088 1,201,125 March 31, 2014 2013 ASSETS CURRENT ASSETS: Cash $ 17,308 $ 4,930 Accounts receivable 18,324 18,756 Inventory 18,489 15,147 Deferred tax assets 3,312 3,140 Income tax receivable — 588 Prepaid expenses and other current assets 4,277 5,050 Total current assets 61,710 47,611 Restricted cash 300 — Property and equipment, net 6,620 6,138 Goodwill 30,809 30,809 Intangible assets, net 1,055 1,116 Deferred tax assets, long-term 3,039 3,704 Other non-current assets 108 157 Total assets $ 103,641 $ 89,535 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 7,144 $ 4,342 Accrued liabilities 10,680 12,191 Total current liabilities 17,824 16,533 Credit facility — 7,007 Other non-current liabilities 905 913 Total liabilities 18,729 24,453 Commitments and contingencies (Note 7) STOCKHOLDERS’ EQUITY Common stock, $0.001 par value—30,000,000 shares authorized, 17,039,792 and 16,849,016 shares issued and outstanding 17 17 Additional paid-in capital 97,731 93,190 Accumulated deficit (12,836 ) (28,125 ) Total stockholders’ equity 84,912 65,082 Total liabilities and stockholders’ equity $ 103,641 $ 89,535 Convertible Preferred Additional Total Stock Preferred
Stock Common Stock Paid-in Accumulated Stockholders’ Shares Amount Shares Amount Shares Amount Capital Deficit Equity (Deficit) 12,281,553 $ 81,373 — $ — 461,277 $ 1 $ 4,320 $ (42,494 ) $ (38,173 ) — — — — 3,717 — 26 — 26 — — — — — — 373 — 373 — — — — — — — (12,529 ) (12,529 ) — — — — — — — 20,155 20,155 12,281,553 81,373 — — 464,994 1 4,719 (34,868 ) (30,148 ) — — — — — — (602 ) — (602 ) — — — — — — (431 ) — (431 ) — — — — 18,248 — 50 — 50 — — — — — — 506 — 506 — — — — — — 150 — 150 — — — — — — — (13,550 ) (13,550 ) — — — — — — — 9,589 9,589 12,281,553 81,373 — — 483,242 1 4,392 (38,829 ) (34,436 ) — — — — — — 2,170 — 2,170 (12,281,553 ) (81,373 ) — — 15,221,571 15 81,358 — 81,373 — — — — 950,000 1 �� 11,145 — 11,146 — — — — (500,000 ) — (19,125 ) — (19,125 ) — — — — 631,010 — 4,073 — 4,073 — — — — — — 8,113 — 8,113 — — — — 63,193 — — — — — — — — — — 1,064 — 1,064 — — — — — — — 11,551 11,551 — $ — — $ — 16,849,016 $ 17 $ 93,190 $ (27,278 ) $ 65,929 Additional Total Convertible Preferred Stock Common Stock Paid-in Accumulated Stockholders’ Shares Amount Shares Amount Capital Deficit Equity / (Deficit) Balance at March 31, 2011 12,281,553 $ 81,373 464,994 $ 1 $ 4,424 $ (35,863 ) $ (31,438 ) Repurchase of stock options for cash — — — — (602 ) — (602 ) Reclassification of convertible
preferred stock warrant liability
(Note 2)— — — — (431 ) — (431 ) Issuance of common stock upon
exercise of stock options— — 18,248 — 50 — 50 Stock-based compensation — — — — 801 — 801 Excess tax benefit from stock-based
compensation— — — — 150 — 150 Dividends paid — — — — — (13,550 ) (13,550 ) Net Income — — — — — 10,036 10,036 Balance at March 31, 2012 12,281,553 81,373 483,242 1 4,392 (39,377 ) (34,984 ) Reclassification of convertible preferred stock
warrant liability upon consummation of IPO— — — — 2,170 — 2,170 Conversion of convertible preferred stock into
common stock upon consummation of IPO(12,281,553 ) (81,373 ) 15,221,571 15 81,358 — 81,373 Shares issued upon consummation of IPO — — 950,000 1 11,145 — 11,146 Shares repurchased and retired — — (500,000 ) — (19,125 ) — (19,125 ) Exercise of stock options — — 631,010 — 4,073 — 4,073 Excess tax benefit from stock-based
compensation— — — — 8,113 — 8,113 Net exercise of warrant to purchase shares of
common stock 63,193 — — — — Stock-based compensation — — — — 1,064 — 1,064 Net Income — — — — — 11,252 11,252 Balance at March 31, 2013 — — 16,849,016 17 93,190 (28,125 ) 65,082 Exercise of stock options and vesting of
restricted stock units— — 190,776 — 1,958 — 1,958 Stock-based compensation — — — — 465 — 465 Excess tax benefit from stock-based
compensation— — — — 2,118 — 2,118 Net Income — $ — — $ — $ — $ 15,289 $ 15,289 Balance at March 31, 2014 — $ — 17,039,792 $ 17 $ 97,731 $ (12,836 ) $ 84,912 Fiscal Year Ended March 31, 2013 2012 2011 $ 11,551 $ 9,589 $ 20,155 1,065 845 494 1,064 506 373 (3 ) 200 2,500 454 55 — (8,113 ) (150 ) — 143 — — 13 1,726 — — — 144 (2 ) 10 366 46 — — 383 489 (7,134 ) (8,142 ) (2,942 ) (3,045 ) (5,399 ) (604 ) (1,561 ) 3,853 (164 ) 1,498 99 (352 ) 3,356 (9,499 ) 3,735 (1,305 ) 1,299 (97 ) 8,261 (168 ) 2,660 8,723 1,291 18,238 (2,766 ) (3,538 ) (886 ) (2,766 ) (3,538 ) (886 ) 23,737 72,389 7,344 (29,526 ) (59,593 ) (7,344 ) 11,146 — — (7 ) — — — (13,550 ) (12,529 ) — — (66 ) — (3,368 ) — — — (6,000 ) (19,125 ) — — — (602 ) — 8,113 150 — 4,073 50 26 (1,589 ) (4,524 ) (18,569 ) 4,368 (6,771 ) (1,217 ) 562 7,333 8,550 $ 4,930 $ 562 $ 7,333 $ 17 $ 67 $ 609 $ 247 $ 6,153 $ 1,491 $ 81,373 $ — $ — $ 125 $ 23 $ — $ — $ 1,975 $ — $ — $ 1,023 $ — Fiscal Year Ended March 31, 2014 2013 2012 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 15,289 $ 11,252 $ 10,036 Depreciation and amortization 1,466 1,065 845 Stock-based compensation 465 1,064 801 Excess tax benefit from stock-based compensation (2,118 ) (8,113 ) (150 ) Accretion of imputed interest on purchase of intangible asset 142 143 — Change in fair value of convertible preferred stock warrant liability — 13 1,208 Loss on disposal of property and equipment 61 46 — Deferred taxes 493 177 442 Changes in operating assets and liabilities: Accounts receivable 432 (7,580 ) (3,114 ) Inventory (3,342 ) (4,945 ) (549 ) Income tax receivable 588 3,853 (164 ) Prepaid expenses, other current and non-current assets 775 1,496 109 Accounts payable 2,801 3,356 (9,499 ) Related-party payable — (1,305 ) 1,299 Accrued expenses and other non-current liabilities 194 8,194 27 Net cash provided by operating activities 17,246 8,716 1,291 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (1,637 ) (2,766 ) (3,538 ) Restricted cash (300 ) — — Net cash used in investing activities (1,937 ) (2,766 ) (3,538 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from credit facility 8,432 23,737 72,389 Payments to credit facility (15,439 ) (29,526 ) (59,593 ) — 11,146 — Dividends paid — — (13,550 ) Payments of initial public offering costs — — (3,368 ) Repurchase of common stock — (19,125 ) — Net repurchase of stock options — — (602 ) Excess tax benefit from stock-based compensation 2,118 8,113 150 Proceeds from exercises of stock options 1,958 4,073 50 Net cash used in financing activities (2,931 ) (1,582 ) (4,524 ) NET INCREASE (DECREASE) IN CASH 12,378 4,368 (6,771 ) CASH—Beginning of year 4,930 562 7,333 CASH—End of year $ 17,308 $ 4,930 $ 562 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 148 $ 17 $ 67 Cash paid for income taxes $ 5,611 $ 247 $ 6,153 NONCASH INVESTING AND FINANCING ACTIVITIES: Conversion of convertible preferred stock into common stock $ — $ 81,373 $ — $ — $ — $ 1,975 Intangible asset acquired by financing transaction $ — $ — $ 1,023 135145 products in the following three product categories: meals; snacks; and dressings, condiments and other. The Company’s products are sold throughout the U.S. and Canada via a multi-channel distribution network that serves the mainstream grocery, mass merchandiser and natural retailer channels. The Company’s headquarters are located in Berkeley, California.U.S.United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Annie’s Homegrown, Inc., Annie’s Enterprises, Inc., Napa Valley Kitchen, Inc., and Annie’s Enterprises, Inc.Baking, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.Initial Public Offering (IPO)On April 2, 2012, the Company closed its IPO, in which it sold 950,000 shares of common stock at an offering price of $19.00 per share and raised $11.1 million in net proceeds after deducting underwriting discounts and commissions of $1.3 million and other offering expenses of $5.6 million. In addition, certain of the Company’s stockholders, including funds affiliated with Solera Capital, LLC, sold 4.8 million shares at the $19.00 offering price in the IPO. The Company sometimes refers to Solera Capital, LLC and its affiliates as Solera in this Form 10-K.Immediately prior to the closing of the IPO, the outstanding shares of convertible preferred stock Certain reclassifications were automatically converted into 15,221,571 shares of common stock, the Company’s outstanding convertible preferred stock warrant was automatically converted into a common stock warrant to purchase a total of 80,560 shares of common stock and the related convertible preferred stock warrant liability was reclassified to additional paid-in capital.Pursuantmade to the Company’s Amendedprior financial statements to conform to the current year presentation.Restated Certificatesupersedes most current revenue recognition guidance. The accounting standard is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early adoption is not permitted. The Company is currently evaluating the impact of Incorporation, or Charter, andthis accounting standard.Amended and Restated Bylaws, which became effective upon consummation ofoperating segment on the IPO, thesame basis that it uses to evaluate its performance internally. The Company has authorized 35,000,000 sharesone business activity, marketing and distribution of capital stock, 30,000,000 shares, par value $0.001 per share,natural and organic food products, and operates as one operating segment. The Company’s chief operating decision-maker, its chief executive officer, reviews its operating results on an aggregate basis for purposes of which are common stockallocating resources and 5,000,000 shares, par value $0.001 per share, of which are preferred stock. As of March 31, 2013, 16,849,016 shares of common stock were issued and outstanding and no shares of preferred stock were issued and outstanding.Secondary Public OfferingsOn August 6, 2012, the Company closed a secondary public offering, in which certain stockholders, including Solera, sold 3,649,976 shares of common stock at an offering price of $39.25 per share. The Company did not receive any proceeds from the sale of shares by the selling stockholders. The offering expenses incurred by the Company were $0.7 million, including legal, accounting and printing costs and various other fees associated with the registration and sale of common stock sold in the secondary public offering.On March 18, 2013, the Company closed another secondary public offering in which Solera sold 3,500,000 shares of common stock at an offering price of $40.00 per share. The Company did not receive any proceeds from the sale of shares by Solera. The offering expenses incurred by the Company were $0.5 million, includinglegal, accounting and printing costs and various other fees associated with the registration and sale of common stock sold in the secondary public offering. The Company, concurrently with the closing of the secondary public offering, repurchased and retired 500,000 shares of its common stock from Solera in a private, non-underwritten transaction at a price of $38.25 per share. The price paid by the Company was equal to the price paid by the underwriters in the secondary public offering.Concentration RiskThe Company controls credit risk through credit approvals, credit limits and monitoring procedures. The Company performs periodic credit evaluations of its customers and records an allowance for uncollectible accounts receivable based on a specific identification methodology. In addition, management may record an additional allowance based on the Company’s experience with accounts receivable aging categories. Accounts receivable are recorded net of allowances for trade discounts and doubtful accounts. As of March 31, 2013 and 2012, the Company had $5.2 million and $5.2 million, respectively, for allowance for trade discounts. The Company had no allowance for doubtful accounts as of March 31, 2013 and 2012.Customers with 10% or more of the Company’s net sales and accounts receivable consist of the following: Net Sales Accounts Customer A Customer B Customer C Receivable(1) 25 % 17 % 11 % 72 % 25 % 15 % 11 % 66 % 28 % 12 % 12 % — —Not presented(1)In fiscal 2013, two customers represented 36% and 26%, respectively, of accounts receivable. The same two customers represented 45% and 21%, respectively, of accounts receivable in fiscal 2012. In fiscal 2013, one additional customer represented 10% of accounts receivable.The Company relies on a limited number of suppliers for the ingredients used in manufacturing its products. In order to mitigate any adverse impact from a disruption of supply, the Company attempts to maintain an adequate supply of ingredients and believes that other vendors would be able to provide similar ingredients if supplies were disrupted. The Company outsources the manufacturing of its products to contract manufacturers in the U.S. As of March 31, 2013 and 2012, four and two vendors accounted for 75% and 26% of accounts payable, respectively.Fair Value of Financial InstrumentsFair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:Level 1—Quoted prices in active markets for identical assets or liabilities.Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.The carrying amounts of the Company’s financial instruments, including accounts receivable, accounts payable, accrued liabilities and credit facility, approximate fair value due to their relatively short maturities. The carrying amount of the convertible preferred stock warrant liability at March 31, 2012 represents its estimated fair value (Note 9). Upon consummation of the IPO on April 2, 2012, prior to the automatic conversion of the convertible preferred stock warrant into a common stock warrant, the estimated fair value was remeasured and the change in fair value was recorded as a non-cash charge in other income (expense), net and the related liability was reclassified to additional paid-in capital.CashThe Company’s cash primarily consists of funds held in general checking accounts.InventoriesInventories are recorded at the lower of cost (determined under the first-in-first-out method) or market. Write downs are provided for finished goods expected to become nonsaleable due to age and provisions are specifically made for slow moving or obsolete raw ingredients and packaging material. The Company also adjusts the carrying value of its inventories when it believes that the net realizable value is less than the carrying value. These write-downs are measured as the difference between the cost of the inventory, including estimated costs to complete, and estimated selling prices including cost of selling. These charges are recorded as a component of cost of sales. Once inventory is written down, a new, lower-cost basis for that inventory is established.Property and EquipmentProperty and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful lives. Maintenance and repairs are charged to expense as incurred. Assets not yet placed in use are not depreciated.The useful lives of the property and equipment are as follows:Equipment and automotive3 to 7 yearsSoftware3 to 7 yearsPlates and dies3 yearsLeasehold improvementsShorter of lease term or estimated useful lifeThe Company capitalizes certain internal and external costs related to the development and enhancement of the Company’s internal-use software. Capitalized internal-use software development costs are included in property and equipment on the accompanying consolidated balance sheets. As of March 31, 2013, the Company had $2.1 million capitalized software development costs, net of accumulated amortization including $0.4 million in construction in progress. As of March 31, 2012, the Company had $2.0 million capitalized software development costs, net of accumulated amortization including $1.6 million in construction in progress.GoodwillIn connection with prior acquisitions, the Company recorded $30.8 million of goodwill resulting from the excess of the purchase price over the fair value of the assets acquired and the liabilities assumed.Goodwill is tested for impairment annually in the fourth fiscal quarter and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Triggering events that may indicate impairment include, but are not limited to, significant adverse change in customer demand or business climate that could affect the value of an asset or significant decrease in expected cash flows at the reporting unit. In its annual impairment evaluation, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of its sole reporting unit is less than its carrying amount as a basis to determine whether it is necessary to perform the two-step goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. The goodwill impairment test involves a two-step process and is tested at the Company’s sole reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. If the carrying amount of the sole reporting unit exceeds its fair value, the second step of the goodwill impairment test shall be performed to measure the amount of impairment loss, if any. When impaired, the carrying value of goodwill is written down to fair value. There was no impairment of goodwill identified during the years ended March 31, 2013, 2012 and 2011.Impairment of Long-lived AssetsLong-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. There was no impairment of long-lived assets during the years ended March 31, 2013, 2012 and 2011.Convertible Preferred Stock Warrant LiabilityThe Company accounted for its convertible preferred stock warrant to purchase shares of Company’s convertible preferred stock as a liability at fair value upon issuance, because the warrant could obligate the Company to transfer assets to the holder at a future date under certain circumstances, such as a change of control. The warrant was subjected to remeasurement to fair value at each balance sheet date, and any change in fair value was recognized in other income (expense), net in the consolidated statements of operations. See “Out-of-Period Adjustment” below. The liability was adjusted for changes in fair value until the earliest of the exercise, expiration of the convertible preferred stock warrant and conversion to a warrant to purchase common stock. Immediately prior to the closing of the IPO, the Company’s outstanding convertible preferred stock warrant was automatically converted into a common stock warrant to purchase a total of 80,560 shares of common stock and the related convertible preferred stock warrant liability was reclassified to additional paid-in capital.Convertible Preferred StockPrior to the IPO, the holders of the Company’s convertible preferred stock controlled the vote of stockholders and board of directors through appointed representatives. As a result, the holders of the convertible preferred stock could have forced a change of control that would have triggered liquidation. As redemption of the convertible preferred stock through liquidation was outside of the Company’s control, all shares of convertible preferred stock have been presented outside of permanent equity on the consolidated balance sheet as of March 31, 2012.Sales of the Company’s products are recognizedpersuasive evidence of an arrangement exists, theit has a contract or purchase order from a customer with a fixed price, is fixed or determinable, ownership and risk of loss have been transferred to the customer either uponShipping and Handling CostsShipping and handling costs are included in selling, general and administrative expenses in the consolidated statementsSegment ReportingThe Company determined its operating segment onsame basis that it usesconsolidated statements of income. These costs primarily consist of costs associated with moving finished products to evaluate its performance internally. The Company has one business activity, marketingcustomers, including costs associated with the Company’s distribution center, route delivery costs and distributionthe cost of naturalshipping products to customers through third-party carriers. Freight and organic foodwarehousing costs were $7.2 million, $5.7 million and $4.8 million for the years ended March 31, 2014, 2013 and 2012, respectively.operatesare expensed as one operating segment.incurred. R&D costs include consumer research, prototype development, materials and resources to conduct trial production runs, package development and employee-related costs for personnel responsible for product innovation. R&D costs were $2.3 million, $2.8 million and $2.0 million for the years ended March 31, 2014, 2013 and 2012, respectively.Company’s chief operating decision-maker, its chief executive officer, reviews its operating results on an aggregate basiscosts of producing advertisements are expensed as incurred and the costs of communicating advertising are expensed over the period of communication. Total advertising costs were $1.5 million, $0.9 million and $1.2 million, for purposes of allocating resourcesthe years ended March 31, 2014, 2013 and evaluating financial performance.Compensationemployee requisite service period.Treasury StockThe Company manages credit risk through credit approvals, credit limits and monitoring procedures. The Company performs periodic credit evaluations of its customers and records an allowance for uncollectible accounts receivable based on a specific identification methodology. In addition, management may record an additional allowance based on the Company’s experience with accounts receivable aging categories. Accounts receivable are recorded net of allowances for trade discounts and doubtful accounts. The Company had Net Sales Accounts Receivable(1) Customer A Customer B Customer C Fiscal Year Ended March 31, 2014 22% 15% 13% 58% 2013 25% 17% 11% 72% 2012 25% 15% 11% — Equipment and automotive 3 to 7 years Software 3 to 7 years Plates and dies 3 years Leasehold improvements Shorter of lease term or estimated useful life treasury stockshare repurchases under the cost method, and upon retirement of the treasury stock,accordingly charges the excess of the purchase price andover the par value per share of common stock entirely to additional paid-in capital.Income TaxesIncome taxes are accountedunderestimating certain trade allowances did not include all related trade promotion costs. Specifically, the assetmethodology did not consider trade promotion activities conducted by the Company’s customers after quarter end related to sales that occurred prior to quarter end. To correct this misstatement, the Company recorded the cumulative impact of $0.7 million to accumulated deficit at April 1, 2011 in its Consolidated Statements of Convertible Preferred Stock and liability method. Deferred tax assetsStockholders’ Equity / (Deficit), relating to the correction of trade promotion costs prior to fiscal 2012. Additionally, the Company revised its net sales overstatement of $0.5 million for fiscal 2013 and liabilities are recognizedunderstatement of $(0.2) million for fiscal 2012. This misstatement did not impact the future tax consequences attributable to differences betweenCompany’s reported net cash provided by operating activities.financial statement carrying amountseffect of existing assetsthe above misstatements, individually and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the yearsaggregate, on prior periods’ financial statements in which those temporary differences are expectedaccordance with the SEC’s Staff Accounting Bulletins No. 99 - Materiality and 108 - Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. Based on an analysis of quantitative and qualitative factors, the Company determined that the misstatements were not material to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes deferred tax assets when, based upon available evidence, realizationany of the assets is more likely than not.The accounting standard for uncertainty in income taxes prescribes a recognition threshold that a tax position is required to meet before being recognized in theCompany’s prior interim and annual financial statements and, provides guidance on derecognition,therefore, the previously-issued financial statements could continue to be relied upon. The Company also determined that correction of the cumulative amount of the misstatements of $1.4 million as of March 31, 2013 would be material to the fiscal 2014 consolidated financial statements and as such, the Company is revising its previously-issued consolidated financial statements to correct the misstatements. The Company plans to revise its quarterly condensed consolidated financial statements for fiscal 2014 in future filings containing such financial information. The revised unaudited quarterly financial data for fiscal 2014 and 2013 is presented in Note 19.classification, interestof the convertible preferred stock warrant liability and penalties, accountingstock-based compensation. These corrections were an accumulation of a misstatement that should have been recorded in interim periods disclosureprior to fiscal 2012. The correction relating to the convertible preferred stock warrant liability increased other income (expense) and transition issues. Differences between tax positions taken in a tax return and amounts recognizednet income by $0.5 million in the accompanying statement of income during fiscal 2012 and decreased accumulated deficit at April 1, 2011 by $0.4 million. The correction relating to stock-based compensation expense increased selling, general and administrative expenses by $0.3 million and decreased net income by $0.2 million in the accompanying statement of income during fiscal 2012 and increased accumulated deficit at April 1, 2011 by $0.2 million.generally result in an increase in a liability for income taxes payable or a reductionhas been revised to reflect the correction of an income tax refund receivable, or a reduction in a deferred tax asset or an increase in a deferred tax liability, or both.Company recognizes interest and penalties related to tax positions in income tax expense. Tofollowing table presents the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reductioneffects of the overallcorrection on the Company’s consolidated statement of income tax provision infor the period that such determination is made. No interest or penalties have been accrued for any period presented.During fiscal year ended March 31, 2013 (in thousands, except share and per share amounts): Fiscal Year Ended March 31, 2013 Reported Correction Revised Net Sales $ 169,977 $ (505 ) $ 169,472 Cost of sales 104,566 — 104,566 Gross profit 65,411 (505 ) 64,906 Selling, general and administrative expenses 45,461 — 45,461 Income from operations 19,950 (505 ) 19,445 Interest expense (168 ) — (168 ) Other income (expense), net 87 — 87 Income before provision for income taxes 19,869 (505 ) 19,364 Provision for income taxes 8,318 (206 ) 8,112 Net income $ 11,551 $ (299 ) $ 11,252 Earnings per share —Basic $ 0.67 $ (0.01 ) $ 