Item 2. Item 3. Item Statements of Operations 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 Convertible preferred stock STOCKHOLDERS’ EQUITY (DEFICIT): Preferred stock Common stock Additional paid-in capital Accumulated deficit Total stockholders’ equity (deficit) Total liabilities, convertible preferred stock and stockholders’ equity (deficit) thousands, except share and per share amounts) Balance Sheets Net sales (net of product recall returns of $1,570 for the three and nine months ended December 31, 2012) Cost of sales (including costs associated with product recall of $690 for the three and nine months ended December 31, 2012) Gross profit Operating expenses: Selling, general and administrative Income from operations Interest expense Other income (expense), net Income before provision for income taxes Provision for 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 thousands) Preferred Stock 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 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 December 31, 2012 CASH FLOWS FROM OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash provided by (used in) 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 deferred financing costs 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 (used in) 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 Payments of initial public offering costs Dividends paid Net repurchase of stock options Excess tax benefit from stock-based compensation Proceeds from exercises of stock options Net cash provided by (used in) financing activities NET INCREASE (DECREASE) IN CASH CASH – Beginning of period CASH – End of period NONCASH INVESTING AND FINANCING ACTIVITIES: Conversion of convertible preferred stock into common stock Purchase of property and equipment funded through accrued expenses and accounts payable Deferred initial public offering costs funded through accounts payable Intangible asset acquired by financing transaction 2014. current year presentation. Three Months Ended December 31, 2012 2011 Nine Months Ended December 31, 2012 2011 receivable. capital (see Note 8). capital. 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 Product formulas Other intangible assets Total intangible assets Less: accumulated amortization Intangible assets, net thereafter is $15,000, $60,000 and $756,000, respectively. Payroll and employee-related expenses Accrued trade expenses Inventory received not invoiced Deferred rent Brokerage commissions Other accrued liabilities Total accrued liabilities other equipment under non-cancelable operating leases that expire through fiscal year 2019. Rent expense for non-cancelable operating leases with scheduled rent increases is recognized on a straight-line basis over the lease term. Rent expense for the three and nine months ended December 31, Three Months Ending March 31, 2013 Fiscal Year Ending March 31: 2014 2015 2016 2017 2018 2019 Total future minimum lease payments Company’s remaining obligation for product formulas was $1.7 million. Balance, March 31, 2012 Granted Cancelled Exercised Balance, December 31, 2012 2013: Shares-Based Awards Unvested at March 31, 2012 Granted Vested Performance Shares Adjustment Forfeited Unvested at December 31, 2012 2013: Convertible preferred stock Options to purchase common stock Restricted stock units Convertible preferred stock warrant Total Net income per share: Net income Less: Dividends paid to convertible preferred stockholders Less: Undistributed loss attributable to convertible preferred stockholders Net income attributable to common stockholders – basic and diluted Weighted average shares of common stock outstanding used in computing net income attributable to common stockholders – basic Potential dilutive options Potential dilutive convertible preferred stock warrant Potential dilutive restricted stock units 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 Reduction of net sales Incremental cost of sales Total reduction to income before income taxes Impact on net income Impact on net income per diluted share recall. The Company products. packaging costs. Net sales Cost of sales Gross profit Operating expenses: Selling, general and administrative expenses Total operating expenses Income from operations Interest expense Other income (expense), net Income before provision for income taxes Provision for income taxes Net income Meals Snacks Dressings, condiments and other Net sales Cost of sales Gross profit Gross margin % Operating expenses: Selling, general and administrative expenses 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 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 Cash Accounts receivable, net Accounts payable, related-party payable and accrued liabilities Working capital(1) Additionally, we have a credit facility with Bank of America, N.A., which provides for revolving loans and letters of credit up to Cash at beginning of period Net cash provided by (used in) operating activities Net cash used in investing activities Net cash provided by (used in) financing activities Cash at end of period a decrease in excess tax benefit from stock-based compensation of a decrease in proceeds Rent obligations(1) Equipment lease obligations(2) Total operating lease obligations Purchase commitments(3) Warehousing overheads obligations(4) Total disclosure. 2013. 14, 2013. prospects may be adversely affected by our failure to successfully consummate the recently announced acquisition of the Joplin manufacturing plant. Contents /s/ x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 20122013¨o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware 20-1266625 94710 (Address of principal executive offices) (Zip Code) ¨o¨onon–acceleratednon-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b–212b-2 of the Exchange Act.Large accelerated filer ¨o Accelerated filer ¨xNon–accelerated filer x (DoNon-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company ¨o12b–212b-2 of the Exchange Act). Yes ¨o No x2013,2014, the registrant had 17,338,33916,998,675 shares of common stock, par value $0.001 per share, outstanding.PART I – FINANCIAL INFORMATIONItem 1. Item 1. 1Condensed Consolidated Balance Sheets as of December 31, 2012 and March 31, 20121 2 3 4518Item 4. 31Item 4.32Item 1. 33Item 1.Item 1A. 1A. 33Item 2.34Item 6.3536Balance Sheetsthousands) December 31,
2012 March 31,
2012 $ 12,960 $ 562 10,110 11,870 21,127 10,202 1,995 1,995 3,402 164 2,201 1,252 51,795 26,045 5,517 4,298 30,809 30,809 1,131 1,176 4,115 4,650 — 5,343 145 108 $ 93,512 $ 72,429 $ 4,290 $ 861 — 1,305 8,699 7,452 12,989 9,618 — 12,796 — 2,157 878 921 13,867 25,492 — 81,373 — — 17 1 111,140 4,392 (31,512 ) (38,829 ) 79,645 (34,436 ) $ 93,512 $ 72,429 Three Months Ended December 31, Nine Months Ended December 31, 2013 2012 2013 2012 Net sales $ 46,177 $ 36,283 $ 143,867 $ 117,262 Cost of sales 27,951 23,267 88,978 72,539 Gross profit 18,226 13,016 54,889 44,723 Operating expenses: Selling, general and administrative expenses 13,421 10,687 37,286 32,437 Income from operations 4,805 2,329 17,603 12,286 Interest expense (80 ) (40 ) (255 ) (120 ) Other income (expense), net 30 31 88 116 Income before provision for income taxes 4,755 2,320 17,436 12,282 Provision for income taxes 1,966 919 7,066 4,965 Net income $ 2,789 $ 1,401 $ 10,370 $ 7,317 Earnings per share —Basic $ 0.16 $ 0.08 $ 0.61 $ 0.43 —Diluted $ 0.16 $ 0.08 $ 0.60 $ 0.41 Weighted average shares of common stock outstanding used in computing earnings per share —Basic 16,937,139 17,249,536 16,901,089 17,085,833 —Diluted 17,398,006 17,781,720 17,386,408 17,702,221 Statements of Operationsthousands, except share and per share amounts) Three Months Ended December 31, Nine Months Ended December 31, 2012 2011 2012 2011 $ 36,283 $ 30,838 $ 117,262 $ 98,320 23,267 18,275 72,539 60,034 13,016 12,563 44,723 38,286 10,687 8,847 32,437 25,206 2,329 3,716 12,286 13,080 (40 ) (25 ) (120 ) (66 ) 31 43 116 (428 ) 2,320 3,734 12,282 12,586 919 1,502 4,965 4,926 $ 1,401 $ 2,232 $ 7,317 $ 7,660 $ 1,401 $ 69 $ 7,317 $ 233 $ 0.08 $ 0.15 $ 0.43 $ 0.50 $ 0.08 $ 0.07 $ 0.41 $ 0.24 17,249,536 471,554 17,085,833 467,206 17,781,720 1,037,657 17,702,221 988,915 December 31,
2013 March 31,
2013ASSETS CURRENT ASSETS: Cash $ 2,986 $ 4,930 Accounts receivable, net of allowance 18,796 20,015 Inventory 23,407 15,147 Deferred tax assets 2,565 2,558 Income tax receivable 988 588 Prepaid expenses and other current assets 5,572 5,050 Total current assets 54,314 48,288 Restricted cash 300 — Property and equipment, net 6,206 6,138 Goodwill 30,809 30,809 Intangible assets, net 1,071 1,116 Deferred tax assets, long-term 3,553 3,704 Other non-current assets 142 157 Total assets $ 96,395 $ 90,212 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 6,784 $ 4,342 Accrued liabilities 9,104 12,021 Total current liabilities 15,888 16,363 Credit facility — 7,007 Other non-current liabilities 870 913 Total liabilities 16,758 24,283 Commitments and contingencies (Note 7) STOCKHOLDERS’ EQUITY Common stock 17 17 Additional paid-in capital 96,528 93,190 Accumulated deficit (16,908 ) (27,278 ) Total stockholders’ equity 79,637 65,929 Total liabilities and stockholders’ equity $ 96,395 $ 90,212 Convertible Preferred Stock and Stockholders’ Equity (Deficit) Convertible Preferred
Stock Common Stock Additional
Paid-in
Capital Accumulated
Deficit Total
Stockholders’
Equity (Deficit) Shares Amount Shares Amount Shares Amount 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 — — — — 610,791 — 3,899 — 3,899 — — — — — — 7,499 — 7,499 63,193 — — — — — — — — — — 677 — 677 — — — — — — — 7,317 7,317 — $ — — $ — 17,328,797 $ 17 $ 111,140 $ (31,512 ) $ 79,645 Additional Total Common Stock Paid-in Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance at March 31, 2013 16,849,016 $ 17 $ 93,190 $ (27,278 ) $ 65,929 Exercise of stock options 123,364 — 1,211 — 1,211 Excess tax benefit from stock-based compensation — — 1,467 — 1,467 Stock-based compensation — — 660 — 660 Net Income — — — 10,370 10,370 Balance at December 31, 2013 16,972,380 $ 17 $ 96,528 $ (16,908 ) $ 79,637 Nine Months Ended December 31, 2012 2011 $ 7,317 $ 7,660 749 578 677 390 (579 ) (477 ) 492 — (7,499 ) — 107 — 13 538 12 25 535 (332 ) 2,339 3,737 (11,417 ) (2,478 ) 425 — 4,400 (508 ) 3,417 (9,193 ) (1,305 ) (3 ) 4,527 (708 ) 4,210 (771 ) (1,498 ) (1,504 ) (1,498 ) (1,504 ) 2,952 52,114 (15,748 ) (38,812 ) 11,146 — (7 ) — — (1,841 ) — (13,550 ) — (602 ) 7,499 — 3,844 47 9,686 (2,644 ) 12,398 (4,919 ) 562 7,333 $ 12,960 $ 2,414 $ 81,373 $ — $ 425 $ 120 $ — $ 621 $ — $ 1,023 Nine Months Ended December 31, 2013 2012 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 10,370 $ 7,317 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,035 749 Stock-based compensation 660 677 Provision for doubtful accounts 21 — Excess tax benefit from stock-based compensation (1,467 ) (7,499 ) Accretion of imputed interest on purchase of intangible asset 107 107 Change in fair value of convertible preferred stock warrant liability — 13 Amortization of deferred financing costs 9 12 Loss on disposal of property and equipment 1 — Deferred taxes 144 535 Changes in operating assets and liabilities: Accounts receivable, net 1,198 1,760 Inventory (8,260 ) (10,925 ) Income tax receivable (400 ) 425 Prepaid expenses, other current and non-current assets (516 ) 4,400 Accounts payable 2,440 3,417 Related-party payable — (1,305 ) Accrued expenses and other non-current liabilities (1,592 ) 4,527 Net cash provided by operating activities 3,750 4,210 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (1,057 ) (1,498 ) Restricted cash (300 ) — Net cash used in investing activities (1,357 ) (1,498 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from credit facility 8,432 2,952 Payments to credit facility (15,439 ) (15,748 ) Proceeds from common shares issued in initial public offering, net of issuance costs — 11,146 Payment for intangible asset acquired by financing transaction (8 ) (7 ) Excess tax benefit from stock-based compensation 1,467 7,499 Proceeds from exercises of stock options 1,211 3,844 Net cash provided by (used in) financing activities (4,337 ) 9,686 NET INCREASE (DECREASE) IN CASH (1,944 ) 12,398 CASH—Beginning of period 4,930 562 CASH—End of period $ 2,986 $ 12,960 NONCASH INVESTING AND FINANCING ACTIVITIES: Purchase of property and equipment funded through accrued expenses and accounts payable $ 2 $ 425 Conversion of convertible preferred stock into common stock $ — $ 81,373 1.Description of Business125135 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.2.Summary of Significant Accounting Policies interim condensed consolidated balance sheets as of December 31, 2012 and March 31, 2012, the interim condensed consolidated statement of convertible preferred