0.66 —Diluted $ 0.65 $ (0.01 ) $ 0.64 Weighted average shares of common stock outstanding used in computing earnings per share —Basic 17,129,334 17,129,334 —Diluted 17,707,839 17,707,839 Fiscal Year Ended March 31, 2012 Reported Correction Revised Net Sales $ 141,304 $ 177 $ 141,481 Cost of sales 85,877 — 85,877 Gross profit 55,427 177 55,604 Selling, general and administrative expenses 37,495 295 37,790 Income from operations 17,932 (118 ) 17,814 Interest expense (161 ) — (161 ) Other income (expense), net (1,594 ) 518 (1,076 ) Income before provision for income taxes 16,177 400 16,577 Provision for income taxes 6,588 (47 ) 6,541 Net income $ 9,589 $ 447 $ 10,036 Net income attributable to common stockholders $ 290 $ 13 $ 303 Earnings per share —Basic $ 0.62 $ 0.03 $ 0.65 —Diluted $ 0.26 $ 0.01 $ 0.27 Weighted average shares of common stock outstanding used in computing earnings per share —Basic 469,089 469,089 —Diluted 1,111,088 1,111,088 March 31, 2013 Reported Correction Revised Accounts receivable(1) $ 20,015 $ (1,259 ) $ 18,756 Deferred tax assets, current 2,558 582 3,140 Total current assets 48,288 (677 ) 47,611 Total assets 90,212 (677 ) 89,535 Accrued liabilities(1) 12,021 170 12,191 Total current liabilities 16,363 170 16,533 Total liabilities 24,283 170 24,453 Accumulated deficit (27,278 ) (847 ) (28,125 ) Total stockholders’ equity 65,929 (847 ) 65,082 Total liabilities and stockholders’ equity 90,212 (677 ) 89,535 Accumulated Deficit Total Stockholders’ Equity / (Deficit) Reported Correction Revised Reported Correction Revised Balance at March 31, 2011 $ (34,868 ) $ (995 ) $ (35,863 ) $ (30,148 ) $ (1,290 ) $ (31,438 ) Net Income 9,589 447 10,036 9,589 447 10,036 Balance at March 31, 2012 (38,829 ) (548 ) (39,377 ) (34,436 ) (548 ) (34,984 ) Net Income 11,551 (299 ) 11,252 11,551 (299 ) 11,252 Balance at March 31, 2013 (27,278 ) (847 ) (28,125 ) 65,929 (847 ) 65,082 Additional Paid-in Capital Reported Correction Revised Balance at March 31, 2011 $ 4,719 $ (295 ) $ 4,424 Stock-based compensation 506 295 801 Balance at March 31, 2012 4,392 — 4,392 Balance at March 31, 2013 93,190 — 93,190 Fiscal Year Ended March 31, 2013 Reported Correction Revised CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 11,551 $ (299 ) $ 11,252 Adjustments to reconcile net income to net cash provided by operating activities Deferred taxes 383 (206 ) 177 Changes in operating assets and liabilities: Accounts receivable(1) (8,145 ) 565 (7,580 ) Accrued expenses and other non-current liabilities(1) 8,254 (60 ) 8,194 Fiscal Year Ended March 31, 2012 Reported Correction Revised CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 9,589 $ 447 $ 10,036 Adjustments to reconcile net income to net cash provided by operating activities Stock-based compensation 506 295 801 Change in fair value of convertible preferred stock warrant liability 1,726 (518 ) 1,208 Deferred taxes 489 (47 ) 442 Changes in operating assets and liabilities: Accounts receivable(1) (2,742 ) (372 ) (3,114 ) Accrued expenses and other non-current liabilities(1) (168 ) 195 27 recognized $21.4closed its IPO, in which it sold 950,000 shares of common stock at an offering price of $19.00 per share and raised $11.1 million in net proceeds after deducting underwriting discounts and commissions of tax deductions associated$1.3 million and other offering expenses of $5.6 million. In addition, certain of the Company’s stockholders, including funds affiliated with Solera Capital, LLC, sold 4.8 million shares at the $19.00 offering price in the IPO. The Company sometimes refers to Solera Capital, LLC and its affiliates as Solera in these financial statements.option exercises.were automatically converted into 15,221,571 shares of common stock, the Company’s outstanding convertible preferred stock warrant was automatically converted into a common stock warrant to purchase a total of 80,560 shares of common stock and the related convertible preferred stock warrant liability was reclassified to additional paid-in capital. March 31, 2014 2013 Raw materials $ 1,442 $ 1,391 Work in process 616 2,142 Finished goods 16,431 11,614 Inventory $ 18,489 $ 15,147 March 31, 2014 2013 Equipment and automotive $ 4,004 $ 2,959 Software 2,722 2,410 Leasehold improvements 1,381 1,195 Plates and dies 402 244 Construction in progress 1,058 1,090 Total property and equipment 9,567 7,898 Less: Accumulated depreciation and amortization (2,947 ) (1,760 ) Property and equipment, net $ 6,620 $ 6,138 March 31, 2014 March 31, 2013 Gross Net Gross Net Carrying Accumulated Carrying Carrying Accumulated Carrying Useful Amount Amortization Amount Amount Amortization Amount Lives Product formulas $ 1,023 $ (119 ) $ 904 $ 1,023 $ (68 ) $ 955 5 - 25 years Other intangible assets 189 (38 ) 151 189 (28 ) 161 5 - 25 years Total $ 1,212 $ (157 ) $ 1,055 $ 1,212 $ (96 ) $ 1,116 March 31, 2014 2013 Payroll and employee-related expenses $ 2,907 $ 3,779 Inventory received not invoiced 2,744 4,038 Accrued trade expenses 1,898 2,469 Income tax payable 1,727 — Brokerage commissions 421 407 Deferred rent 244 260 Other accrued liabilities 739 1,238 Total accrued liabilities $ 10,680 $ 12,191 $20.0there was $40.0 million and $33.0 million, respectively, of borrowings available under the credit facility. Interest is payable monthly. Lease Payments Fiscal Year Ending March 31: 2015 $ 682 2016 680 2017 676 2018 663 2019 586 Total future minimum lease payments $ 3,287 tax deductions are considered “excess” stock compensation related deductions. Such “excess” stock compensation related tax deductionsindemnification obligations is minimal and has not accrued any amounts for these obligations.recorded directlyhigher or lower than the estimated accrual.additional-paid-in-capital (rather thantime, the Company is subject to claims, assessments or other legal proceedings in the ordinary course of business, including product liability claims, employee claims, and other general liability claims. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that none of these legal proceedings, individually or in the aggregate, will have a material adverse effect on its financial position or results of operations and cash flows.tax benefitresult of participating in the common stock dividend.income statement) whenpurchase of 80,560 shares of Series A 2005 Convertible Preferred Stock at an exercise price of $8.07 per share. The fair value of the tax savings are realized onwarrant approximated $431,000 (see Note 2). Upon the consummation of the Company’s tax returns. In determiningIPO on April 2, 2012, the amountwarrant became a warrant to purchase 80,560 shares of cash tax savings realized fromour common stock. On April 12, 2012, Hercules exercised the excess stock compensation deductions,warrant to purchase 80,560 shares of the Company’s accounting policy iscommon stock by surrendering 17,367 shares to followpay for the tax law ordering approach, which provides that tax benefits follow the sequence in which these amounts are utilized for tax reporting purposes.exercise. As a result, the Company issued to Hercules 63,193 shares of common stock.excess stock-based compensation deductions inpreferred stock had been filed and no shares of preferred stock were issued.2013,year ended March 31, 2012, the Company reduceddeclared and paid common shareholders cash dividends of $0.86 per share, or approximately $408,000 in the aggregate. No dividends were declared or paid during the fiscal years ended March 31, 2014 and 2013.taxes payableemployees and credited additional-paid-in-capitalrestricted stock units to the members of its Board of Directors from the Omnibus Incentive Plan. As of March 31, 2014, eligible participants held options to purchase 275,886 shares of common stock, 33,092 restricted stock units and 60,510 performance share units (at target) under the Omnibus Incentive Plan. The options granted under the Omnibus Incentive Plan generally vest over a five-year period from the grant date. The restricted stock units granted to employees vest 50% on the second anniversary of the grant date, and the remaining 50% on the third anniversary of the grant date. The performance share units granted to employees vest based on achievement of required cumulative compounded adjusted diluted earnings per share growth during the three-year period applicable to the grant. The vesting of stock-based awards is subject to continuance of the employment with or service to the Company.$8.1 million. Number of Shares Weighted-Average Remaining Contractual Life (in Years) Aggregate Intrinsic Value (in thousands) Balance at March 31, 2013 1,203,990 $ 13.26 Granted 66,690 41.80 Forfeited (169,936 ) 25.78 Exercised (186,919 ) 10.48 Balance at March 31, 2014 913,825 $ 13.58 Vested and expected to vest—March 31, 2014 779,907 $ 11.09 3.9 $ 22,692 Exercisable—March 31, 2014 674,565 $ 8.87 3.2 $ 21,128 Options Outstanding Weighted-Average Remaining Stock Options Contractual Life Options Exercise Price Outstanding (Years) Exercisable $4.93—$6.62 376,963 1.8 376,963 $7.30—$8.88 192,809 3.5 192,809 $16.94—$19.00 244,406 7.8 96,793 $30.01—$35.00 40,000 8.8 8,000 $35.01—$40.00 22,867 9.1 — $40.01—$45.00 36,780 9.3 — 913,825 4.6 674,565 Fiscal Year Ended March 31, 2014 2013 2012 Expected term (in years) 5.2 - 6.0 5.2 5.2 - 6.9 Expected volatility 38.2% - 39.7% 39.8% - 40.8% 41.0% - 42.0% Risk-free interest rate 0.7% - 2.1% 0.8% - 1.1% 1.1% - 3.1% Expected dividend rate 0% 0% 0% Net Income Per ShareFair Value of Common StockBasic net income. Under our Omnibus Incentive Plan, the fair value of the shares of common stock underlying the stock options is defined as the closing price of the Company’s common stock on the date of the grant. Prior to the IPO, the fair value of the shares of common stock underlying the stock options had historically been determined by the Board of Directors. Because there had been no public market for the Company’s common stock prior to March 28, 2012, the Board of Directors determined the fair value of the common stock at the time of grant of the option by considering a number of objective and subjective factors including valuation of comparable companies, sales of convertible preferred stock to unrelated third parties, operating and financial performance and general and industry-specific economic outlook.commonunvested restricted stock units and performance share units:Shares-Based Awards Shares Unvested at March 31, 2013 71,165 $ 21.73 Granted 65,352 41.36 Vested (11,017 ) 30.19 Forfeited (36,590 ) 29.67 Unvested at March 31, 2014 88,910 $ 31.84 attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net incomeearnings per share of common stock is computed by giving effect to all potentially dilutive securities outstanding during the period. The Company utilizes the treasury stock method to calculate potential common shares that underlie its stock options to purchase common stock and restricted stock units. Performance share units are excluded from Additionally, the Company utilizes the treasury stock method to calculate potential common shares that underlie stock options to purchase common stock and restricted stock units. Performance share units are excluded from potential common shares since no shares were issuable as of March 31, 2013 and 2012. The performance share units vest based on achievement of specified percentage of targeted cumulative compounded adjusted diluted earnings per share growth rate during the three-year period ending March 31, 2015.The potential common shares from (i) the convertible preferred stock warrant and restricted stock units for the fiscal year ended March 31, 2012; (ii) the convertible preferred stock for the fiscal years ended March 31, 2012 and 2011; and (iii) certain stock options to purchase Company’s common stock for the fiscal year ended March 31, 2013 and 2012; had an anti-dilutive effect on the earnings per share, and, accordingly, were excluded from the calculation.yearsyear ended March 31, 2012 and 2011 was allocated using the two-class method. The two-class method is an earnings allocation method for calculating earnings per share when a company’s capital structure includes two or more classes of common stock or common stock and participating securities. Under this method, the Company reduced income from operations by the dividends paid to convertible preferred stockholders and the rights of the convertible preferred stockholders to participate in any undistributed earnings. The undistributed earnings were allocated based on the relative percentage of weighted average shares of outstanding convertible preferred stock to the total number of weighted average shares of outstanding common and convertible preferred stock. Fiscal Year Ended March 31, 2014 2013 2012 Options to purchase common stock 57,085 91,239 379,304 Restricted stock units 10,651 — 16,700 Convertible preferred stock (on an as-if converted basis) — — 15,221,571 Convertible preferred stock warrant — — 80,560 Total 67,736 91,239 15,698,135 Fiscal Year Ended March 31, 2014 2013 2012 Earnings per share: Net income $ 15,289 $ 11,252 $ 10,036 Less: Dividends paid to convertible preferred stockholders — — 13,141 Undistributed loss attributable to convertible preferred stockholders — — (3,408 ) Net income attributable to common stockholders $ 15,289 $ 11,252 $ 303 Weighted average shares of common stock outstanding used in computing earnings per share—basic 16,926,827 17,129,334 469,089 Potential dilutive options 467,146 570,210 641,999 Potential dilutive restricted stock units 18,575 8,295 — Weighted average shares of common stock outstanding used in computing earnings per share—diluted 17,412,548 17,707,839 1,111,088 Earnings per share
—Basic$ 0.90 $ 0.66 $ 0.65 —Diluted $ 0.88 $ 0.64 $ 0.27 Out-of-Period AdjustmentThe Company’s net sales by geographic area, based on the location to which the product was shipped, are summarized as follows (in thousands):During fiscal 2012, Fiscal Year Ended March 31, 2014 2013 2012 United States $ 195,613 $ 162,263 $ 136,973 Canada 8,491 7,209 4,508 $ 204,104 $ 169,472 $ 141,481 Fiscal Year Ended March 31, 2014 2013 2012 Meals $ 99,004 $ 79,006 $ 60,680 Snacks 79,074 66,662 56,868 Dressings, condiments and other 26,026 23,804 23,933 $ 204,104 $ 169,472 $ 141,481 corrected an error in the measurementannounced a voluntary product recall of the convertible preferred stock warrant liability. The correction increased the fair value of the convertible preferred stock warrant liability by $949,000, decreased additional paid-in capital by $431,000certified organic and made with a corresponding increase in expense of $518,000, which was recorded in other income (expense), net in the accompanying statement of operations during fiscal 2012. The correction was an accumulation of an error that should have been recorded in prior periods and would have increased net loss for fiscal 2009 by $44,000, increased net income by $79,000 for fiscal2010 and decreased net income by $553,000 for fiscal 2011. Management assessed the impact of this error and does not believe that it is material, either individually or in the aggregate, to any prior period financial statements ororganic pizza products due to the financial statements for the year ended March 31, 2012.3. Balance Sheet ComponentsInventoryInventory is comprisedpossible presence of the following (in thousands): March 31, 2013 2012 $ 1,391 $ 1,938 2,142 754 11,614 7,510 $ 15,147 $ 10,202 Property and Equipment, NetProperty and equipment, net are comprisedfragments of the following (in thousands): March 31, 2013 2012 $ 2,959 $ 1,730 2,410 1,188 1,195 566 244 352 6,808 3,836 (1,760 ) (1,719 ) 1,090 2,181 $ 6,138 $ 4,298 depreciation expenseby contract manufacturers as cost of approximately $1.0 million, $0.8sales, and administrative costs associated with the recall such as legal expenses as selling, general and administrative expenses. The Company recorded $1.9 million and $0.4 million duringfor insurance recoveries in connection with the product recall in the years ended March 31, 2013, 20122014 and 2011, respectively.During fiscal 2013, the Company completed two construction projects – (i) a remodel of the existing office space (the “Existing Space”) and (ii) reconfiguration of the warehouse space to additional office space in order to accommodate growth. The cost of these capital projects totaled approximately $975,000, of which $629,000 was recorded in leasehold improvements and the remaining $346,000 was recorded in equipment and automotive on the Company’s consolidated balance sheet as of March 31, 2013.Intangible Assets, NetIntangible assets, net are comprised of the following (in thousands): March 31, 2013 2012 $ 1,023 $ 1,023 189 189 1,212 1,212 (96 ) (36 ) $ 1,116 $ 1,176 In November 2011, the Company acquired product formulas for a purchase price of $2.0 million. The purchase agreement requires the Company to make annual payments of at least $150,000 in each of the first six years of the agreement, with the balance of the $2.0 million payment due at the end of the seven-year term in November 2018. The Company recorded a product formula intangible asset of $1.0 million representing the present value of the future payments, which will be amortized over the estimated useful life of 20 years using the straight-line method.The Company incurred amortization expense of approximately $60,000, $27,000 and $9,000 on its intangible assets in fiscal 2013, 2012 and 2011, respectively.The estimated future amortization expense relating to intangible assets is anticipated to be $60,000 for each of the next five years from fiscal 2014 through fiscal 2018, totaling $300,000 and $816,000 after fiscal 2018.Prepaid Expenses and Other Current AssetsPrepaid expenses and other current assets as of March 31, 2013 and 2012 included receivables from contract manufacturers and suppliers of $3.9 million and $0.1 million, respectively.Accrued LiabilitiesThe following table shows the components of accrued liabilities (in thousands): March 31, 2013 2012 $ 3,779 $ 2,768 2,299 2,631 4,038 531 260 264 407 382 1,238 876 $ 12,021 $ 7,452 4. Credit FacilityIn 2005, the Company entered into a bank line of credit agreement (the “Credit Agreement”) with Bank of America, N.A., which provided for revolving loans and letters of credit up to $11.0 million. In March 2008, the Company amended the Credit Agreement with Bank of America to establish an inter-creditor agreement with another lender (Note 5). In August 2010, the Company amended the Credit Agreement to decrease the maximum borrowing limit on revolving loans to $10.0 million and extended the expiration date to August 20, 2012. In December 2011, the Company entered into a second amended and restated credit facility with Bank of America that, among other things, provided for an increase in its line of credit to $20.0 million and an extension of the term through August 2014. In March 2013, the Company entered into another amendment to its credit facility. This amendment provides for, among other things, an increase in the line of credit to $40.0 million and extension of the term through August 2016. The Credit Agreement is collateralized by substantially all of the Company’s assets.The Company may select from three interest rate options for borrowings under the credit facility: (i) LIBOR (as defined in the credit facility) plus 1.25%, (ii) IBOR (as defined in the credit facility) plus 1.25% or (iii) Prime Rate (as defined in the credit facility). Weighted average interest was 1.45%, 2.74% and 1.68% for the years ended March 31, 2013, 2012 and 2011, respectively. The Companyimpact of recall-related charges and related insurance recoveries is required to pay a commitment fee on the unused credit facility commitments, if the outstanding balance is less than half the commitment at an annual rateranging from 0.25% to 0.40% depending on the utilization rate. As of March 31, 2013 and 2012, there was $33.0 million and $7.2 million, respectively, of availability for borrowings under the Credit Agreement. Interest is payable monthly.The credit facility contains restrictions on, among other things, Company’s ability to incur additional indebtedness, pay dividends or make other distributions and make investments and loans. The credit facility also limits Company’s ability to make capital expenditures in excess of $15.0 million. The credit facility requires that the Company maintain a Funded Debt (as defined in the credit facility) to Adjusted EBITDA (as defined in the credit facility) ratio of not more than 2.75 to 1.0 and a minimum Net Worth (as defined in the credit facility) equal to at least $50.0 million, plus 30% of earnings after taxes earned each quarter (if positive), beginning with the June 2013 quarterly earnings.There are various financial and other covenants under the Credit Agreement. Financial covenants, as defined in the Credit Agreement include a net income covenant, total liabilities to tangible net worth covenant and a minimum fixed charge coverage covenant, through the term of the agreement. The Credit Agreement requires the Company to submit interim and annual financial statements by specified dates after each reporting period. The Company was in compliance with the financial covenants as of March 31, 2013 and 2012.5. Notes PayableLoan and Security AgreementIn March 2008, the Company had entered into a Loan and Security Agreement (the “Loan Agreement”) with Hercules Technology II, L.P. (“Hercules”). The Loan Agreement provided for a loan in an aggregate principal amount up to $7.0 million (the “Term Loan”) and required the Company to draw an initial tranche of $4.0 million upon the execution of the Loan Agreement. The Loan Agreement provided the Company the ability to draw additional Term Loan advances in an aggregate amount up to $3.0 million in minimum increments of $1.0 million, of which the Company drew $2.0 million in August 2008. In connection with the Loan Agreement, the Company had issued a warrant to Hercules to purchase 80,560 shares of Series A 2005 Convertible Preferred Stock, and incurred approximately $215,000 for debt issuance costs. The fair value of the warrant, which was determined using Black-Scholes option-pricing model upon issuance, approximated $431,000.The outstanding principal balance of the Term Loan bore interest at a rate offollows (in thousands except per annum equal to greater of the LIBOR Rate plus 6.5% and 10% and had an additional 2% paid-in-kind interest. Interest was payable monthly with all principal balance payable upon maturity. share amounts): Fiscal Year Ended March 31, 2014 2013 Benefit to / (reduction of) net sales $ 1,071 $ (1,096 ) Benefit to / (incremental) cost of sales 628 (1,080 ) Benefit to / (incremental) selling, general and administrative expenses (24 ) (171 ) Total benefit to / (reduction of) income before income taxes $ 1,675 $ (2,347 ) Benefit to / (reduction of) net income $ 992 $ (1,364 ) Benefit to / (reduction of) net income per diluted share $ 0.06 $ (0.08 ) Term Loan permitted the Company to prepay all principal balances with a prepayment charge. In August 2010, the Company repaid the entire $6.0 million of the then outstanding principal balance and incurred a prepayment charge of $60,000. The terms of the Loan Agreement required the Company to comply with various covenants. Through August 2010, when the Term Loan was repaid, the Company was in compliance with the terms of the Loan Agreement.6. Related Party TransactionsAgreement with Solera Capital, LLCIn April 2011, the Company entered into a management agreement to supersede a prior agreement by and between the Company and Solera Capital, LLC, an affiliate of its principal stockholder, Solera Partners, L.P., to retain Solera to continue to provide consulting and advisory services to the Company for a term ending on the later of: (i) March 5, 2014, or (ii) the date on which Solera and its affiliates cease to own at least 10% of the voting equity of the Company (including any successor thereto). Such services may include (i) assisting in the raising of additional debt and equity capital from time to time for the Company, if deemed advisable by the Board of Directors of the Company, (ii) assisting the Company in its long-term strategic planning generally, and (iii) providing such other consulting and advisory services as the Company may reasonably request.In consideration of Solera providing the services listed above, effective April 1, 2011, the Company agreed to pay Solera an annual advisory fee of $600,000, payable quarterly in advance on the first day of each calendar quarter, provided, however, that the fee for the calendar quarter commencing April 1, 2011 was due within 10 days of date of the agreement. The Company also agreed to reimburse Solera for Solera’s out-of-pocket costs and expenses incurred in connection with the investment by Solera in the Company in the performance of Solera’s duties under the agreement. During the years ended March 31, 2012 and 2011, the Company incurred $0.6 million and $0.4 million, respectively, for such consulting and advisory services. The advisory services agreement with Solera was terminated upon the consummation of the IPO and as such the Company paid to Solera a one-time termination fee of $1.3 million in April 2012.On March 18, 2013, the Company concurrently with the closing of the secondary public offering repurchased 500,000 shares of its common stock from Solera in a private, non-underwritten transaction at a price of $38.25 per share. The price paid by the Company was equal to the price paid by the underwriters in the secondary public offering.7. Commitments and ContingenciesLease CommitmentsThe Company entered into a lease agreement (the “Lease”) for its headquarters at 1610 Fifth Street, Berkeley, California on November 15, 2010 with an initial term that began on March 1, 2011 and expires in February 2016. The space was comprised of 25,127 square feet of office space and 8,384 square feet of warehouse space. Pursuant to the Lease, the landlord reserved the right to elect to recapture from the Company, and lease to a third party, a portion of the warehouse space comprising not more than 6,525 square feet (“Recapture Space”), subject to certain terms and conditions provided for by the Lease. Notwithstanding the foregoing, the Company had a right of first refusal to lease the Recapture Space. The lease term for the Recapture Space was coterminous with the initial term, including any extensions. Further, in the event that the landlord did not elect to recapture the Recapture Space, the Company had the right, upon written notice to the landlord, to elect to lease the Recapture Space, in which event the landlord would