stock and stockholders’ equity (deficit) for the nine months ended December 31, 2012, and the interim condensed consolidated statements of operations for the three and nine months ended December 31, 2013 and 2012, the interim condensed consolidated balance sheets as of December 31, 2013 and 2011,March 31, 2013, the interim condensed consolidated statement of stockholders’ equity for the nine months ended December 31, 2013, and the interim condensed consolidated statements of cash flows for the nine months ended December 31, 20122013 and 20112012 are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, certainthey do not include all of the information and footnote disclosures normally included in financial statements prepared in accordance withnotes required by U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.for complete financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2012, filed with the SEC on June 8, 2012.14, 2013. The March 31, 20122013 condensed consolidated balance sheet included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by U.S. GAAP for auditedcomplete financial statements.ourthe Company's financial position as of December 31, 20122013 and results of ourits operations for the three and nine months ended December 31, 2013 and 2012, and 2011, andthe cash flows for the nine months ended December 31, 20122013 and 2011.2012. The interim results for the nine months ended December 31, 20122013 are not necessarily indicative of the results that may be expected for the year ending March 31, 2013. and, Napa Valley Kitchen, Inc. and Annie's Baking, LLC. All significant intercompany balances 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 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 (“Solera”), sold 4.8 million shares at the $19.00 offering price in the IPO.Immediately prior Certain reclassifications were made to the closing of the IPO, the outstanding shares of convertible preferred stock 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 warrantCompany's prior financial statements 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.Pursuantconform to the Company’s Amended and Restated Certificate of Incorporation, or Charter, and its Amended and Restated Bylaws, which became effective upon consummation of the IPO, the Company has authorized 35,000,000 shares of capital stock, 30,000,000 shares, par value $0.001 per share, of which are common stock and 5,000,000 shares, par value $0.001 per share, of which are preferred stock. As of December 31, 2012, 17,328,797 shares of common stock were issued and outstanding and no shares of preferred stock were issued and outstanding.Annie’s, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)Secondary Public OfferingOn August 6, 2012, the Company closed a secondary public offering, in which certain stockholders, including funds affiliated with 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. Net Sales Customer A Customer B Customer C 25 % 17 % 11 % 20 % 14 % 11 % 26 % 13 % 12 % 24 % 13 % 12 % Net Sales Customer A Customer B Customer C Three Months Ended December 31, 2013 22 % 18 % 11 % 2012 25 % 17 % 11 % Nine Months Ended December 31, 2013 21 % 15 % 13 % 2012 26 % 13 % 12 % 2012, Customer A2013, two customers represented 31% and Customer B represented 26% and 35%18%, respectively, of accounts receivable. The same twoAs of March 31, 2013, three customers represented 21%36%, 26%, and 45%10%, respectively, of accounts receivable as of March 31, 2012.1 – 1—Quoted prices in active markets for identical assets or liabilities.2 – 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.3 – 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.Annie’s, Inc.Notes to Condensed Consolidated Financial Statements(unaudited) 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 represented its estimated fair value. Upon consummation of the IPOCompany's initial public offering on April 2, 2012, prior to the automatic conversion of the convertible preferred stock warrant into a common stock warrant, the estimated fair valueit 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.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 At As of December 31, 2012 and March 31, 2012,2013, the Company had $2.3 million capitalized software development costs, net of accumulated amortization, totaled $2.3including $0.6 million and 2.0 million, respectively. in construction-in-progress. As of DecemberMarch 31, 2012,2013, the Company had $2.0$2.1 million capitalized software development costs, net of accumulated amortization, including $0.4 million in construction-in-progress.$0.3 million in construction in progress.ShippingWarehousing CostsHandling CostsShipping and handlingwarehousing costs are included in selling, general and administrative expenses in the condensed consolidated statements of operations. ShippingFreight and handlingwarehousing costs primarily consist of costs associated with moving finished products to customers, including costs associated with the Company’s distribution center, route delivery costs and the cost of shipping products to customers through third-party carriers. ShippingFreight and handlingwarehousing costs recorded as a component of selling, general and administrative expenses were $1.4$1.8 million and $1.3$1.4 million for the three months ended December 31, 20122013 and 2011,2012, respectively, and were $4.2$5.2 million and $3.5$4.2 million for the nine months ended December 31, 2013 and 2012, and 2011, respectively.Research and developmentproducts.products and are expensed as incurred. These 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. Research and developmentR&D costs recorded as a component of selling, general and administrative expenses were $0.6$0.5 million and $0.7$0.6 million for the three months ended December 31, 20122013 and 2011,2012, respectively, and were $2.1$1.7 million and $1.6$2.1 million for the nine months ended December 31, 2013 and 2012, and 2011, respectively.advertisements and the costs of communicating advertisements. The costs of producing advertisements are expensed as incurred and the costs of communicating advertising are expensed over the period of communication. Total advertising costs for the three months ended December 31, 20122013 and 20112012 included in selling, general and administrative expenses were $0.4 million and $0.2 million, respectively, and $0.1 million, respectively. Total advertising costs were $0.6$1.2 million and $0.5$0.6 million for the nine months ended December 31, 2013 and 2012, and 2011, respectively.reevaluatedre-evaluated 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.Annie’s, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)Net Income Per ShareCommon StockBasic net income$19.00 per share and raised $11.1 million in net proceeds after deducting underwriting discounts and commissions of common$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 Quarterly Report on Form 10-Q.is calculated by dividing the net income attributable to common stockholders by the weighted-average number ofwere automatically converted into 15,221,571 shares of common stock, outstanding for the period. Diluted net income per share of common stock is computed by giving effect to all potentially dilutive securitiesCompany’s outstanding during the period. Potential common shares included those underlying our convertible preferred stock (using the if-converted method), stock options to purchase our common stock and restricted stock units (using the treasury stock method) and the warrant to purchase our common stock (using the treasury stock method). Performance share units were excluded from potential common shares since no shares were issuable as of December 31, 2012 and March 31, 2012. The performance share units vest based on achievement of specified percentage of targeted cumulative compounded earnings per share growth rate during the three-year period ending March 31, 2015.The potential common shares from the convertible preferred stock warrant had an anti-dilutive effect on the earnings per share for the nine months ended December 31, 2011, and the potentialwas automatically converted into a common shares from convertible preferred stock had an anti-dilutive effect on the earnings per share for the three and nine months ended December 31, 2011, and, accordingly, were excluded from the calculation. Additionally, certain stock optionswarrant to purchase our common stock had an anti-dilutive effect on the earnings per share for the periods presented, and were also excluded. Further, certain restricted stock units had an anti-dilutive effect on the earnings per share for the three and nine months ended December 31, 2012 and were excluded.Net income attributable to common stockholders during the three and nine months ended December 31, 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 classestotal of 80,560 shares 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 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.Out-of-period AdjustmentDuring the nine months ended December 31, 2011, the Company corrected an error in the measurement of the convertible preferred stock warrant liability. The correction increased the fair value of therelated convertible preferred stock warrant liability by $0.9 million and decreasedwas reclassified to additional paid-in capital by $0.4 million with a corresponding increase in expense of $0.5 million, which was recorded in other income (expense), net in the accompanying statement of operations during the nine months ended December 31, 2011. 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 fiscal 2010 and decreased net income by $0.6 million for fiscal 2011. Management assessed the impact of this error and did not believe that it was material, either individually or in the aggregate, to any prior period financial statements or to the financial statements for the year ended March 31, 2012.Annie’s, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)3.Balance Sheet Components December 31,
2012 March 31,
2012 $ 3,085 $ 1,938 3,285 754 14,757 7,510 $ 21,127 $ 10,202 December 31,
2013 March 31,
2013Raw materials $ 2,659 $ 1,391 Work in process 1,494 2,142 Finished goods 19,254 11,614 Inventory $ 23,407 $ 15,147 December 31,
2012 March 31,
2012 $ 2,480 $ 1,730 3,200 1,188 979 566 371 352 7,030 3,836 (2,370 ) (1,719 ) 857 2,181 $ 5,517 $ 4,298 December 31,
2013 March 31,
2013Equipment and automotive $ 3,897 $ 2,959 Software 2,570 2,410 Leasehold improvements 1,342 1,195 Plates and dies 333 244 Total property and equipment 8,142 6,808 Less: Accumulated depreciation and amortization (2,745 ) (1,760 ) Construction in progress 809 1,090 Property and equipment, net $ 6,206 $ 6,138 $271,000$383,000 and $704,000$990,000 for the three and nine months ended December 31, 2012,2013, respectively. The depreciation expense for the same periods in the prior year was $270,000$271,000 and $567,000,$704,000, respectively.During the three months ended December 31, 2012, the Company began two construction projects. The first project was a remodel December 31,
2012 March 31,
2012 $ 1,023 $ 1,023 189 189 1,212 1,212 (81 ) (36 ) $ 1,131 $ 1,176 December 31, 2013 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 $ (106 ) $ 917 $ 1,023 $ (68 ) $ 955 5 - 25 years Other intangible assets 189 (35 ) 154 189 (28 ) 161 5 - 25 years Total $ 1,212 $ (141 ) $ 1,071 $ 1,212 $ (96 ) $ 1,116 2012.2013. The amortization expense for the same periods over the prior year was $6,000$15,000 and $11,000,$45,000, respectively.is anticipated to be $15,000 for the remainder of fiscal 2013, $60,0002014, for each of the next five years from fiscal 2014 through fiscal 2018, totaling $300,0002019 and $816,000 after fiscal 2018. December 31,
2012 March 31,