build out the Recapture Space for office use. On September 25, 2012, the Company exercised the right and entered into an amendment to the Lease (the “Lease Amendment”).The Lease Amendment provided (i) for the reconfiguration of the warehouse space to additional office space in order to accommodate growth, and (ii) the Company with a first option to extend the initial term of the Lease for three years (the “First Option”) followed by a second option to extend the Lease for an additional two years (the “Second Option” and, together with the First Option, the “Option Periods”). Concurrently with the execution of the Lease Amendment, the Company exercised the First Option to extend the initial lease for an additional three years to February 2019. The terms, covenants and conditions of the Lease, as amended, will continue to govern the Options Periods, except that the applicable monthly rent for the Option Periods will be equal to 95% of the fair market rental rate for the property, however, the monthly rent payable during the Option Periods will not be less than the monthly rent payable during the immediately preceding month of the initial term or First Option period, as applicable. The landlord is required to deliver to the Company a notice of the fair market rental rate for the property no later than August 1, 2015. If the Company does not agreeexpect any significant further costs or recoveries associated with the proposed fair market rental rate, then the term of the lease will expire at the end of the initial term in February 2016. In such event, the Company will have to reimburse to the landlord an amount not to exceed 40% of the total tenant improvement allowance plus interest, as determined in accordance with the Lease.Rent expense for non-cancellable operating lease with scheduled rent increases is recognized on a straight-line basis over the lease term. Rent expense for the years ended March 31, 2013, 2012 and 2011 was approximately $532,000, $480,000 and $309,000, respectively.Future minimum lease payments under the noncancelable operating leases as of March 31, 2013 are as follows (in thousands): Lease Payments $ 634 651 669 669 662 586 $ 3,871 Purchase CommitmentsThe Company has material non-cancelable purchase commitments, directly or through contract manufacturers, to purchase ingredients to be used in the future to manufacture its products. As of March 31, 2013, the Company’s purchase commitments totaled $10.4 million, which will substantially be incurred in fiscal 2014.In September 2011, the Company entered into an agreement with its contract warehousing company that includes minimum overhead fees of $200,000 annually beginning April 1, 2012 through June 2015. As of March 31, 2013, the remaining obligation under the agreement for overhead fees was $450,000.In November 2011, the Company entered into an agreement with one of its contract manufacturers for the purchase ofvoluntary product formulas for a purchase price of $2.0 million. The agreement requires annual payments of at least $150,000 in each of the first six years of the agreement with the balance of the $2.0 million payment due at the end of the seven-year term in November 2018. As of March 31, 2013, the Company’s remaining obligation for product formulas was $1.85 million.IndemnificationsIn the normal course of business, the Company enters into contracts that contain a variety of representations and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations, and, accordingly, the Company believes that the estimated fair value of these indemnification obligations is minimal and has not accrued any amounts for these obligations.Legal MattersFrom time to time, the Company is subject to claims and assessments in the ordinary course of business. The Company is not currently a party to any litigation matter that, individually or in the aggregate, is expected to have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.8. Convertible Preferred StockImmediately prior to the closing of the IPO in April 2, 2012, the outstanding shares of convertible preferred stock were automatically converted into 15,221,571 shares of common stock. No shares of convertible preferred stock were authorized, issued or outstanding at March 31, 2013.The convertible preferred stock at March 31, 2012 consists of the following (in thousands, except shares): Shares
Authorized Shares Issued and
Outstanding Proceeds, Net of
Issuance Costs Aggregate
Liquidation
Amount 3,802,086 3,802,084 $ 23,374 $ 41,418 4,806,000 4,806,000 30,999 50,226 3,738,469 3,673,469 27,000 40,783 12,346,555 12,281,553 $ 81,373 $ 132,427 DividendsDuring the fiscal years ended March 31, 2012 and 2011, the convertible preferred stockholders received cash dividends of $1.07 and $0.99 per share, respectively, or approximately $13.1 million and $12.2 million in the aggregate, respectively, as a result of participating in the common stock dividend.ConversionThe holders of shares of convertible preferred stock had the right, at the election of the holders of at least a majority of such series of preferred stock, to convert such shares into that number of shares of common stock equal to the applicable initial purchase price divided by the conversion price then in effect. No fractional shares of common stock could be issued upon such conversion. Initially, such conversion would have been on a 1-for-1 basis, subject to adjustment for any stock dividend, stock split, reclassification, recapitalization, consolidation or similar event. In addition, the holders of shares of convertible preferred stock were entitled to anti-dilution protection, which provided that, subject to certain exceptions, upon a subsequent dilutive issuance of common stock for a purchase price per share of less than the applicable conversion price then in effect, the conversion price of such series of preferred stock would be adjusted on a weighted average basis. As a result, the conversion ratio of convertible preferred stock to common stock would be adjusted accordingly. On March 7, 2012, the Company declared a stock split effected as a stock dividend of 0.239385 shares for each share of common stock. As a result, the conversion ratio for each series of convertible preferred stock as of March 31, 2012 was 1-for-1.239385. Immediately prior to the closing of the IPO, the outstanding shares of convertible preferred stock were automatically converted into 15,221,571 shares of common stock.9. Convertible Preferred Stock WarrantIn March 2008, in connection with the Term Loan (Note 5), the Company had issued a warrant to Hercules for the purchase of 80,560 shares of Series A 2005 Convertible Preferred Stock at an exercise price of $8.07 per share. The fair value of the warrant, which was determined using Black-Scholes option-pricing model upon issuance, approximated $431,000 (Note 2). The warrant was immediately exercisable on the date of issuance and was scheduled to expire at the earlier of five years from a qualifying IPO of the Company’s common stock or April 1, 2018. Upon the consummation of the Company’s IPO on April 2, 2012, the warrant became a warrant to purchase 80,560 shares of our common stock and the related convertible preferred stock warrant liability was reclassified to additional paid-in capital. On April 12, 2012, Hercules exercised the warrant to purchase 80,560 shares of our common stock by surrendering 17,367 shares to pay for the exercise. As a result, the Company issued Hercules 63,193 shares of common stock.As of April 2, 2012, the Company measured the fair value of the outstanding convertible preferred stock warrant using an option pricing method with several possible distribution outcomes depending on the timing and kind of liquidity event utilizing the following assumptions:April 2, 2012Remaining contractual life (in years)0.03Risk-free interest rate2.2% Expected volatility41% Expected dividend rate0% Remaining Contractual Life. The Company derived the remaining contractual life based on the remaining term through actual exercise on April 12, 2012.Risk-Free Interest Rate. The risk-free interest rate was based upon U.S. Treasury zero-coupon issues with remaining terms similar to the expected term of the warrant.Volatility. Since prior to the IPO, the Company was a private entity with no historical data regarding the volatility of its preferred stock, the expected volatility used was based upon the volatility of a group of similar entities, referred to as “guideline” companies. In evaluating similarity, the Company considered factors such as industry, stage of life cycle and size.Dividend Yield. Although the Company in the past declared dividends, no future dividends are expected to be available to benefit warrant holder, and, accordingly, the Company used an expected dividend yield of zero in the valuation model.During fiscal 2012, the Company corrected errors in the measurement of the convertible preferred stock warrant liability through March 31, 2011 and recorded a loss of $518,000 included in other income (expense), net in the accompanying statement of operations (Note 2).Prior to April 2, 2012, the Company categorized the convertible preferred stock warrant liability as a Level 3 financial liability since there was no market activity for the underlying shares of the 2005 Convertible Preferred Stock.The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities (in thousands): April 2, 2012 $ 2,157 13 $ 2,170 10. Preferred StockAs of March 31, 2013, the Company’s Charter authorized 5,000,000 shares of preferred stock, $0.001 par value per share. As of March 31, 2013, no certificate of designations defining the rights and preferences of the preferred stock had been filed and no shares of preferred stock were outstanding.As of March 31, 2012, the Company’s Charter authorized 18,867,086 shares of preferred stock, $0.001 par value per share. 12,346,555 of such authorized preferred stock were designated as convertible preferred stock, 12,281,553 of which were issued and outstanding (see Note 8). No certificate of designation defining the rights and preferences of the remaining 6,455,531 shares of preferred stock, had been filed and none of such shares of preferred stock were outstanding.11. Common StockAs of March 31, 2013 and 2012, the Company’s Charter authorized 30,000,000 and 24,000,000 shares of common stock, $0.001 par value per share, respectively, of which 16,849,016 and 483,242 shares were issued and outstanding, respectively. Each share of the common stock has the right to one vote. The holders of common stock are also entitled to receive dividends out of funds legally available therefor and if, as and when declared by the Company’s Board of Directors. During the fiscal years ended March 31, 2012 and 2011, the Company declared and paid common shareholders cash dividends of $0.86 and $0.80 per share, respectively, or approximately $408,000 and $371,000 in the aggregate, respectively. No dividends were declared or paid during fiscal year ended March 31, 2013.12. Stock Option Plans2004 Stock Option PlanIn November 2004, the Board of Directors of the Company adopted the 2004 Stock Option Plan (the “2004 Plan”). Under the 2004 Plan, incentive and non-qualified stock options could be granted to eligible employees, directors and consultants. Vesting and exercise provisions were determined by the Board of Directors at the time of grant. Options granted generally vest annually on a straight-line basis over a two- to five-year period from the date of grant. Vested options can be exercised at any time and generally expire ten years after the grant date. Options may be exercised once vested at the price per share, determined by the Board of Directors when granted, which approximated the fair market value at the grant date. In the event that an option holder’s continuous service terminates, the option holder generally has three months from the date of termination in which to exercise vested options.On February 22, 2012, the Company’s compensation committee determined that no further awards would be granted under the 2004 Plan. As of March 31, 2013, eligible participants held options to purchase 721,247 shares of common stock under the 2004 Plan. If outstanding stock options expire or are canceled without having been fully exercised, the underlying shares will not become available for purposes of the 2004 Plan.Annie’s, Inc. Omnibus Incentive PlanIn February 2012, the Board of Directors adopted and the Company’s shareholders approved the Omnibus Incentive Plan, which became effective upon the completion of IPO. A total of 867,570 shares of common stock were reserved for future issuance under the Omnibus Incentive Plan. As of March 31, 2013, no shares had been issued under the Plan, 436,873 shares were reserved for issuance pursuant to outstanding awards, and 430,697 shares remained available for future awards. Any shares covered by an award that are forfeited, expired, canceled, settled in cash or otherwise terminated without delivery of shares to the grantee will be available for future grants under the Omnibus Incentive Plan. However, shares surrendered to or withheld by the Company in payment or satisfaction of the exercise price of an award or any tax withholding obligation with respect to an award will not be available for the grant of new awards. The Omnibus Incentive Plan provides for grants of incentive stock options, or ISOs, non-qualified stock options, or NSOs, stock appreciation rights, or SARs, restricted stock, restricted stock units, performance awards, other stock-based awards and cash-based incentive awards.The Company has granted non-qualified stock options, restricted stock units and performance share units to its employees from the Omnibus Incentive Plan. As of March 31, 2013, eligible participants held options to purchase 340,215 shares of common stock, 20,192 restricted stock units and 50,973 performance share units under the Omnibus Incentive Plan. The options granted to employees generally vest in four equal installments beginning on the second anniversary of the grant date, and on each anniversary thereafter, provided continuance of employment with the Company. The restricted stock units granted to employees vest 50% on the second anniversary of the grant date, and the remaining 50% on the third anniversary of the grant date, provided continuance of the employment with the Company. The performance share units granted to employees vest based on achievement of required cumulative compounded adjusted diluted earnings per share growth during the three-year period beginning April 1, 2012 and ending March 31, 2015.Non-plan Stock Option AwardsThe Company granted performance based option awards for the right to purchase 176,615 shares of common stock to certain key management prior to fiscal 2012, all of which were vested in full as of March 31, 2012. Vesting and exercise provisions were determined by the Board of Directors at the time of grant. Options granted vested according to the performance feature underlying the grant. Vested options can be exercised at any time and expire generally five to ten years after the grant date. In the event that an option holder’s continuous service terminates, the option holder generally has three months from the date of termination in which to exercise vested options. As of March 31, 2013, such management held options to purchase 142,528 shares of common stock under the non-plan stock option awards.Activity of stock options under our 2004 Plan, non-plan option awards and Omnibus Incentive Plan is set forth below: Number
of Shares Weighted-Average
Exercise Price Weighted-Average
Remaining
Contractual Life
(in Years) Aggregate
Intrinsic
Value (in thousands) 1,759,367 $ 9.56 91,239 38.03 (15,606 ) 16.62 (631,010 ) 6.45 1,203,990 $ 13.26 990,823 $ 11.01 4.9 $ 27,000 747,273 $ 7.73 3.7 $ 22,816 The following table summarizes information about stock options outstanding at March 31, 2013: Options Outstanding Stock Options
Outstanding Weighted-Average
Remaining
Contractual Life
(Years) Options
Exercisable 167,835 2.1 167,835 253,501 3.4 253,501 23,789 3.8 23,789 77,101 4.3 77,101 186,624 4.2 181,668 154,925 8.2 43,379 248,976 9.0 — 91,239 9.8 — 1,203,990 5.7 747,273 The Company uses the Black-Scholes option pricing model to determine the fair value of stock options. The valuation model for stock compensation expense requires the Company to make assumptions and judgments about the variables used in the calculation including the expected term (weighted-average period of time that the options granted are expected to be outstanding); volatility of the Company’s common stock, an assumed-risk-free interest rate and the estimated forfeitures of unvested stock options. Fiscal Year Ended March 31, 2013 2012 2011 5.2 5.2—6.9 N/A 39.8%—40.8% 41%—42% N/A 0.8%—1.1% 1.1%—3.1% N/A 0% 0% N/A Fair Value of Common Stock. Under our Omnibus Incentive Plan, the fair value of the shares of common stock underlying the stock options is defined as the closing price of our common stock on the date of the grant. Prior to the IPO, the fair value of the shares of common stock underlying the stock options had historically been determined by the Board of Directors. Because there had been no public market for the Company’s common stock prior to March 28, 2012, the Board of Directors determined fair value of the common stock at the time of grant of the option by considering a number of objective and subjective factors including valuation of comparable companies, sales of convertible preferred stock to unrelated third parties, operating and financial performance and general and industry-specific economic outlook.Weighted-Average Expected Term. The Company derived the expected term using several factors including the ratio of market value to the strike price, volatility, proximity to recent vesting and the remaining option term. In addition, the Company considered behavioral factors including portfolio diversification, liquidity considerations, risk aversion and tax planning in its model to determine the expected term. Additionally, the Company considers historical experience in determining the expected term.Volatility. Since the Company has no historical data regarding the volatility of its common stock prior to the IPO and it has limited company-specific historical volatility, the expected volatility used is based upon the volatility of a group of similar entities, referred to as “guideline” companies. In evaluating similarity, the Company considered factors such as industry, stage of life cycle and size.Risk-Free Interest Rate. The risk-free interest rate is based upon U.S. Treasury zero-coupon issues with remaining terms similar to the expected term of the options.Dividend Yield. Although the Company in the past while it was a privately held company declared dividends, no future dividends are expected to be available to benefit option holders, and, accordingly, the Company used an expected dividend yield of zero in the valuation model.Forfeitures. The Company is required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ or are expected to differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and record stock based compensation expense only for those awards that are expected to vest. To the extent actual forfeitures differ from the estimates, the difference will be recorded as a cumulative adjustment in the period that the estimates are revised.The Company estimates its forfeiture rate based on an analysis of its actual forfeitures and will continue to evaluate the adequacy of the forfeiture rate assumption based on actual forfeitures, analysis of employee turnover, and other related factors.The total intrinsic value of share options exercised during the years ended March 31, 2013, 2012 and 2011 was $21.4 million, $635,000 and $37,000, respectively. The intrinsic value is calculated based on the difference between the exercise price and the fair value of the common stock at time of exercise.The weighted average grant date fair value of the employee stock options granted during the years ended March 31, 2013 and 2012 was $13.93 and $7.62 per share, respectively. No employee stock options were granted in fiscal 2011.Stock-based compensation expense included in selling, general and administrative expenses, for the years ended March 31, 2012, 2011 and 2010 was approximately $1.1 million, $0.5 million and $0.4 million, respectively. The related tax benefit for stock-based compensation was $0.4 million, $0.2 million and $0.1 million for the years ended March 31, 2013, 2012 and 2011, respectively.The following table summarizes the activity of unvested restricted stock units and performance share units: Shares Weighted-
Average
Grant Date
Fair Value 65,899 $ 19.00 10,398 41.66 — — (5,132 ) 27.01 71,165 $ 21.73 As of March 31, 2013, there were 50,973 unvested performance share units outstanding, net of actual forfeitures. As of March 31, 2013, the number of shares estimated to be issued at the end of the performance period is a total of 25,493 shares, for which the Company recorded an expense of $130,000, net of estimated forfeitures during fiscal 2013. The maximum number of total shares that could be issued at the end of performance period is 76,466 shares.As of March 31, 2013, there was $3.3 million of total unrecognized compensation cost related to unvested share-based compensation arrangements which is expected to be recognized over a weighted average period of 3.4 years.13.recall. plan covers all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Under the plan, the Company match was increased from 25% to 50% during third quarter of fiscal 2013 up to a maximum of 6% of eligible compensation, not to exceed $4,000. Contribution$4,000 per participant. The Company incurred $0.3 million of matching contribution expense was not materialfor the year ended March 31, 2014. The contribution expense for the years presented.14.ended March 31, 2013 or 2012 was not material. (benefit from) income taxes was as follows (in thousands): Fiscal Year Ended March 31, 2013 2012 2011 $ 6,111 $ 4,205 $ 446 1,823 1,894 941 7,934 6,099 1,387 681 933 4,220 (297 ) (444 ) (59 ) 384 489 4,161 — — (11,295 ) 384 489 (7,134 ) $ 8,318 $ 6,588 $ (5,747 ) Fiscal Year Ended March 31, 2014 2013 2012 Current Federal $ 8,110 $ 6,111 $ 4,205 State 1,934 1,824 1,894 10,044 7,935 6,099 Deferred Federal 226 504 893 State 267 (327 ) (451 ) 493 177 442 Provision for income taxes $ 10,537 $ 8,112 $ 6,541 Fiscal Year Ended March 31, 2013 2012 2011 35.0 % 34.2 % 34.0 % 5.0 5.8 4.0 2.1 3.7 — — (1.0 ) — — — (78.4 ) (0.2 ) (2.0 ) 0.5 41.9 % 40.7 % (39.9 )% Fiscal Year Ended March 31, 2014 2013 2012 Tax at federal statutory rate 35.0 % 35.0 % 34.2 % State income taxes, net of federal benefit 5.5 5.0 5.8 Non-deductible permanent difference 0.5 2.1 2.5 Effect of tax rate change — — (1.0 ) Other (0.2 ) (0.2 ) (2.0 ) 40.8 % 41.9 % 39.5 % 2013,2014, the Company reduced its taxes payable by $8.1$2.5 million, as a result of the exercise of non-qualified stock options. The excess tax benefit associated with stock-based compensation of $20.0$2.1 million for the fiscal year ended March 31, 2013,2014, was recorded in additional-paid-in-capital. March 31, 2013 2012 2011 $ 3,749 $ 3,975 $ 4,804 1,332 1,441 1,130 1,211 895 1,004 436 63 38 428 424 336 645 729 586 7,801 7,527 7,898 (428 ) (424 ) (336 ) 7,373 7,103 7,562 (1,111 ) (458 ) (428 ) (1,111 ) (458 ) (428 ) $ 6,262 $ 6,645 $ 7,134 March 31, 2014 2013 2012 Deferred tax assets Credits and net operating loss carryforwards $ 3,287 $ 3,749 $ 3,975 Share-based compensation expense 1,134 1,332 1,441 Accrued compensation 934 1,211 895 Reserves and allowances 1,231 1,018 439 Capital loss carryforward — 428 424 Other, net 1,021 645 729 Gross deferred tax assets 7,607 8,383 7,903 Valuation allowance — (428 ) (424 ) Total deferred tax assets 7,607 7,955 7,479 Deferred tax liabilities Property, plant and equipment (1,256 ) (1,111 ) (458 ) Total deferred tax liabilities (1,256 ) (1,111 ) (458 ) Net deferred tax assets $ 6,351 $ 6,844 $ 7,021 iswas recorded because management believesbelieved it iswas more likely than not that the Company willwould not generate a capital gain needed to be able to offset the state capital loss.for tax purposes (in thousands): March 31, 2013 2012 2011 $ 9,276 $ 9,931 $ 12,020 7,165 7,686 6,070 March 31, 2014 2013 2012 Federal $ 8,274 $ 9,276 $ 9,931 State 6,605 7,165 7,686 20282027 and 2033,2021, respectively. Pursuant to Section 382 of the Internal Revenue Code, if there is a change in stock ownershipstate and localstate income tax examinations for fiscal 19981999 until 20032007 and then once again for U.S. federal income tax examinations for fiscal 20102011 and beyond and for state and local income tax examinations for fiscal 20092010 and beyond.2012 and 20112012 that if recognized would affect the annual effective tax rate. During the years ended March 31, 2014, 2013 2012 and 2011,2012, the Company did not record any accrued interest or penalties for federal and state income tax purposes. It is difficult to predict the final timing and resolution of any particular uncertain tax position. Based on the Company’s assessment, including past experience and complex judgments about future events, theThe Company does not expect thatmaterial changes in the liability fortotal amount of unrecognized tax benefits duringwithin the next twelve12 months, will havebut the outcome of tax matters is uncertain and unforeseen results can occur.significant impact on its financial position or resultssnack manufacturing plant in Joplin, Missouri (the “Joplin Plant”) from Safeway Inc. and Safeway Australia Holdings, Inc. (together the “Selling Parties”) for $6.0 million of operations.15. Net Income per Sharecash, plus the value of Common Stock attributable to Common StockholdersThe following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net income per share of common stock for the periods presented, because including them would have been anti-dilutive: Fiscal Year Ended March 31, 2013 2012 2011 — 15,221,571 15,221,571 91,239 379,304 — — 16,700 — — 80,560 — 91,239 15,698,135 15,221,571 A reconciliation of the numeratorinventory and denominator used in the calculation of the basic and diluted net income per share attributable to common stockholders is as follows (in thousands except share and per share amounts): Fiscal Year Ended March 31, 2013 2012 2011 $ 11,551 $ 9,589 $ 20,155 — 13,141 12,159 — (3,842 ) 7,400 $ 11,551 $ 290 $ 596 17,129,334 469,089 461,884 570,210 641,999 703,561 8,295 — — — — 35,680 17,707,839 1,111,088 1,201,125 $ 0.67 $ 0.62 $ 1.29 $ 0.65 $ 0.26 $ 0.50 16. Geographic Areas and Product SalesThe Company’s net