2012 $ 2,535 $ 2,768 2,074 2,631 3,150 531 258 264 149 382 533 876 $ 8,699 $ 7,452 4. December 31, 2013 March 31, 2013 Payroll and employee-related expenses $ 2,903 $ 3,779 Accrued trade expenses 2,394 2,299 Inventory received not invoiced 2,720 4,038 Deferred rent 249 260 Brokerage commissions 320 407 Other accrued liabilities 518 1,238 Total accrued liabilities $ 9,104 $ 12,021 amendmentamended and restated creditloan agreement (the “Credit Agreement”(as amended from time to time, the "Credit Agreement") with Bank of America, N.A., which providesN. A. that, among other things, provided for an increase in its revolving loans and letters of credit upfacility to $20.0 million and is available toan extension of the Companyterm through August 2014. TheIn March 2013, the Company entered into an amendment to its Credit Agreement. This amendment provides for, among other things, an increase in the credit facility to $40.0 million and an extension of the term through August 2016. On November 5, 2013, the Company entered into another amendment to its Credit Agreement. This amendment provides for, among other things, consent for the Company to create a limited liability company and guarantee performance of the limited liability company in the event and to the extent the Company assigns to the limited liability company any of its rights or obligations under the Purchase Agreement dated November 5, 2013 among the Company, Safeway Inc. and Safeway Australia Holdings, LLC (see Note 16). Additionally, the amendment provides for the issuance of letters of credit and revises certain covenants and representations and warranties of the Company under the Credit Agreement. In connection with this amendment, Annie’s Baking, LLC, became a party to the Credit Agreement pursuant to a Joinder Agreement dated November 22, 2013. The credit facility is securedcollateralized by substantially all of the Company’s assets.Revolving advancesAgreement bearAgreement) plus 1.25%, (ii) IBOR (as defined in the Credit Agreement) plus 1.25% or (iii) Prime Rate (as defined in the Credit Agreement). Weighted average interest atwas 1.4% for each of the LIBOR plus 1.5%, as defined.three and nine months ended December 31, 2013, respectively. Weighted average interest was 1.5% for each of the three and nine months ended December 31, 2012. Weighted average interest was 1.6% and 2.3% forThe Company is required to pay a commitment fee on the three and nine months ended December 31, 2011, respectively.unused credit facility commitments, if the outstanding balance is less than half the commitment, at an annual rate ranging from 0.25% to 0.40% depending on the utilization rate. As of December 31, 20122013 and March 31, 2012,2013, there was $20.0$40.0 million and $7.2$33.0 million, respectively, of availability for borrowings available under the Credit Agreement. An unused line fee of 0.0625% per quarter is applied to the available balance unless the Company’s outstanding borrowings exceed half of the borrowing limit.credit facility. Interest is payable monthly.Annie’s, Inc.NotesCondensed Consolidated Financial Statements(unaudited)There are various financialincur additional indebtedness, pay dividends or make other distributions and other covenants undermake investments and loans. The Credit Agreement also limits the Company’s ability to make capital expenditures in excess of $15.0 million. The Credit Agreement. Financial covenants, asAgreement requires that the Company maintain a Funded Debt (as defined in the Credit Agreement, include a net income covenant, total liabilitiesAgreement) to tangible net worth covenantAdjusted EBITDA (as defined in the Credit Agreement) ratio of not more than 2.75 to 1.0 and a minimum fixed charge coverage covenant.Net Worth (as defined in the Credit Agreement) 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. 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 under the Credit Agreement as of December 31, 2012.5.Related Party TransactionsAgreement2013 and March 31, 2013.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). The services to be provided under the agreement included (i) assisting in the raising of additional debt and equity capital from time to time for the Company, if deemed advisable by the Company’s board of directors, (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 was obliged to pay Solera an annual advisory fee of $600,000, payable quarterly. The Company was also obliged to reimburse Solera for out-of-pocket costs and expenses incurred by Solera on behalf of the Company. During the three and nine months ended December 31, 2011, the Company incurred $150,000 and $450,000, respectively, for such consulting and advisory services. The advisory services agreement with Solera wasit terminated upon the consummation of the IPO and as such the Company paid Solera a one-time termination fee of $1.3 million in April 2012.6.Commitments and ContingenciesLease CommitmentsTheentered intois a leaseparty to an amended and restated registration rights agreement (the “Lease”) for its headquarters at 1610 Fifth Street, Berkeley, Californiadated as of November 14, 2005, or Registration Rights Agreement, relating to shares of common stock of the Company held by certain affiliates of Solera and certain other stockholders. As discussed further below, on November 15, 2010 with an initial term that began on March 1, 2011 and expires in February 2016. The space was comprised18, 2013 Solera completed the sale of 25,127 square feet of office space and 8,384 square feet of warehouse space. Pursuantits shares entitled 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 and the landlord shall build out the Recapture Space for office use. registration under this agreement.September 25,August 6, 2012, the Company exercised the right and entered into an amendment to the Lease (the “Lease Amendment”).The Lease Amendment provided (i) for the reconfigurationclosed a secondary public offering, in which certain stockholders, including Solera, sold 3,649,976 shares of common stock of the warehouse space to additional office space in order to accommodate growth, and (ii)Company 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 various other fees associated with the registration and sale of common stock sold in the secondary public offering.first option to extend the initial termsecondary public offering in which Solera sold remaining 2,537,096 shares of common stock of the Lease for three years (the “First Option”) followedCompany at an offering price of $47.95 per share. The Company did not receive any proceeds from the sale of shares by a second option to extendSolera. The offering expenses incurred by the Lease for an additional two years (the “Second Option”Company were $0.3 million in the nine months ended December 31, 2013, including legal, accounting and togethervarious other fees associated with the First Option, the “Option Periods”). The terms, covenantsregistration and conditionssale of common stock of the Lease, as amended, will continue to governCompany sold in the Options Periods, except that the applicable monthly rent for the Option Periods will be equal to 95%secondary public offering.Amendment, on September 25, 2012, theCommitmentsthe landlord entered into a Work Letter Agreement (“Work Letter”) for the Recapture Space which specifies the landlord’s responsibilities and the amount of tenant improvement allowance. Pursuant to the Work Letter, the landlord performed the majority of the structural work.20122013 was $146,000$155,000 and $386,000,$461,000, respectively. Rent expense for the three and nine months ended December 31, 20112012 was $80,000$146,000 and $360,000,$386,000, respectively.(after incorporating the effect of rent escalation and increase in rent for the recaptured space at the per square foot rate applicable to existing office space) under the noncancelablenon-cancelable operating leaseleases as of December 31, 20122013 are as follows (in thousands): Lease Payments $ 147 601 621 638 638 638 585 $ 3,868 Lease Payments Three Months Ending March 31, 2014 $ 166 Fiscal Year Ending March 31: 2015 675 2016 673 2017 669 2018 662 2019 586 Total future minimum lease payments $ 3,431 2012,2013, the Company’s purchase commitments totaled $14.0$15.9 million, which will substantially be incurred within a year.Thehasentered into an agreement with its contract warehousing company that includes minimum overhead fees of $200,000 annually beginning April 1, 2012 through June 30, 2015. As of December 31, 2013, the remaining obligation under the agreement for overhead fees was $300,000.expense is includedagreement requires annual payments of at least $150,000 in selling, general and administrative expenseseach 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 December 31, 2013, the condensed consolidated statements of operations.To date, theThe Company has not paid any significant 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.FromMondelez International, Inc., et al., Alameda County Superior Court Case No. RG13-677800, names nine other companies that are either suppliers or retailers of ginger- or molasses-containing cookies. The Company cannot at this time reasonably estimate a range of exposure, if any, of the potential liability relating to this suit.and assessments or other legal proceedings in the ordinary course of business. The Companybusiness, 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, the Company believes that none of these legal proceedings, individually or in the aggregate, is expected towill have a material adverse effect on its financial position.business, financial condition, resultscommon stock or April 1, 2018. Upon the consummation of operations or cash flows.Annie’s, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)7.Convertible Preferred StockThe outstanding shares of convertible preferred stock, immediately prior to the closing of theCompany’s IPO on April 2, 2012, were automatically converted into 15,221,571the warrant became a warrant to purchase 80,560 shares of the Company’s common stock. DuringAs such, on April 2, 2012, the threeCompany measured the fair value of the outstanding convertible preferred stock warrant using an option pricing method and nine months ended December 31, 2011,recorded a non-cash charge of $13,000 related to the increase in the fair value of the convertible preferred stockholders received a cash dividendstock warrant in other income (expense), net 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 $0.767 and $0.863 per share, respectively, or approximately $11.6 million and $13.1 million in the aggregate, respectively, asCompany’s common stock by surrendering 17,367 shares to pay for the exercise. As a result, the Company issued Hercules 63,193 shares of participating in the Company's common stock dividend. No dividend was declared or paid during the three and nine months endedstock.2012.8.Preferred StockThe2013 and March 31, 2013, the Company’s Chartercertificate of incorporation authorized 5,000,000 shares of preferred stock, $0.001 par value per share. As of December 31, 2012,2013, no certificate of designations defining the rights and preferences of the preferred stock had been filed and no shares of preferred stock were issued and outstanding.9.Common Stock20122013 and March 31, 2012,2013, the Company’s Chartercertificate of incorporation authorized 30,000,000 and 24,000,000 shares of common stock, $0.001 par value per share, respectively, of which 17,328,79716,972,380 and 483,24216,849,016 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 boardBoard of directors. During the three and nine months ended December 31, 2011, the Company declared and paid common shareholders a cash dividend of $0.767 and $0.862 per share, respectively, or $363,000 and $408,000, respectively, in the aggregate.Directors. No dividends were declared or paid during the three and nine months ended December 31, 2013 and 2012.10.Stock-Based Compensationnonqualifiednon-qualified stock options, restricted stock units and performance share units are granted to eligible employees, officers and directors. The Company has also granted non-plan performance based option awards to certain key management. Options granted under Plans to date generally vest over a two- to five-year period from the date of grant. Vested options can be exercised and generally expire ten years after 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, provided continuance of employment with the Company.date. The performance share units granted to employees vest based on achievement of required cumulative compounded adjusted diluted earnings per share growth during the stipulated three-year period ending March 31, 2015. applicable to a grant. The vesting of stock-based awards is subject to continuance of the employment with or service to the Company.$230,000$251,000 and $151,000$230,000 for the three months ended December 31, 20122013 and 2011,2012, respectively, and was$660,000 and $677,000 and $390,000 for the nine months ended December 31, 2013 and 2012, and 2011, respectively.2012: Number
of Shares Weighted-Average
Exercise Price 1,759,367 $ 9.56 2,562 36.30 (15,606 ) 16.62 (610,791 ) 6.38 1,135,532 $ 11.24 Annie’s, Inc.Notes to Condensed Consolidated Financial Statements(unaudited) Number of Shares Balance at March 31, 2013 1,203,990 $ 13.26 Granted 62,387 41.87 Forfeited (99,066 ) 18.28 Exercised (123,364 ) 9.81 Balance at December 31, 2013 1,043,947 $ 14.90 2012: Shares Weighted-
Average
Grant Date
Fair Value 65,899 $ 19.00 7,220 44.07 — — — — (3,568 ) 19.00 69,551 $ 21.60 Shares-Based Awards Shares Unvested at March 31, 2013 71,165 $ 21.73 Granted 54,806 41.11 Vested (4,692 ) 45.27 Forfeited (19,922 ) 24.94 Unvested at December 31, 2013 101,357 $ 30.49 2012,2013, there were 70,872 unvested performance share units outstanding, net of actual forfeitures. As of December 31, 2013, the number of shares estimated to be issued at the end of the performance period(s) is a total of 35,441 shares. The maximum number of total shares that could be issued at the end of performance period(s) is 106,313 shares.$2.8$4.0 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 2.93.0 years.11.Employee Benefit PlansCompany offers a retirement savings plan under Section 401(k) ofCompany’s effective tax rate increased to 41.3% for the Internal Revenue Code. The 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 three months ended December 31, 2012 up2013, compared to a maximum of 6% of eligible compensation, not to exceed $4,000. Contribution expense was not material39.6% for the periods presented.12.Income TaxesWe recognized incomethree months ended December 31, 2012. The effective tax expenserate was 40.5% for the nine months ended December 31, 2013, compared to 40.4% for the nine months ended December 31, 2012. The effective tax rate is based on a projection of $0.9 millionthe Company’s annual fiscal year results. The effective tax rate for the three and $5.0 millionnine months ended December 31, 2013 was higher than the effective tax rate for the three and nine months ended December 31, 2012 compared to $1.5 million and $4.9 million in the same periods last year. The effective tax rate was 40.4% for the nine months ended December 31, 2012, compared to 39.1% in the same period last year. The effective tax rate is based on a projection of our full fiscal year results. Our effective tax rate for the nine months ended December 31, 2012 was higher than the effective tax rate for the nine months ended December 31, 2011 largely due to a tax benefit recorded during the nine months ended December 31, 2011 related to an increase in the tax rate applied for deferred tax assets due to an increase in theimpact of permanent items and federal and state income tax rates.In addition,credits.threeperiod. The Company utilizes the treasury stock method to calculate potential common shares that underlie its stock options to purchase common stock and nine months ended restricted stock units. Performance share units were excluded from potential common shares since no shares were issuable as of December 31, 2012, we recognized $6.7 million2013 and $20.8 million of tax deductions associated withMarch 31, 2013. Certain stock option exercises. As of December 31, 2012, $6.0 millionoptions to purchase our common stock and $19.5 million of these tax deductions are considered “excess”restricted stock compensation-related deductions, resulting in a reduction in taxes payable of $4.5 million, recording a tax refund receivable of $3.0 million, with a corresponding increase in additional paid in capital of $7.5 million. We will recognize the remaining $0.4 million of stock compensation-related deductions as a reduction in taxes payable in future periods as we generate state taxable income.The Company files consolidated tax returns for federal income taxes as well as for state income taxes in various state jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities. These audits include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal, state and local tax laws. The Company is potentially subject to U.S. federal, state and local income tax examinations for years 2005 and beyond.The Company does not have any unrecognized tax positions as of December 31, 2012 that if recognized would affect the annual effective tax rate. No interest or penalties have been accrued for any period presented. Basedunits had an anti-dilutive effect on the Company’s assessment, including past experienceearnings per share for the periods presented, and complex judgments about future events, the Company does not expect that changes in the liability for unrecognized tax benefits during the next twelve months will have a significant impact on its financial position or resultswere also excluded.13.Net Income per Share of Common Stock attributable to Common Stockholdersnet incomeearnings per share of common stock for the periods presented, because including them would have been anti-dilutive: Three Months Ended December 31, Nine Months Ended December 31, 2012 2011 2012 2011 — 15,221,571 — 15,221,571 2,562 167,314 2,562 167,314 — — 6,256 — — — — 80,560 2,562 15,388,885 8,818 15,469,445 Three Months Ended December 31, Nine Months Ended December 31, 2013 2012 2013 2012 Options to purchase common stock 105,157 2,562 105,157 2,562 Restricted stock units 5,141 — 10,575 6,256 Total 110,298 2,562 115,732 8,818 net incomeearnings per share attributable to common stockholders is as follows (in thousands except share and per share amounts): Three Months Ended December 31, Nine Months Ended December 31, 2012 2011 2012 2011 $ 1,401 $ 2,232 $ 7,317 $ 7,660 — 11,667 — 13,141 — (9,504 ) — (5,714 ) $ 1,401 $ 69 $ 7,317 $ 233 17,249,536 471,554 17,085,833 467,206 523,881 522,370 609,222 521,709 — 43,733 — — 8,303 — 7,166 — 17,781,720 1,037,657 17,702,221 988,915 $ 0.08 $ 0.15 $ 0.43 $ 0.50 $ 0.08 $ 0.07 $ 0.41 $ 0.24 Annie’s, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)14.Geographic Areas and Product Sales Three Months Ended December 31, Nine Months Ended December 31, 2013 2012 2013 2012 Earnings per share: Net income $ 2,789 $ 1,401 $ 10,370 $ 7,317 Weighted average shares of common stock outstanding used in computing earnings—basic 16,937,139 17,249,536 16,901,089 17,085,833 Potential dilutive options 444,822 523,881 471,427 609,222 Potential dilutive restricted stock units 16,045 8,303 13,892 7,166 Weighted average shares of common stock outstanding used in computing earnings—diluted 17,398,006 17,781,720 17,386,408 17,702,221 Earnings per share —Basic $ 0.16 $ 0.08 $ 0.61 $ 0.43 —Diluted $ 0.16 $ 0.08 $ 0.60 $ 0.41 Three Months Ended December 31, Nine Months Ended December 31, 2012 2011 2012 2011 $ 34,413 $ 29,709 $ 111,984 $ 95,005 1,870 1,129 5,278 3,315 $ 36,283 $ 30,838 $ 117,262 $ 98,320 Three Months Ended December 31, Nine Months Ended December 31, 2013 2012 2013 2012 United States $ 44,459 $ 34,413 $ 138,130 $ 111,984 Canada 1,718 1,870 5,737 5,278 $ 46,177 $ 36,283 $ 143,867 $ 117,262 Three Months Ended December 31, Nine Months Ended December 31, 2012 2011 2012 2011 $ 16,223 $ 14,235 $ 52,759 $ 41,411 14,908 12,225 47,517 40,461 5,152 4,378 16,986 16,448 $ 36,283 $ 30,838 $ 117,262 $ 98,320 Three Months Ended December 31, Nine Months Ended December 31, 2013 2012 2013 2012 Meals $ 23,933 $ 16,223 $ 70,226 $ 52,759 Snacks 17,075 14,908 54,953 47,517 Dressings, condiments and other 5,169 5,152 18,688 16,986 $ 46,177 $ 36,283 $ 143,867 $ 117,262 15.Subsequent EventOn 22, 2013, the Company announced a voluntary product recall of 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. 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. The Company recorded certain items associated with the recall in its financial results for the three and nine months ended December 31, 2013 and 2012.will record administrative costs associated with the recall such as legal expenses as selling, general and administrative expenses. As a result ofThe Company recorded $0.4 million and $1.6 million for insurance recoveries in connection with the voluntary product recall the Company recorded an estimated accrual for product returns and recall-related costs of approximately $2.3 million forin the three and nine months ended December 31, 2013, respectively. The impact of the recall-related charges and related insurance recoveries in the three and nine months ended December 31, 2013 and 2012 is as follows (in thousands except per share amount): Amount $ 1,570 690 $ 2,260 $ 1,346 $ 0.08 The accrual for product returns is based on preliminary estimates of cases of pizza products at retail stores included in channels through which the Company distributes its products and is based on the estimates derived from third-party data and other assumptions. A high degree of judgment is required in 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. Actual results could differ from those estimates. Three Months Ended December 31, Nine Months Ended December 31, 2013 2012 2013 2012 Benefit to/(reduction of) net sales $ 104 $ (1,570 ) $ 855 $ (1,570 ) Benefit to/(incremental) cost of sales 280 (690 ) 533 (690 ) Benefit to/(incremental) selling, general and administrative expenses (7 ) — (18 ) — Total benefit to/(reduction of) income before income taxes $ 377 $ (2,260 ) $ 1,370 $ (2,260 ) Benefit to/(reduction of) net income $ 224 $ (1,346 ) $ 827 $ (1,346 ) Benefit to/(reduction of) net income per diluted share $ 0.01 $ (0.08 ) $ 0.05 $ (0.08 ) is anticipatingdoes not expect any significant further additional accruals of approximately $1 million for product returns and related costs for sales subsequent to December 31, 2012, and expects to incur the majority of these costs associated with the voluntary product recall within the next three to six months.carries product recall insurance and expects to recoverreceive additional recoveries from the involved insurance carriers in future quarters.substantial portionsnack manufacturing plant in Joplin, Missouri (the “Joplin Plant”) for $6.0 million of cash, plus the value of inventory and supplies at closing (calculated based on the Selling Parties’ costs and currently estimated at approximately $4.0 million). The Company expects to fund the acquisition with cash from operations and, if necessary, by drawing under its revolving credit facility. The Company expects to close the acquisition in the first quarter of fiscal 2015. The Joplin Plant has been the primary manufacturer of the recall-related costs fromCompany’s cookie and cracker products for more than ten years. Company products produced in the Joplin Plant currently account for over 50% of its insurance. The Company may seek to recover additional costs fromtotal snacks net sales and represent the third-party flour mill. It is not possible to predict the outcomemajority of the success of any such recovery from insurance or claims againstJoplin Plant’s total production volume. In connection with the supplier, given the early stageclosing of the voluntary product recall. Consequently, no amounts have been recordedacquisition, the Company expects to enter into a three-year supply agreement with an affiliate of Safeway Inc., pursuant to which the Company will manufacture products for the affiliate. Further, in connection with the planned acquisition, on November 7, 2013, the Company deposited $300,000 in an escrow account with the title insurance company. This amount is reflected as receivable as ofrestricted cash on the condensed consolidated balance sheet at December 31, 2012 for any potential recoveries2013.fiscal year ended March 31, 20122013 (“fiscal 2012”2013”) included in our Annual Report on Form 10-K ("Form 10-K") filed with the SEC on June 8, 2012.14, 2013. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,( the (the “Exchange Act”). These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate”“estimate,” or “continue”“continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those in this Quarterly Report on Form 10-Q relating to the acquisition of the Joplin manufacturing plant and those in our Form 10-K discussed in the section titled “Risk Factors.”Factors” including risks relating to competition; new product introductions; implementation of our growth strategy; our brand; our reputation; product liability claims; product recalls and related insurance recoveries (if any); economic disruptions; changes in consumer preferences; ingredient and packaging costs and availability; reliance on a limited number of distributors, retailers, contract manufacturers and third-party suppliers and an outside warehouse facility; efficiency projects; intellectual property and related disputes; regulatory compliance; transportation; our supply-chain; our and our customers’ inventory levels; and seasonality. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q. rapidly growing natural and organic food company with a widely recognized brand, offering consumers great-tasting products in large packaged foods categories. We sell premium products made from high-quality ingredients at affordable prices. We have the #1number one natural and organic market position in four product lines: macaroni and cheese, snack crackers, fruit snacks and graham crackers.125135 products and are present in over 25,00026,500 retail locations in the United States and Canada. primarily from the sale of meals, snacks, dressings, condiments and other products primarily under the Annie’s Homegrown and Annie’s Naturals brand names. We have experienced strong growth 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 dressings and condiments product lines and discontinued our cereal product line in the fourth quarter of fiscal 2012, which resulted in low or negative quarter over quarter growth in that category in recent quarters. In the most recent quarter, despite the impact of discontinuance of the cereal, the category achieved strong growth quarter over quarter driven by stronger consumption trends.packaging. including stock-based compensation, commissions to outside sales representatives, legal and professional fees, travel expenses, other facility-relatedfacility 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.On22,2012 and made with organic frozen pizza first shipped during second quarter of fiscal 2013. 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.The fullfaceincurred administrative costs such as legal expenses, accounting fees and public relations expenses.potential for lost sales from our consumers.As a result ofproduct recall. In the voluntary product recall, we recorded charges that negatively impacted our net sales and net income by $1.6 million and $1.3 million, respectively, for the three and nine months ended December 31, 2012. The recorded charges were based on our best estimates and information available to us when2013, we recorded $1.6 million for insurance recoveries and $0.1 million in reduction of net sales reserve in connection with the charges.recall. We expect to recover a substantial portion of the recall-related costs from our product recall insurance. We may seek to recover additional costsamounts from the third-party flour mill. Any recovery would beinsurance providers in future quarters. Recoveries are recorded to offset the charges once recovery is probable. We expect the effects of the voluntary product recall to be reflected in our financial statements over the next few quarters.In addition, we expect to incur approximately $1.0 million of costs associated with product returns and related costs for sales subsequent to December 31, 2012 including the destruction and write off of inventory consisting of non-pizza products manufactured with flour sourced from the same third-party flour mill that provided flour for the recalled pizza products. None of these affected non-pizza products were shipped to customers. We expect to record these costs associated with the voluntary product recall in the fourth quarter of fiscal 2013.We have restarted the production of our certified organic and made with organic pizza products using flour from an alternative supplier with which we have a long-standing relationship and began shipping replacement product into distributors and retailers as of February 11, 2013 in order to replenish retail shelves and inventories. We expect to see a recovery in sales of our pizza products in the late fourth quarter of fiscal 2013 and first quarter of fiscal 2014, as retailers seek to restock inventory of pizza products.Trends and Other Factors Affecting Our BusinessNet sales growth continues to be driven by increased penetration of mainstream grocery and mass merchandiser channels, product innovation, increased brand awareness and greater consumer demand for natural and organic food products. In the twelve months ended December 31, 2012, we have experienced acceleration in consumer trends for many of our products. We also have benefited from improved placement in the mainstream grocery channel, which we believe has resulted in increased sales of our products. Our net sales growth has been primarily driven by volume; however, we have demonstrated the ability to execute price increases as needed to maintain margins, driven by our strong brand loyalty and perceived value relative to the competition.We purchase finished products from independent contract manufacturers. We have long standing, strategic relationships with many of our contract manufacturers and suppliers of organic ingredients. We enter, either directly or through contract manufacturers, into forward pricing contracts with certain ingredient suppliers. This practice provides us with significant visibility into our cost structure over the next six to twelve months. In fiscal 2012, our contracted ingredients represented approximately 48% of our material costs and 25% of our cost of sales. Over the past 18 months, we have experienced increased costs for many of our inputs and expect these higher costs to continue throughout the remainder of our fiscal year ending March 31, 2013 (“fiscal 2013”). We strive to maintain or improve gross margins despite increasing commodity costs through a combination of cost management and price increases. We actively manage our input and production costs through commodity management practices, vendor negotiation, productivity improvements and cost reductions in our supply chain. We invest significant time and effort to achieve permanent cost reductions in our supply chain. To drive these initiatives, we have begun to selectively invest capital in equipment located at our contract manufacturers to drive down costs, improve throughput and improve product quality.Selling, general and administrative expenses have increased as a result of the investment we have made in building our organization and adding headcount to support our growth and operating as a public company. During the course of fiscal 2013, we have continued to invest in our business with the addition of customer facing sales and operations staff. Many of our selling, general and administrative expenses are variable with volume including freight and warehouse expenses and commissions paid to our sales brokers. In addition, we continue to make investments in marketing to drive trial of our products and promote awareness of our brand and in research and development to support our robust innovation pipeline. Starting in fiscal 2012, we incurred incremental expense related to getting ready to operate as a public company. We expect to incur approximately $2 million in incremental expense annually related to being a public company.Results of OperationsThe following table sets forth items included in our consolidated statements of operations in dollars and as a percentage of net sales for the periods presented: Three Months Ended December 31, % of Net Sales Nine Months Ended December 31, % of Net Sales 2012 2011 2012 2011 2012 2011 2012 2011 (in thousands, except for percentages) $ 36,283 $ 30,838 100.0 % 100.0 % $ 117,262 $ 98,320 100.0 % 100.0 % 23,267 18,275 64.1 % 59.3 % 72,539 60,034 61.9 % 61.1 % 13,016 12,563 35.9 % 40.7 % 44,723 38,286 38.1 % 38.9 % 10,687 8,847 29.5 % 28.7 % 32,437 25,206 27.7 % 25.6 % 10,687 8,847 29.5 % 28.7 % 32,437 25,206 27.7 % 25.6 % 2,329 3,716 6.4 % 12.1 % 12,286 13,080 10.5 % 13.3 % (40 ) (25 ) (0.1 )% (0.1 )% (120 ) (66 ) (0.1 )% (0.1 )% 31 43 0.1 % 0.1 % 116 (428 ) 0.1 % (0.4 )% 2,320 3,734 6.4 % 12.1 % 12,282 12,586 10.5 % 12.8 % 919 1,502 2.5 % 4.9 % 4,965 4,926 4.2 % 5.0 % $ 1,401 $ 2,232 3.9 % 7.2 % $ 7,317 $ 7,660 6.2 % 7.8 % Our discussion of our results of operations in this Quarterly Report on Form 10-Q includes certain net sales, gross profit, gross margin, selling, general and administrative expenses, income from operations and net income figures that exclude the impact of our voluntary product recall of pizza products announced on January 22, 2013. These figures are non-GAAP financial measures. We calculate these non-GAAP figures by eliminating the impact of our voluntary product recall, which we do not consider indicative of our ongoing operations. We believe these non-GAAP figures provide additional information to facilitate the comparison of our past and present financial results and better visibility into our normal operating results by isolating the effects of the voluntary product recall. These non-GAAP financial measures 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.Three Months Ended December 31, 2012 Compared to Three Months Ended December 31, 2011Net Sales Three Months Ended December 31, Change % of Net Sales 2012 2011 $ % 2012 2011 (in thousands, except for percentages) $ 16,223 $ 14,235 $ 1,988 14.0 % 44.8 % 46.2 % 14,908 12,225 2,683 21.9 % 41.1 % 39.6 % 5,152 4,378 774 17.7 % 14.2 % 14.2 % $ 36,283 $ 30,838 $ 5,445 17.7 % 100.0 % 100.0 % Net sales increased $5.4 million, or 17.7%, to $36.3 million during the three months ended December 31, 2012 compared to $30.8 million during the three months ended December 31, 2011. The net sales for the three months ended December 31, 2012 included a $1.6 million reduction due to the voluntary product recall of our certified organic and made with organic pizza products. The increase in net sales (net of the effects of the voluntary product recall) reflects an increase in net sales of snacks, meals and dressings, condiments and other of $2.7 million, $2.0 million and $0.8 million, respectively. The increase in snacks was primarily due to growth in our grahams, crackers, mixed snacks and snack mix product lines. The increase in meals was predominantly driven by strong growth in natural macaroni and cheese products offset by the voluntary product recall of frozen pizza products. Organic frozen pizza first shipped in January 2012 and made with organic frozen pizza first shipped during second quarter. As discussed earlier, we initiated a voluntary product recall of all frozen pizza products in January 2013.The increase in dressings, condiments and other was attributable to strong performance of natural and organic dressings and condiments, partially offset by the discontinuation of our cereal product line. Distribution gains and our mainline placement initiatives also contributed to net sales growth, primarily in the mainstream grocery channel. The net sales increase was primarily driven by volume with approximately 3% of growth driven by higher average selling prices.Excluding the impact of our voluntary product recall, our net sales would have increased $7.0 million, or 22.7%, to $37.9 million during the three months ended December 31, 2012 compared to $30.8 million during the three months ended December 31, 2011.Gross Profit Three Months Ended December 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 23,267 $ 18,275 $ 4,992 27.3 % $ 13,016 $ 12,563 $ 453 3.6 % 35.9 % 40.7 % Gross profit increased $0.5 million, or 3.6%, to $13.0 million for the three months ended December 31, 2012 from $12.6 million for the three months ended December 31, 2011. Gross margin decreased 4.8 percentage points to 35.9% from 40.7% during the three months ended December 31, 2012 compared to the three months ended December 31, 2011. The decrease in gross margin is primarily attributable to a reduction in net sales of $1.6 million due to voluntary product recall and a corresponding increase in cost of sales of $0.7 million for estimated costs associated with the product recall. The estimated costs associated with the product recall comprised of affected inventory write-off $0.6 million and costs incurred by contract manufacturers $0.1 million. The effect of the charge for voluntary product recall costs on gross margin was approximately 4.5 percentage points. To a lesser extent, the decrease in gross margin resulted from higher commodity costs, partially offset by a price increase that was implemented in October 2012 and the cumulative impact of various cost reduction initiatives. We expect to see slightly higher commodity costs in the fourth quarter versus our year-to-date results driven by higher dairy costs. We also expect to invest in incremental trade promotions beyond our original plans to support pizza in our fourth quarter. As a result, we expect our fourth quarter gross margin to be in the low to mid 39 percentage range with a full year margin in the mid 39 percentage range.Excluding the impact of the voluntary product recall, our gross profit would have increased $2.7 million, or 21.6%, to $15.3 million for the three months ended December 31, 2012 from $12.6 million for the three months ended December 31, 2011 and gross margin would have decreased 0.3 percentage points to 40.4% from 40.7% during the three months ended December 31, 2012 compared to the three months ended December 31, 2011.Operating Expenses Three Months Ended December 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 10,687 $ 8,847 $ 1,840 20.8 % Selling, General and Administrative ExpensesSelling, general and administrative expenses increased $1.8 million, or 20.8%, to $10.7 million during the three months ended December 31, 2012 from $8.8 million during the three months ended December 31, 2011. This increase was 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 expenses during the three months ended December 31, 2012 compared