sales by geographic areas,supplies at closing (calculated based on the locationSelling Parties’ costs). The Company funded the acquisition with approximately $7.4 million in cash on hand and restricted cash of $0.3 million deposited previously in an escrow account. The Joplin Plant has been the primary manufacturer of the Company’s cookie and cracker products for more than ten years. Company products produced in the Joplin Plant currently account for over 40% of its total snacks net sales and represent the majority of the Joplin Plant’s total production volume. In connection with the closing of the acquisition, Annie’s Baking, LLC, the subsidiary of Annie’s that acquired the Joplin Plant, entered into a three-year supply agreement with an affiliate of Safeway Inc., pursuant to wherewhich the productCompany manufactures products for the affiliate. The preliminary allocation of the aggregate cost of acquisition was shipped, are summarized as follows (in thousands): Fiscal Year Ended March 31, 2013 2012 2011 $ 162,749 $ 136,803 $ 114,454 7,228 4,501 3,162 $ 169,977 $ 141,304 $ 117,616 Total Preliminary Purchase Price Allocation Machinery and equipment $ 4,463 Inventory 1,495 Building and improvement 920 Land 180 Goodwill 450 Total purchase price $ 7,508 sets forth net sales by product category expressed as dollar amounts (in thousands): Fiscal Year Ended March 31, 2013 2012 2011 $ 79,270 $ 60,624 $ 49,168 66,844 56,789 44,687 23,863 23,891 23,761 $ 169,977 $ 141,304 $ 117,616 Allprovides the selected quarterly financial data for fiscal 2014 and 2013: Fiscal Year 2014 Fiscal Year 2013 Mar. 31, Dec. 31, Sept. 30 June 30, Mar. 31, Dec. 31, Sept. 30 June 30, 2014 2013 2013 2013 2013 2012 2012 2012 (in thousands, except for share and per share amounts) Net Sales $ 60,057 $ 46,419 $ 58,310 $ 39,318 $ 52,092 $ 36,319 $ 46,651 $ 34,410 Cost of sales 39,037 28,228 36,932 24,278 32,027 23,267 28,786 20,486 Gross profit 21,020 18,191 21,378 15,040 20,065 13,052 17,865 13,924 Income before provision for income taxes 8,744 4,720 8,731 3,631 6,964 2,356 6,322 3,722 Net income $ 5,128 $ 2,769 $ 5,220 $ 2,172 $ 3,865 $ 1,422 $ 3,764 $ 2,201 Earnings per share �� —Basic $ 0.30 $ 0.16 $ 0.31 $ 0.13 $ 0.22 $ 0.08 $ 0.22 $ 0.13 —Diluted $ 0.29 $ 0.16 $ 0.30 $ 0.13 $ 0.22 $ 0.08 $ 0.21 $ 0.12 Weighted average shares of common stock outstanding used in computing earnings per share —Basic 17,005,472 16,937,139 16,896,227 16,869,557 17,262,253 17,249,536 17,070,327 16,936,007 —Diluted 17,425,573 17,398,006 17,392,447 17,353,222 17,724,131 17,781,720 17,702,516 17,600,908 Company’s long-lived assets are located inJanuary 2013 voluntary product recall and related insurance recoveries.U.S.17. Product RecallIn Januarythird and fourth quarters of fiscal 2013, the Company announced arecorded reduction of income before provision for income taxes of $2.3 million and $0.1 million related to the impact of the January 2013 voluntary product recall and related insurance recoveries.certified organicfiscal 2013, the Company recorded $0.7 million and made with organic pizza products$0.5 million for secondary offering costs, respectively. Additionally, in the first quarter of fiscal 2013, the Company recorded non-cash charge of $13,000 due to the possible presenceincrease in fair value of fragmentsthe convertible preferred stock warrant.Company initiatedfollowing table provides the recallquarterly financial data for fiscal 2014, and includes the effect of all lotsthe aforementioned revisions (see Note 2) to the Company's Consolidated Statements of pizza product manufactured with this supplier’s flour from its first purchase from the supplier in May 2012. The Company recordedIncome and certain items associated with the recall in its financial resultsother immaterial corrections for the fiscal year ended March 31, 2013. Fiscal 2014 Quarters First Second Third Reported Correction Revised Reported Correction Revised Reported Correction Revised Net Sales $ 39,040 $ 278 $ 39,318 $ 58,650 $ (340 ) $ 58,310 $ 46,177 $ 242 $ 46,419 Cost of sales 24,278 — 24,278 36,749 183 36,932 27,951 277 28,228 Gross profit 14,762 278 15,040 21,901 (523 ) 21,378 18,226 (35 ) 18,191 Selling, general and administrative expenses 11,327 37 11,364 12,538 37 12,575 13,421 — 13,421 Income from operations 3,435 241 3,676 9,363 (560 ) 8,803 4,805 (35 ) 4,770 Interest expense (71 ) — (71 ) (104 ) — (104 ) (80 ) — (80 ) Other income (expense), net 26 — 26 32 — 32 30 — 30 Income before provision for income taxes 3,390 241 3,631 9,291 (560 ) 8,731 4,755 (35 ) 4,720 Provision for income taxes 1,361 98 1,459 3,739 (228 ) 3,511 1,966 (15 ) 1,951 Net income $ 2,029 $ 143 $ 2,172 $ 5,552 $ (332 ) $ 5,220 $ 2,789 $ (20 ) $ 2,769 Earnings per share —Basic $ 0.12 $ 0.01 $ 0.13 $ 0.33 $ (0.02 ) $ 0.31 $ 0.16 $ — $ 0.16 —Diluted $ 0.12 $ 0.01 $ 0.13 $ 0.32 $ (0.02 ) $ 0.30 $ 0.16 $ — $ 0.16 Weighted average shares of common stock outstanding used in computing earnings per share —Basic 16,869,557 16,869,557 16,869,557 16,896,227 16,896,227 16,896,227 16,937,139 16,937,139 16,937,139 —Diluted 17,353,222 17,353,222 17,353,222 17,392,447 17,392,447 17,392,447 17,398,006 17,398,006 17,398,006 Company recordedfollowing table provides the estimated customerquarterly financial data for fiscal 2013 and consumer returns as a reduction of net sales, related costs associated with product returns, destruction charges, inventory write-off and costs incurred by contract manufacturers as cost of sales, and administrative costs associated withincludes the recall such as legal expenses as selling, general and administrative expenses. As a resulteffect of the voluntary product recall,aforementioned revisions (see Note 2) to the Company recorded an estimated accrual for product returns and recall-related costsCompany's Consolidated Statements of approximately $2.4 millionIncome for the fiscal year ended March 31, 2013 as follows (in thousands except per share amount): Amount $ 1,096 1,080 171 $ 2,347 $ 1,364 $ 0.08 The accrual for product returns is based on Company’s estimatequarters presented: Fiscal 2013 First Second Third Fourth Reported Correction Revised Reported Correction Revised Reported Correction Revised Reported Correction Revised Net Sales $ 34,293 $ 117 $ 34,410 $ 46,686 $ (35 ) $ 46,651 $ 36,283 $ 36 $ 36,319 $ 52,715 $ (623 ) $ 52,092 Cost of sales 20,486 — 20,486 28,786 — 28,786 23,267 — 23,267 32,027 — 32,027 Gross profit 13,807 117 13,924 17,900 (35 ) 17,865 13,016 36 13,052 20,688 (623 ) 20,065 Selling, general and administrative expenses 10,211 — 10,211 11,539 — 11,539 10,687 — 10,687 13,024 — 13,024 Income from operations 3,596 117 3,713 6,361 (35 ) 6,326 2,329 36 2,365 7,664 (623 ) 7,041 Interest expense (40 ) — (40 ) (40 ) — (40 ) (40 ) — (40 ) (48 ) — (48 ) Other income (expense), net 49 — 49 36 — 36 31 — 31 (29 ) — (29 ) Income before provision for income taxes 3,605 117 3,722 6,357 (35 ) 6,322 2,320 36 2,356 7,587 (623 ) 6,964 Provision for income taxes 1,474 47 1,521 2,572 (14 ) 2,558 919 15 934 3,353 (254 ) 3,099 Net income $ 2,131 $ 70 $ 2,201 $ 3,785 $ (21 ) $ 3,764 $ 1,401 $ 21 $ 1,422 $ 4,234 $ (369 ) $ 3,865 Earnings per share —Basic $ 0.13 $ — $ 0.13 $ 0.22 $ — $ 0.22 $ 0.08 $ — $ 0.08 $ 0.25 $ (0.02 ) $ 0.22 —Diluted $ 0.12 $ — $ 0.12 $ 0.21 $ — $ 0.21 $ 0.08 $ — $ 0.08 $ 0.24 $ (0.02 ) $ 0.22 ` —Basic 16,936,007 16,936,007 16,936,007 17,070,327 17,070,327 17,070,327 17,249,536 17,249,536 17,249,536 17,262,253 17,262,253 17,262,253 —Diluted 17,600,908 17,600,908 17,600,908 17,702,516 17,702,516 17,702,516 17,781,720 17,781,720 17,781,720 17,724,131 17,724,131 17,724,131 review, the principal executive officerevaluation and principalas described below under “Management’s Report on Internal Control over Financial Reporting,” we have identified a material weakness in our internal control over financial officer of the Company havereporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Due to this material weakness, our CEO and CFO concluded that the Company’sour disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were not effective as of March 31, 2013.Overover Financial Reporting15(d)-15(f)15d-15(f). The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.we conducted an evaluation ofassessed the effectiveness of ourthe Company’s internal control over financial reporting based onas of March 31, 2014 using the frameworkcriteria established inInternal Control —- Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.Commission (COSO). Based on our evaluation under the framework inInternal Control — Integrated Framework,this assessment and those criteria, management concluded that due to the material weakness described below, our internal control over financial reporting was not effective as of March 31, 2013.Overover Financial Reportingwaswere no changechanges in our internal control over financial reporting (as definedidentified in Rules 13a-15(f) and 15d-15(f) underconnection with the Exchange Act) that occurredevaluation of our controls performed during the quarterly periodquarter ended March 31, 20132014, other than the additional accounting and finance resources and professionals referenced above in this Item 9A, that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.20132014 (the “2013“2014 Proxy Statement”).20132014 Proxy Statement under the headings “Executive Compensation,” “Corporate Governance,” “Executive Compensation —- Compensation Committee Report” and “Director Compensation.”20132014 Proxy Statement under the headings “Executive Compensation —- Equity Compensation Plan Information” and “Ownership of Annie’s Common Stock.”20132014 Proxy Statement under the headings “Certain Relationships and Related Transactions” and “Corporate Governance.”20132014 Proxy Statement under the headings “Auditor’s Fees and Services” and “Audit Committee Pre-Approval Policies and Procedures Relating to Services by Auditor.”1. Financial Statements: See “Index to Consolidated Financial Statements” in Part II, Item 8 of this Annual Report on Form 10-K 2. Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K. Date: June 14, 2013ANNIE’S INC.ANNIE’S, INC. By: /s/ Kelly J. KennedyZahir M. Ibrahim Zahir M. Ibrahim Executive Vice President, Chief Financial Officer and Treasurer Kelly J. KennedyChief Financial OfficerKelly J. Kennedy,Zahir M. Ibrahim, his/her attorney-in-fact, each with the power of substitution, for him/her in any and all capacities, to sign any amendments in this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connections therewith, with the Securities and Exchange Commission, hereby ratifying and conforming all that each of said attorneys-in-fact, or his substitutes, may do or cause to be done by virtue of hereof. John M. Foraker (principal executive officer) June 14, 20132, 2014/s/ Kelly J. KennedyKelly J. Kennedy /s/ Zahir M. Ibrahim Executive Vice President, Chief Financial Officer June 2, 2014 Zahir M. Ibrahim (principal financial officer and principal June 14, 2013Molly F. Ashby Chairman of the Board of Directors June 14, 20132, 2014Molly F. Ashby /s/ Lawrence S. Peiros Lawrence S. Peiros Director June 14, 20132, 2014Lawrence S. Peiros /s/ Julie D. Klapstein Julie D. Klapstein Director June 14, 20132, 2014Julie D. Klapstein /s/ Bettina M. Whyte Bettina M. Whyte Director June 14, 20132, 2014Bettina M. Whyte /s/ Billie Ida Williamson Billie Ida Williamson Director June 14, 20132, 2014Billie Ida Williamson
Number Incorporation by Reference Form File No. Exhibit(s) Filing Date Amended and Restated Certificate of Incorporation Form 8-K 001-35470 3.1 April 3, 2012 Amended and Restated Bylaws Form S-1 333-178270 3.2 February 24, 2012 Reference is made to Exhibits 3.1 and 3.2 Form of Common Stock Certificate Form S-1 333-178270 4.2 March 16, 2012 Third Amended and Restated Stockholders’ Agreement dated as of November 22, 2011 Form S-1 333-178270 4.3 December 1, 2011 Termination Agreement by and between the Registrant and Solera dated as of July 26, 2013 Form S-1 333-182706 4.4 July 30, 2012 Amended and Restated Registration Rights Agreement dated as of November 14, 2005 Form S-1 333-178270 4.4 December 1, 2011 Warrant Agreement by and between the Registrant and Hercules Technology II, L.P. dated as of March 28, 2008 Form S-1 333-178270 4.5 December 1, 2011 Form of Director and Officer Indemnification Agreement+ Form S-1 333-178270 10.1 February 24, 2012 Amended and Restated 2004 Stock Option Plan+ Form S-1 333-178270 10.2 December 1, 2011 Form of Amended and Restated 2004 Stock Option Plan Two-Year Grant Agreement+ Form S-1 333-178270 10.3 December 1, 2011 Form of Amended and Restated 2004 Stock Option Plan Five-Year Grant Agreement+ Form S-1 333-178270 10.4 December 1, 2011 Annual Cash Incentive Plan for Fiscal Year 2010+ Form S-1 333-178270 10.5 March 9, 2012 Annual Cash Incentive Plan for Fiscal Year 2011+ Form S-1 333-178270 10.6 March 9, 2012 Stock Option Purchase Agreement between the Registrant and John Foraker dated as of April 27, 2011+ Form S-1 333-178270 10.7 December 1, 2011 Stock Option Purchase Agreement between the Registrant and Sarah Bird dated as of April 27, 2011+ Form S-1 333-178270 10.8 December 1, 2011 Second Amended and Restated Loan Agreement between the Registrant and Bank of America, N.A. dated as of December 21, 2011 Form S-1 333-178270 10.10 January 18, 2012 Amended and Restated Security Agreement between the Registrant and Bank of America, N.A. dated as of August 25, 2010 Form S-1 333-178270 10.11 January 18, 2012