with the three months ended December 31, 2011. Selling, general and administrative expenses for the three months ended December 31, 2012 were not impacted due to voluntary product recall since it was announced in January 2013. However, we expect an increase in expenses due to administrative costs associated with the management of the recall including legal expenses in our fourth fiscal quarter ending March 31, 2013. As a percentage of net sales, selling, general and administrative expenses increased 0.8 percentage points to 29.5% during the three months ended December 31, 2012 from 28.7% during the three months ended December 31, 2011. While leveraging in the second half of fiscal 2013, we expect selling, general and administrative expenses as a percentage of net sales for fiscal 2013 to be on par with our prior fiscal year.Excluding the impact of the voluntary product recall, our selling, general and administrative expenses as a percentage of net sales would have decreased 0.5 percentage points to 28.2% during the three months ended December 31, 2012 from 28.7% during the three months ended December 31, 2011.Income from Operations Three Months Ended December 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 2,329 $ 3,716 $ (1,387 ) (37.3 )% 6.4 % 12.1 % As a result of the factors above, income from operations decreased $1.4 million, or 37.3%, to $2.3 million during the three months ended December 31, 2012, from $3.7 million during the three months ended December 31, 2011. Income from operations as a percentage of net sales decreased 5.7 percentage points to 6.4% in the three months ended December 31, 2012, from 12.1% in the three months ended December 31, 2011.Excluding the impact of voluntary product recall, our income from operations would have increased $0.9 million, or 23.5% to $4.6 million for the three months ended December 31, 2012 from $3.7 million for the three months ended December 31, 2011.Interest Expense Three Months Ended December 31, Change 2012 2011 $ % (in thousands, except for percentages) $ (40 ) $ (25 ) $ (15 ) nm Interest expense during the three months ended December 31, 2012 primarily related to non-cash imputed interest expense related to financing of product formulas intangible asset acquired in fiscal 2012. Interest expense during the three months ended December 31, 2011 consisted of expense related to borrowings on our revolving line of credit.Other Income (Expense), Net Three Months Ended December 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 31 $ 43 $ (12 ) nm Other income (expense), net during the three months ended December 31, 2012 and 2011 consisted of royalty income.Provision for income taxes Three Months Ended December 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 919 $ 1,502 $ (583 ) (38.8 )% 39.6 % 40.2 % Our effective tax rate was 39.6% for the three months ended December 31, 2012, compared to 40.2% in the same period last year. The effective tax rate is based on a projection of our annual fiscal year results. Our effective tax rate for the three months ended December 31, 2012 was lower than the effective tax rate for the three months ended December 31, 2011 due to the impact of state income tax credits. We expect our full year effective tax rate for fiscal 2013 to be approximately 40.4%.In addition, during the three months ended December 31, 2012, we recognized $6.7 million of tax deductions associated with stock option exercises. As of December 31, 2012, $6.0 million of these tax deductions are considered “excess” stock compensation-related deductions, resulting in a reduction in taxes payable of $4.5 million, recording a tax refund receivable of $3.0 million, with a corresponding increase in additional paid in capital of $7.5 million. We will recognize the remaining $0.4 million of stock compensation-related deductions as a reduction in taxes payable in future periods as we generate state taxable income.Net income Three Months Ended December 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 1,401 $ 2,232 $ (831 ) (37.2 )% As a result of the factors above, net income decreased $0.8 million, or 37.2%, to $1.4 million for the three months ended December 31, 2012 from $2.2 million for the three months ended December 31, 2011.Excluding the impact of the voluntary product recall, our net income would have increased $0.5 million, or 23.1%, to $2.7 million for the three months ended December 31, 2012 from $2.2 million for the three months ended December 31, 2011.Nine Months Ended December 31, 2012 Compared to Nine Months Ended December 31, 2011Net Sales Nine Months Ended December 31, Change % of Net Sales 2012 2011 $ % 2012 2011 (in thousands, except for percentages) $ 52,759 $ 41,411 $ 11,348 27.4 % 45.0 % 42.1 % 47,517 40,461 7,056 17.4 % 40.5 % 41.2 % 16,986 16,448 538 3.3 % 14.5 % 16.7 % $ 117,262 $ 98,320 $ 18,942 19.3 % 100.0 % 100.0 % Net sales increased $18.9 million, or 19.3%, to $117.3 million during the nine months ended December 31, 2012 compared to $98.3 million during the nine months ended December 31, 2011. The net sales for the nine months ended December 31, 2012 included a $1.6 million reduction due to the voluntary product recall of our certified organic and made with organic pizza products. The increase in net sales (net of the effects of the voluntary product recall) reflects an increase in net sales of meals, snacks and dressings, condiments and other of $11.3 million, $7.1 million and $0.5 million, respectively. The increase in meals was predominantly driven by strong growth in the natural macaroni and cheese product line, offset by the voluntary product recall of frozen pizza products. Organic frozen pizza first shipped in January 2012 and made with organic pizza first shipped during oursecond quarter. As discussed earlier, we initiated a voluntary product recall of all frozen pizza products in January 2013. The increase in snacks was primarily due to growth in our grahams, crackers, mixed snacks and fruit snacks product lines. The slight increase in dressings, condiments and other was attributable to strong growth in natural and organic dressings, partially offset by the discontinuation of our cereal product line. Distribution gains and our mainline placement initiatives also contributed to net sales growth, primarily in the mainstream grocery channel. The net sales increase was primarily driven by volume with slightly higher average selling prices adding modest growth.Excluding the impact of our voluntary product recall, our net sales would have increased $20.5 million, or 20.9%, to $118.8 million during the nine months ended December 31, 2012 compared to $98.3 million during the nine months ended December 31, 2011.Gross Profit Nine Months Ended December 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 72,539 $ 60,034 $ 12,505 20.8 % $ 44,723 $ 38,286 $ 6,437 16.8 % 38.1 % 38.9 % Gross profit increased $6.4 million, or 16.8%, to $44.7 million for the nine months ended December 31, 2012 from $38.3 million for the nine months ended December 31, 2011. Gross margin decreased 0.8 percentage points to 38.1% from 38.9% during the nine months ended December 31, 2012 compared to the nine months ended December 31, 2011. The decrease in gross margin is primarily attributable to a reduction in net sales of $1.6 million due to voluntary product recall and a corresponding increase in cost of sales of $0.7 million for estimated costs associated with the product recall. The estimated costs associated with the product recall comprised of affected inventory write-off $0.6 million and costs incurred by contract manufacturers $0.1 million. The increase in gross profit was primarily driven by the increase in net sales, partially offset by the negative impact of the product recall.Excluding the impact of the voluntary product recall, our gross profit would have increased $8.7 million, or 22.7%, to $47.0 million for the nine months ended December 31, 2012 from $38.3 million for the nine months ended December 31, 2011 and gross margin would have increased 0.6 percentage points to 39.5% from 38.9% during the nine months ended December 31, 2012 compared to the nine months ended December 31, 2011 due to price increases and the cumulative benefit of various cost reduction initiatives, which were partially offset by higher commodity costs.Operating Expenses Nine Months Ended December 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 32,437 $ 25,206 $ 7,231 28.7 % Selling, General and Administrative ExpensesSelling, general and administrative expenses increased $7.2 million, or 28.7%, to $32.4 million during the nine months ended December 31, 2012 from $25.2 million during the nine months ended December 31, 2011. This increase was due primarily to an increase in payroll expense resulting from increased headcount to support ourgrowth and operations as a public company. Additionally, public company-related expenses impacted selling, general and administrative expenses during the nine months ended December 31, 2012 compared with the nine months ended December 31, 2011. Further, during the nine months ended December 31, 2012, we incurred $0.7 million including legal, accounting and printing costs and various other fees associated with the registration and sale of common stock in the secondary public offering by certain stockholders, including Solera. We did not receive any proceeds from the sale of shares by the selling stockholders. Selling, general and administrative expenses for the nine months ended December 31, 2012 were not impacted due to voluntary product recall since it was announced in January 2013. However, we expect an increase in expenses due to administrative costs associated with the management of the recall including legal expenses in our fourth fiscal quarter ending March 31, 2013. As a percentage of net sales, selling, general and administrative expenses increased 2.1 percentage points to 27.7% during the nine months ended December 31, 2012 from 25.6% during the nine months ended December 31, 2011.Excluding the impact of the voluntary product recall, our selling, general and administrative expenses as a percentage of net sales would have increased 1.7 percentage points to 27.3% during the nine months ended December 31, 2012 from 25.6% during the nine months ended December 31, 2011.Income from Operations Nine Months Ended December 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 12,286 $ 13,080 $ (794 ) (6.1 )% 10.5 % 13.3 % As a result of the factors above, income from operations decreased $0.8 million, or 6.1%, to $12.3 million during the nine months ended December 31, 2012, from $13.1 million during the nine months ended December 31, 2011. Income from operations as a percentage of net sales decreased 2.8 percentage points to 10.5% in the nine months ended December 31, 2012, from 13.3% in the nine months ended December 31, 2011.Excluding the impact of voluntary product recall, our income from operations would have increased $1.5 million, or 11.2% to $14.6 million for the nine months ended December 31, 2012 from $13.1 million for the nine months ended December 31, 2011.Interest Expense Nine Months Ended December 31, Change 2012 2011 $ % (in thousands, except for percentages) $ (120 ) $ (66 ) $ (54 ) nm Interest expense during the nine months ended December 31, 2012 primarily related to non-cash imputed interest expense related to financing of product formulas intangible asset acquired in fiscal 2012. Interest expense during the nine months ended December 31, 2011 consisted of expense related to borrowings on our revolving line of credit.Other Income (Expense), Net Nine Months Ended December 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 116 $ (428 ) $ 544 nm Other income (expense), net during the nine months ended December 31, 2012 primarily reflects royalty income partially offset by non-cash charge of $13,000 related to the increase in the fair value of the convertible preferred stock warrant on April 2, 2012, prior to its conversion into a common stock warrant. Other income (expense), net during the nine months ended December 31, 2011 primarily reflects a non-recurring, non-cash out-of-period charge of $0.5 million related to the increase in the fair value of our convertible preferred stock warrant liability partially offset by royalty income.Provision for income taxes Nine Months Ended December 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 4,965 $ 4,926 $ 39 0.8 % 40.4 % 39.1 % Our effective tax rate was 40.4% for the nine months ended December 31, 2012, compared to 39.1% in the same period last year. The effective tax rate is based on a projection of our annual fiscal year results. Our effective tax rate for the nine months ended December 31, 2012 was higher than the effective tax rate for the nine months ended December 31, 2011 largely due to a tax benefit recorded during the nine months ended December 31, 2011 related to an increase in the tax rate applied for deferred tax assets due to an increase in the federal and state tax rates, partially offset by the impact of state income tax credits.In addition, during the nine months ended December 31, 2012, we recognized $20.8 million of tax deductions associated with stock option exercises. As of December 31, 2012, $19.5 million of these tax deductions are considered “excess” stock compensation related deductions, resulting in a reduction in taxes payable of $4.5 million, recording a tax refund receivable of $3.0 million, with a corresponding increase in additional paid in capital of $7.5 million. We will recognize the remaining $0.4 million of stock compensation related deductions as a reduction in taxes payable in future periods as we generate state taxable income.Net income Nine Months Ended December 31, Change 2012 2011 $ % (in thousands, except for percentages) $ 7,317 $ 7,660 $ (343 ) (4.5 )% As a result of the factors above, net income decreased $0.3 million, or 4.5%, to $7.3 million for the nine months ended December 31, 2012 from $7.7 million for the nine months ended December 31, 2011.Excluding the impact of the voluntary product recall, our net income would have increased $1.0 million, or 13.1%, to $8.7 million for the nine months ended December 31, 2012 from $7.7 million for the nine months ended December 31, 2011. Three Months Ended