Number Incorporation by Reference Form File No. Exhibit(s) Filing Date Office Lease for 1610 Fifth Street, Berkeley, California 94613, between the Registrant and Cedar/Fourth Street Partners dated as of November 15, 2010 Form S-1 333-178270 10.12 January 18, 2012 Warehousing of Goods Agreement between the Registrant and Distribution 2000, Inc. dated as of September 30, 2011† Form S-1 333-178270 10.13 March 9, 2012 Revised Contract Manufacturing and Packaging Agreement between Annie’s Homegrown, Inc. and Philadelphia Macaroni Company (dba Conte Luna Foods) dated as of April 1, 2007† Form S-1 333-178270 10.14 March 9, 2012 Contract Manufacturing and Packaging Agreement between Annie’s Homegrown, Inc. and Harmony Foods Corp. (dba Santa Cruz Nutritionals) dated as of April 18, 2008† Form S-1 333-178270 10.16 March 9, 2012 Contract Manufacturing and Packaging Agreement between Annie’s Homegrown, Inc. and Chelten House Products, Inc. dated as of May 29, 2009† Form S-1 333-178270 10.17 March 9, 2012 Contract Manufacturing and Packaging Agreement between Homegrown Naturals, Inc. and Leone Industries dated as of January 12, 2007† Form S-1 333-178270 10.18 March 9, 2012 Addendum to Contract Manufacturing and Packaging Agreement between Homegrown Naturals, Inc. and Leone Industries dated as of June 30, 2009† Form S-1 333-178270 10.19 March 9, 2012 Product Supply Agreement between Annie’s Homegrown, Inc. and Dairiconcepts, L.P. dated as of November 1, 2011† Form S-1 333-178270 10.20 March 9, 2012 Services Agreement between the Registrant and Solera Capital, LLC dated as of April 27, 2011 Form S-1 333-178270 10.22 January 18, 2012 Termination Agreement between the Registrant and Solera Capital, LLC dated as of February 2, 2012 Form S-1 333-178270 10.23 February 24, 2012 Separation Agreement and Release dated April 19, 2011 between the Registrant and Steven Jackson+ Form S-1 333-178270 10.25 January 18, 2012 Reaffirmation of Amended and Restated Security Agreement between the Registrant and Bank of America, N.A. Form S-1 333-178270 10.26 January 18, 2012 Executive Employment Agreement between the Registrant and John Foraker dated as of February 22, 2012+ Form S-1 333-178270 10.28 February 24, 2012
Number Incorporation by Reference Form File No. Exhibit(s) Filing Date Annie’s, Inc. Omnibus Incentive Plan+ Form S-1 333-178270 10.29 March 9, 2012 Form of Omnibus Incentive Plan IPO Stock Option Agreements+ Form S-1 333-178270 10.30 March 9, 2012 Form of Omnibus Incentive Plan IPO Restricted Stock Unit Award Agreement+ Form S-1 333-178270 10.31 March 16, 2012 Form of Omnibus Incentive Plan IPO Performance Share Award Agreement+ Form S-1 333-178270 10.32 March 9, 2012 Distribution Agreement between the Registrant and United Natural Foods, Inc. dated as of January 1, 2012† Form S-1 333-178270 10.33 March 9, 2012 First Amendment to Office Lease by and between Cedar/Fourth Street Partners and the Registrant dated as of September 25, 2012 Form 8-K 001-35470 10.1 October 1, 2012 Amended and Restated Contract Manufacturing and Packaging Agreement between the Registrant and Philadelphia Macaroni Company dated as of September 25, 2012† Form 10-Q 001-35470 10.1 October 31, 2012 Amendment to Contract Manufacturing and Packaging Agreement between the Registrant and Chelten House Products, Inc. dated as of September 25, 2012† Form 10-Q 001-35470 10.2 October 31, 2012 Contract Manufacturing and Packaging Agreement between the Registrant and Little Lady Foods, Inc. dated as of September 28, 2012† Form 10-Q 001-35470 10.3 October 31, 2012 Share Repurchase Agreement entered into as of February 28, 2013, by and among the Registrant and Solera Partners, L.P. and SCI Partners, L.P. Form 8-K 001-35470 10.1 March 1, 2013 Amendment No. 1 to the Second Amended and Restated Loan Agreement dated as of March 7, 2013 between Bank of America, N.A. and the Registrant Form 8-K 001-35470 10.1 March 8, 2013 Reaffirmation of Amended and Restated Security Agreement dated as of March 7, 2013 between Bank of America, N.A. and the Registrant Form 8-K 001-35470 10.2 March 8, 2013 Offer Letter between Annie’s, Inc. and Isobel Jones+ Form 8-K 001-35470 10.1 April 2, 2013 Form of Omnibus Incentive Plan Stock Option Award Agreement+ Form of Omnibus Incentive Plan Restricted Stock Unit Award Agreement +
Number Incorporation by Reference Form File No. Exhibit(s) Filing Date Form of Omnibus Incentive Plan Performance Share Unit Award Agreement + Independent Director Compensation Plan+ Independent Director Restricted Stock Unit Award Program under the Omnibus Incentive Plan (as amended and restated effective May 30, 2013)+ Form of Notice of Grant under Independent Director Restricted Stock Unit Award Program+ Subsidiaries of the Registrant Form S-1 333-178270 21.1 December 1, 2011 Consent of PricewaterhouseCoopers LLP Power of Attorney (included on signature page) Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350 The following materials from Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Consolidated Balance Sheets as of March 31, 2013 and 2012, (ii) Consolidated Statements of Operations for the years ended March 31, 2013, 2012 and 2011, (iii) Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended March 31, 2013, 2012 and 2011, (iv) Consolidated Statements of Cash Flows for the years ended March 31, 2013, 2012 and 2011 and (v) Notes to Consolidated Financial Statements. Exhibit Number Description Incorporation by Reference Form File No. Exhibit(s) Filing Date 2.1 Agreement of Purchase and Sale among Safeway Australia Holdings, Inc., Safeway Inc. and Annie’s, Inc. dated November 5, 2013 Form 10-Q 001-35470 2.1 7-Nov-13 2.2* Letter Agreement Regarding Inventory and Supplies Valuation among Safeway Australia Holdings, Inc., Safeway Inc. and Annie’s, Inc., dated March 4, 2014 2.3* Assignment between Annie’s, Inc. and Annie’s Baking, LLC dated March 20, 2014 3.1 Second Restated Certificate of Incorporation of Annie’s, Inc., dated September 10, 2013 Form 8-K 001-35470 3.3 13-Sep-13 3.2 Second Amended and Restated Bylaws of Annie’s, Inc., effective September 10, 2013 Form 8-K 001-35470 3.4 13-Sep-13 4.1 Reference is made to Exhibits 3.1 and 3.2 4.2 Form of Common Stock Certificate Form S-1 333-178270 4.2 16-Mar-12 4.3 Amended and Restated Registration Rights Agreement dated as of November 14, 2005 Form S-1 333-178270 4.4 1-Dec-11 10.1 Services Agreement between Annie’s, Inc. and Solera Capital, LLC dated as of April 27, 2011 Form S-1 333-178270 10.22 18-Jan-12 10.2 Termination Agreement between Annie’s, Inc. and Solera Capital, LLC dated as of February 2, 2012 Form S-1 333-178270 10.23 24-Feb-12 10.3 Share Repurchase Agreement entered into as of February 28, 2013, by and among Annie’s, Inc. and Solera Partners, L.P. and SCI Partners, L.P. Form 8-K 001-35470 10.1 1-Mar-13 10.4 Second Amended and Restated Loan Agreement between Annie’s, Inc., Annie’s Enterprises, Inc., Annie’s Homegrown, Inc., and Napa Valley Kitchens, Inc. and Bank of America, N.A. dated as of December 21, 2011 Form S-1 333-178270 10.10 18-Jan-12 10.5 Amended and Restated Security Agreement between Annie’s, Inc., Annie’s Enterprises, Inc., Annie’s Homegrown, Inc., and Napa Valley Kitchens, Inc. and Bank of America, N.A. dated as of August 25, 2010 Form S-1 333-178270 10.11 18-Jan-12 10.6 Reaffirmation of Amended and Restated Security Agreement between Annie’s, Inc., Annie’s Enterprises, Inc., Annie’s Homegrown, Inc., and Napa Valley Kitchens, Inc. and Bank of America, N.A. Form S-1 333-178270 10.26 18-Jan-12 10.7 Amendment No. 1 to the Second Amended and Restated Loan Agreement dated as of March 7, 2013 between Bank of America, N.A. and Annie’s Inc., Annie’s Enterprises, Inc., Annie’s Homegrown, Inc., and Napa Valley Kitchens, Inc. Form 8-K 001-35470 10.1 8-Mar-13 10.8 Reaffirmation of Amended and Restated Security Agreement dated as of March 7, 2013 between Bank of America, N.A. and Annie’s, Inc., Annie’s Enterprises, Inc., Annie’s Homegrown, Inc. and Napa Valley Kitchens, Inc. Form 8-K 001-35470 10.2 8-Mar-13 10.9 Amendment No. 2 to the Second Amended and Restated Loan Agreement dated as of November 5, 2013 among Bank of America, N.A., Annie’s, Inc., Annie’s Homegrown, Inc., Annie’s Enterprises, Inc. and Napa Valley Kitchens, Inc. Form 10-Q 001-35470 10.3 7-Nov-13 10.10 Joinder Agreement dated as of November 22, 2013 between Bank of America, N.A. and Annie’s, Inc., Annie’s Enterprises, Inc., Annie’s Homegrown, Inc., Napa Valley Kitchens, Inc. and Annie’s Baking, LLC Form 10-Q 001-35470 10.4 10-Feb-14 Exhibit Number Description Incorporation by Reference Form File No. Exhibit(s) Filing Date 10.11 Office Lease for 1610 Fifth Street, Berkeley, California, between Annie’s, Inc. and Cedar/Fourth Street Partners dated as of November 15, 2010 Form S-1 333-178270 10.12 18-Jan-12 10.12 First Amendment to Office Lease by and between Cedar/Fourth Street Partners and Annie’s, Inc. dated as of September 25, 2012 Form 8-K 001-35470 10.1 1-Oct-12 10.13 Warehousing of Goods Agreement between Annie’s, Inc. and Distribution 2000, Inc. dated as of September 30, 2011† Form S-1 333-178270 10.13 9-Mar-12 10.14* Amendment to Warehousing of Goods Agreement between Annie’s, Inc. and Distribution 2000, Inc. dated as of June 13, 2012† 10.15 Amended and Restated Contract Manufacturing and Packaging Agreement between Annie’s Homegrown, Inc. and Philadelphia Macaroni Company dated as of September 25, 2012† Form 10-Q 001-35470 10.1 31-Oct-12 10.16 Product Supply Agreement between Annie’s Homegrown, Inc. and Dairiconcepts, L.P. dated as of November 1, 2011† Form S-1 333-178270 10.20 9-Mar-12 10.17 Form of Director and Officer Indemnification Agreement+ Form S-1 333-178270 10.1 24-Feb-12 10.18 Amended and Restated 2004 Stock Option Plan+ Form S-1 333-178270 10.2 1-Dec-11 10.19 Form of Amended and Restated 2004 Stock Option Plan Two-Year Grant Agreement+ Form S-1 333-178270 10.3 1-Dec-11 10.20 Form of Amended and Restated 2004 Stock Option Plan Five-Year Grant Agreement+ Form S-1 333-178270 10.4 1-Dec-11 10.21 Annie’s, Inc. Omnibus Incentive Plan+ Form S-1 333-178270 10.29 9-Mar-12 10.22 Form of Omnibus Incentive Plan IPO Stock Option Agreement+ Form S-1 333-178270 10.30 9-Mar-12 10.23 Form of Omnibus Incentive Plan IPO Restricted Stock Unit Award Agreement+ Form S-1 333-178270 10.31 16-Mar-12 10.24 Form of Omnibus Incentive Plan IPO Performance Share Award Agreement+ Form S-1 333-178270 10.32 9-Mar-12 10.25 Form of Omnibus Incentive Plan Stock Option Award Agreement+ Form 10-K 001-35470 10.37 14-Jun-13 10.26 Form of Omnibus Incentive Plan Restricted Stock Unit Award Agreement+ Form 10-K 001-35470 10.38 14-Jun-13 10.27 Form of Omnibus Incentive Plan Performance Share Unit Award Agreement+ Form 10-K 001-35470 10.39 14-Jun-13 10.28 Independent Director Compensation Plan+ Form 10-K 001-35470 10.40 14-Jun-13 10.29 Independent Director Restricted Stock Unit Award Program under the Omnibus Incentive Plan (as amended and restated effective May 30, 2013)+ Form 10-K 001-35470 10.41 14-Jun-13 10.30 Form of Notice of Grant under Independent Director Restricted Stock Unit Awards Program+ Form 10-K 001-35470 10.42 14-Jun-13 10.31 Executive Employment Agreement between Annie’s, Inc. and John Foraker dated as of February 22, 2012+ Form S-1 333-178270 10.28 24-Feb-12 10.32 Stock Option Purchase Agreement between Annie’s, Inc. and John Foraker dated as of April 27, 2011+ Form S-1 333-178270 10.7 1-Dec-11 10.33 Executive Employment Agreement dated October 16, 2013 between Annie’s, Inc. and Zahir Ibrahim+ Form 8-K 001-35470 10.1 21-Oct-13 10.34 Transition and Separation Agreement dated October 16, 2013 between Annie’s, Inc. and Kelly J. Kennedy+ Form 8-K 001-35470 10.2 21-Oct-13 10.35 Offer Letter between Annie’s, Inc. and Isobel A. Jones+ Form 8-K 001-35470 10.1 2-Apr-13 Exhibit Number Description Incorporation by Reference Form File No. Exhibit(s) Filing Date 10.36* Transition and Separation Agreement dated March 26, 2014 between Annie’s, Inc. and Isobel A. Jones+ 10.37 Transition and Separation Agreement dated March 28, 2014 between Annie’s, Inc. and Amanda K. Martinez+ Form 8-K 001-35470 10.1 31-Mar-14 21.1* Subsidiaries of Annie’s, Inc. 23.1* Consent of PricewaterhouseCoopers LLP 24.1* Power of Attorney (included on signature page) 31.1* Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended 31.2* Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended 32.1* Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350 101* The following materials from the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Consolidated Balance Sheets as of March 31, 2014 and 2013, (ii) Consolidated Statements of Income for the years ended March 31, 2014, 2013 and 2012, (iii) Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended March 31, 2014, 2013 and 2012, (iv) Consolidated Statements of Cash Flows for the years ended March 31, 2014, 2013 and 2012 and (v) Notes to Consolidated Financial Statements. +Indicates a management contract or compensatory plan or arrangement.† Certain portions have been omitted pursuant to a confidential treatment request.request or order. Omitted information has been filed separately with the Securities and Exchange Commission.*Furnished or filed herewith, as applicable92