December 31, Nine Months Ended
December 31, 2013 2012 2013 2012 2013 2012 2013 2012 (in thousands, except for percentages) Net sales $ 46,177 $ 36,283 100.0 % 100.0 % $ 143,867 $ 117,262 100.0 % 100.0 % Cost of sales 27,951 23,267 60.5 % 64.1 % 88,978 72,539 61.8 % 61.9 % Gross profit 18,226 13,016 39.5 % 35.9 % 54,889 44,723 38.2 % 38.1 % Operating expenses: Selling, general and administrative expenses 13,421 10,687 29.1 % 29.5 % 37,286 32,437 25.9 % 27.7 % Total operating expenses 13,421 10,687 29.1 % 29.5 % 37,286 32,437 25.9 % 27.7 % Income from operations 4,805 2,329 10.4 % 6.4 % 17,603 12,286 12.2 % 10.5 % Interest expense (80 ) (40 ) (0.2 )% (0.1 )% (255 ) (120 ) (0.2 )% (0.1 )% Other income (expense), net 30 31 0.1 % 0.1 % 88 116 0.1 % 0.1 % Income before provision for income taxes 4,755 2,320 10.3 % 6.4 % 17,436 12,282 12.1 % 10.5 % Provision for income taxes 1,966 919 4.3 % 2.5 % 7,066 4,965 4.9 % 4.2 % Net income $ 2,789 $ 1,401 6.0 % 3.9 % $ 10,370 $ 7,317 7.2 % 6.2 % Net Sales Gross Profit Net Income Net Sales Gross Profit Net Income GAAP financial measures $ 46,177 $ 18,226 $ 2,789 $ 36,283 $ 13,016 $ 1,401 Increase/(decrease) of net sales reserve related to product recall (13 ) (13 ) (13 ) 1,570 1,570 1,570 Incremental cost of sales related to product recall — 62 62 — 690 690 Recoveries from insurance carrier related to product recall: Net sales (91 ) (91 ) (91 ) — — — Cost of sales — (342 ) (342 ) — — — Selling, general and administrative expenses — — (7 ) — — — Administrative costs related to product recall — — 14 — — — Costs associated with our planned acquisition of the Joplin Plant — — 249 — — — Secondary offering costs — — 202 — — — Change in fair value of convertible preferred stock warrant liability — — — — — — Provision for income taxes — — 29 — — (914 ) Non-GAAP figures $ 46,073 $ 17,842 $ 2,892 $ 37,853 $ 15,276 $ 2,747 Net Sales Gross Profit Net Income Net Sales Gross Profit Net Income GAAP financial measures $ 143,867 $ 54,889 $ 10,370 $ 117,262 $ 44,723 $ 7,317 Increase/(decrease) of net sales reserve related to product recall (134 ) (134 ) (134 ) 1,570 1,570 1,570 Incremental cost of sales related to product recall — 279 279 — 690 690 Recoveries from insurance carrier related to product recall: Net sales (721 ) (721 ) (721 ) — — — Cost of sales — (832 ) (832 ) — — — Selling, general and administrative expenses — — (47 ) — — — Administrative costs related to product recall — — 65 — — — Costs associated with our planned acquisition of the Joplin Plant — — 411 — — — Secondary offering costs — — 288 — — 704 Change in fair value of convertible preferred stock warrant liability — — — — — 13 Provision for income taxes — — 351 — — (1,199 ) Non-GAAP figures $ 143,012 $ 53,481 $ 10,030 $ 118,832 $ 46,983 $ 9,095 Three Months Ended December 31, Change % of Net Sales $ % 2013 2012 (in thousands, except for percentages) Meals $ 23,933 $ 16,223 $ 7,710 47.5 % 51.8 % 44.7 % Snacks 17,075 14,908 2,167 14.5 % 37.0 % 41.1 % Dressings, condiments and other 5,169 5,152 17 0.3 % 11.2 % 14.2 % Net sales $ 46,177 $ 36,283 $ 9,894 27.3 % 100.0 % 100.0 % Three Months Ended December 31, Change 2013 2012 $ % (in thousands, except for percentages) Cost of sales $ 27,951 $ 23,267 $ 4,684 20.1 % Gross profit $ 18,226 $ 13,016 $ 5,210 40.0 % Gross margin % 39.5 % 35.9 % Three Months Ended December 31, Change 2013 2012 $ % (in thousands, except for percentages) Operating expenses: SG&A $ 13,421 $ 10,687 $ 2,734 25.6 % SG&A as a percentage of net sales 29.1 % 29.5 % Three Months Ended December 31, Change 2013 2012 $ % (in thousands, except for percentages) Income from operations $ 4,805 $ 2,329 $ 2,476 106.3 % Income from operations as a percentage of net sales 10.4 % 6.4 % Three Months Ended December 31, Change 2013 2012 $ % (in thousands, except for percentages) Interest expense $ (80 ) $ (40 ) $ (40 ) 100.0 % Three Months Ended December 31, Change 2013 2012 $ % (in thousands, except for percentages) Other income $ 30 $ 31 $ (1 ) (3.2 )% Three Months Ended December 31, Change 2013 2012 $ % (in thousands, except for percentages) Provision for income taxes $ 1,966 $ 919 $ 1,047 113.9 % Effective tax rate 41.3 % 39.6 % Three Months Ended December 31, Change 2013 2012 $ % (in thousands, except for percentages) Net income $ 2,789 $ 1,401 $ 1,388 99.1 % Change % of Net Sales $ % 2013 2012 (in thousands, except for percentages) Meals $ 70,226 $ 52,759 $ 17,467 33.1 % 48.8 % 45.0 % Snacks 54,953 47,517 7,436 15.6 % 38.2 % 40.5 % Dressings, condiments and other 18,688 16,986 1,702 10.0 % 13.0 % 14.5 % Net sales $ 143,867 $ 117,262 $ 26,605 22.7 % 100.0 % 100.0 % Nine Months Ended December 31, Change 2013 2012 $ % (in thousands, except for percentages) Cost of sales $ 88,978 $ 72,539 $ 16,439 22.7 % Gross profit $ 54,889 $ 44,723 $ 10,166 22.7 % Gross margin % 38.2 % 38.1 % Nine Months Ended December 31, Change 2013 2012 $ % (in thousands, except for percentages) Operating expenses: SG&A $ 37,286 $ 32,437 $ 4,849 14.9 % SG&A as a percentage of net sales 25.9 % 27.7 % Nine Months Ended December 31, Change 2013 2012 $ % (in thousands, except for percentages) Income from operations $ 17,603 $ 12,286 $ 5,317 43.3 % Income from operations as a percentage of net sales 12.2 % 10.5 % Nine Months Ended December 31, Change 2013 2012 $ % (in thousands, except for percentages) Interest expense $ (255 ) $ (120 ) $ (135 ) 112.5 % Nine Months Ended December 31, Change 2013 2012 $ % (in thousands, except for percentages) Other income (expense), net $ 88 $ 116 $ (28 ) (24.1 )% Nine Months Ended December 31, Change 2013 2012 $ % (in thousands, except for percentages) Provision for income taxes $ 7,066 $ 4,965 $ 2,101 42.3 % Effective tax rate 40.5 % 40.4 % Nine Months Ended December 31, Change 2013 2012 $ % (in thousands, except for percentages) Net income $ 10,370 $ 7,317 $ 3,053 41.7 % December 31,
2012 March 31,
2012 (in thousands) $ 12,960 $ 562 10,110 11,870 12,989 9,618 38,806 16,427 (in thousands) Cash $ 2,986 $ 4,930 Accounts receivable, net 18,796 20,015 Inventory 23,407 15,147 Accounts payable 6,784 4,342 Accrued liabilities 9,104 12,021 38,426 31,925 (1) Working capital consists of total current assets less total current liabilities Our cash balance and working capital increased by $12.4 million and $22.4 million, respectively, as of December 31, 2012. The increase in working capital includes a $10.9 million increase in inventory. Following unanticipated demand spikes during the second quarter of fiscal 2013 related to strong back-to-school promotion efficiencies, we have significantly increased inventory levels to ensure our ability to meet peak demand in the fourth quarter, our largest sales quarter. Despite this investment in inventory levels, we generated $4.2 million cash from our operating activities during the nine months ended December 31, 2012. Working capital as of December 31, 2012 included a decrease in accounts receivable $1.6 million, a decrease in inventory $0.6 million and an increase in accrued liabilities $0.1 million, as a result of the provisions for product returns and costs associated with the product recall. We expect inventory levels to decrease in the fourth fiscal quarter of fiscal 2013.$20.0$40.0 million and is available to us through August 2014.2016. We believe that our cash and accounts receivable and potential cash flows from operations will be sufficient to satisfy our currently anticipated cash requirements through at least the next twelve months. We have historically generated cash from our operations, however, there can be no assurance that our operations will continue to generate cash flows in the future. We use cash generated from our operations to fund our ongoing operations including business expansion and growth. Nine Months Ended December 31, 2012 2011 (in thousands) $ 562 $ 7,333 4,210 (771 ) (1,498 ) (1,504 ) 9,686 (2,644 ) $ 12,960 $ 2,414 December 31,
2013 December 31,
2012 (in thousands) Cash at beginning of period $ 4,930 $ 562 Net cash provided by operating activities 3,750 4,210 Net cash used in investing activities (1,357 ) (1,498 ) Net cash provided by (used in) financing activities (4,337 ) 9,686 Cash at end of period $ 2,986 $ 12,960 Activities.OperatingActivitiesprovided $4.2of $3.8 million in the nine months ended December 31, 2013 compared to the same period in the prior year, decreased by $0.5 million. The main drivers of this change include:duringused in financing activities totaled $4.3 million in the nine months ended December 31, 2013, compared to net cash provided by financing activities of $9.7 million in the nine months ended December 31, 2012, primarily due to our net incomea decrease of $7.3 million, which included non-cash charges$14.0 million. Drivers of $0.7 million for depreciation and amortization, $0.7 million for stock-based compensation a $0.6 million reduction in allowances for trade discounts and a $0.5 million increase in inventory reserves due to inventory write-off associated with the product recall. Changes in operating asset and liability accounts provided an additional $3.0 million of net cash, which was primarily comprised of a $4.5 million increase in accrued expenses, a $4.4 million increase in prepaid expenses, other current and non-current assets, a $3.4 million increase in accounts payable, a $2.3 million increase in accounts receivable and a $0.4 million in income tax receivable and, offset by a $10.8 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. This increase in cash was offset by the excess tax benefit from stock-based compensation of $7.5 million. During three months ended December 31, 2012, we significantly increased inventory levels to ensure our ability to meet peak demand in the fourth quarter, our largest sales quarter. The increase in accrued expenses was driven by the purchases of inventory, which had been received as of December 31, 2012 but not yet invoiced. The increase in accounts payable was related to timing of invoices received and check runs in relation to the quarter end, which can vary from year to year.Operating activities used $0.8 million of cash during the nine months ended December 31, 2011, primarily due to our net income of $7.7 million, which included net non-cash charges of $0.7 million. Changes in operating asset and liability accounts used $9.2 million of net cash during the nine months ended December 31, 2011.Cash Flows from Investing Activities.Cash used in investing activities related to purchases of property and equipment during the nine months ended December 31, 2012 and 2011 was $1.5 million and $1.5 million, respectively, primarily related to investments made in our new enterprise resource planning system and manufacturing equipment to support our cost efficiency projects during the periods presented.Cash Flows from Financing Activities.Cash provided by financing activities totaled $9.7 million during the nine months ended December 31, 2012, comprised of:costs;costs, in the nine months ended December 31, 2012;$7.5$6.0 million; of $3.8 million received from exercises of stock options; andnet payan increase in draw down from the credit facility of $12.8 million$5.7 million.Cash used in financing activities totaled $2.6 million during the nine months ended December 31, 2011, which primarily consisted of $13.6 million in cash dividend payments made to stockholders, $1.8 million in payments of IPO costs and $0.6 million to repurchase certain stock options partially offset by proceeds of $13.3 million from net borrowings under our credit facility.Credit FacilityIn December 2011, we entered into a second amended and restated credit agreement (the “Credit Agreement”) with Bank of America, N.A., which provides for revolving loans and letters of credit up to $20.0 million and is available to us through August 2014. The Credit Agreement is secured by a lien on substantially all of our assets.Revolving advances under the Credit Agreement bear interest at the LIBOR plus 1.50%, as defined. Weighted average interest was 1.5% for each of the three and nine months ended December 31, 2012. Weighted average interest was 1.6% and 2.3% for the three and nine months ended December 31, 2011, respectively. As of December 31, 2012 and March 31, 2012, there was $20.0 million and $7.2 million, respectively, of availability for borrowings under the Credit Agreement. An unused line fee of 0.0625% per quarter is applied to the available balance unless our outstanding borrowing exceeds half of the borrowing limit. Interest is payable monthly.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. The Credit Agreement requires us to submit interim and annual financial statements by specified dates after each reporting period. We were in compliance with the financial covenants under the Credit Agreement as of December 31, 2012.2012: Payments Due by Period Total Less Than
One Year 1-3 Years 3-5 Years More than
Five Years (in thousands) $ 3,868 $ 596 $ 1,250 $ 1,277 $ 745 31 25 6 — — 3,899 621 1,256 1,277 745 14,033 14,023 10 — — 500 200 300 $ 18,432 $ 14,844 $ 1,566 $ 1,277 $ 745 Payments Due by Period Total 1-3 Years 3-5 Years (in thousands) Rent obligations(1) $ 3,311 $ 640 $ 1,285 $ 1,279 $ 107 Equipment lease obligations(2) 120 30 60 30 — Total operating lease obligations 3,431 670 1,345 1,309 107 Purchase commitments(3) 15,886 14,048 1,838 — — Product formula obligations(4) 1,700 150 300 1,250 — Warehousing overhead obligations(5) 300 200 100 — — Total $ 21,317 $ 15,068 $ 3,583 $ 2,559 $ 107 (1) We lease approximately 33,500 square feet of space that houses our corporate headquarters and a sample storage area at 1610 Fifth Street, Berkeley, California pursuant to a lease agreement, or Lease, that expireswas originally scheduled to expire in February 2016 (the “Lease”). On2016. In September 25, 2012, we entered into an amendment (the “Lease Amendment”) to the Lease for reconfiguration of approximately 6,700 square feet from the sample storage area to additional office space to accommodate our growth. The amendment also provided us with, among other things, an option to extendand extended the initial term of the lease for three additional 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”).February 2019. The terms, covenants and conditions of the Lease, as amended, will continue to govern the Option Periods, except that the applicable monthly rent for the Option Periodsadditional three years will be equal to 95% of the then fair market rental rate for the property,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.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. If we do not agree withThe table above assumes rent for 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, we 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. Concurrently with the execution of the Lease Amendment, we exercised the First Option to extend the initial lease for an additional three years to February 2019. The rent obligations above incorporate the effect of rent escalation and the increase in rent for the recaptured space at the per square footmonthly rental rate applicable to existing office space.last month’s rate of the original Lease.(2) We lease equipment under non-cancelable operating leases. These leases expire at various dates through 2015.2019, 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 to be used in the future to manufacture products. (4) This represents our obligation, to one of our contract manufacturers, for the product formulas purchased in November 2011. Of these amounts, $1.0 million is included in total liabilities in our condensed consolidated balance sheet as of December 31, 2013. (5) We have an agreement with our contract warehousing company to pay minimum overhead fees through June 2015. Off-balanceOut-of-period AdjustmentDuring the first nine months2012, filed with the SEC on June 8, 2012,2013 provides a detailed discussion of the market risks affecting our operations. We believe our exposure to these market risks did not change materially during the three and nine months ended December 31, 2012.2013.maintainhave established disclosure controls and procedures and internal controls that are designed to provide reasonable assuranceensure that the information required to be disclosed by the Company in ourthe reports that it files or submits under the Securities Exchange Act reportsof 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’sSEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officerprincipal executive officer and Chief Financial Officer,principal financial officer, as appropriate to allow timely decisions regarding required disclosures.disclosure committee, Chief Executive Officerprincipal executive officer and Chief Financial Officer,principal financial officer evaluated the effectiveness of our disclosure controls and procedures. Based on this review, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures as required by(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of the Exchange Act. Based on this review, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures1934) were effective as of December 31, 2012.werewas no changeschange in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) under the Exchange Act) that haveoccurred during the quarterly period ended December 31, 2013 that has materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.Inherent Limitations on EffectivenessFromMondelez International, Inc., et al., Alameda County Superior Court Case No. RG13-677800, names nine other companies that are either suppliers or retailers of ginger- or molasses-containing cookies. We cannot at this time reasonably estimate a range of exposure, if any, of the potential liability relating to this suit.a variety ofclaims, 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 anypredict or determine the ultimate outcome of these matters, we believe that none of these legal proceeding that,proceedings, individually or in the aggregate, is expected towill have a material adverse effect on our business, financial condition, results of operations or cash flows.position.factor hasfactors have been added to address our voluntary product recallplanned acquisition of a snack manufacturing plant in Joplin, Missouri and is a supplementare supplemental to the risk factors previously disclosed in our Annual Report on Form 10-K for fiscal 20122013 filed with the SEC on June 8, 2012.Businessbusiness and Industryvoluntary recall of certified organic and made with organic pizza products has affected our third quarterbusiness or financial results may be negatively affected if the Joplin acquisition is not successfully integrated.continuedepend, in part, on our ability to impactcontrol costs, drive incremental volume and successfully integrate the Joplin manufacturing plant into our financial resultscompany. If we are not able to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected and our business may be adversely affected. In addition, efforts to integrate the Joplin manufacturing plant into our company may also divert management attention and resources. Issues that may arise in connection with integrating the Joplin manufacturing plant include, among other things: integration of manufacturing and distribution activities; implementation and management of information systems; conforming the manufacturing plant’s controls, procedures and accounting and other policies to our own; retaining key management and employees; and labor negotiations and collective bargaining. In addition, our ability to realize the benefits expected from our acquisition is dependent on our ability to drive future quarters.On January 22, 2013,sales growth in our cookie and cracker business. If the demand for our cookie and cracker products does not increase at the rate we initiated a voluntary recall of our certified organic and made with organic pizza productsexpect over the long term, due to the possible presencecompetition or other factors, our results of fragmentsoperations may be adversely affected.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,cannot assure you that we will record administrative costs associated withbe able to integrate the managementoperations of the recall, including fees and incentivesJoplin manufacturing plant successfully, control costs, drive incremental volume or operate the Joplin manufacturing plant as profitably as anticipated. Our beliefs regarding the benefits to customers and legal expenses in our fourth fiscal quarter ending March 31, 2013. Certainbe derived from the acquisition of these accounting chargesthe Joplin manufacturing plant are based on our best estimates and may benumerous assumptions that are subject to changerisks and uncertainties that could deviate materially from our expectations.move forward in completing the voluntary recall. We will also incur someexpect there to be additional costs in future quarters. While we expect to recover a substantial portionconnection with the acquisition and integration of the charges forJoplin manufacturing plant into our operations, including costs related to information technology systems, additional personnel needs at both the voluntary recall in future quarters throughplant and corporate level, and transitional services provided by Safeway or its affiliates. The operation of the Joplin manufacturing plant may also divert management’s attention from the development of our existing recall insuranceoperations and fromcause our existing business to suffer.third-party supplier, we cannot guaranteeloss of operations at the Joplin manufacturing plant, which may be caused by work stoppages, disease outbreaks or pandemics, acts of war, terrorism, fire, tornadoes, earthquakes, flooding or other natural disasters, could delay or postpone production of our products and the products that the amounts we recover will cover all costs associated with the voluntary recall. While we have restarted the production and began shipping replacement product into distributors and retailers as of February 11, 2013 in ordercommitted to replenish retail shelves and inventories, we anticipate that pizza sales will be reduced in the fourth quarter ending March 31, 2013, as compared to our original expectationsmanufacture for the product line. Additionally, 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 injuriesSafeway, which could have serious consequencesa material adverse effect on pizza product salesour business, results of operations and salesfinancial condition, especially until such time as such interruption is resolved or an alternate source of our other products, our brand and reputation, anyproduction is secured.which could harm our business.ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSSales of Unregistered SecuritiesDuring the third quarter ended December 31, 2012, we issued an aggregate of 201,350 shares and 6,198 shares of our common stock to certain employees and officers upon the exercise of options awarded under our 2004 Plan and non-plan based awards, respectively, and since January 1, 2013 through January 31, 2013, we issued an aggregate of 3,344 and 6,198 shares, respectively, of our common stock to employees upon the exercises of options awarded under our 2004 Plan and non-plan based awards. We received aggregate proceeds of $1.7 million during the three months ended December 31, 2012 and $85,000 in the period since January 1, 2013 through January 31, 2013 as a result of the exercise of these options. We believe these transactions were exempt from the registration requirements of the Securities Act in reliance on Rule 701 thereunder as transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under Rule 701. As of January 31, 2013, options to purchase an aggregate of 725,726 shares and 148,726 shares of our common stock remain outstanding under the 2004 Plan and non-plan based awards, respectively. All option awards granted under the 2004 Plan and non-plan based awards were made prior to the effectiveness of our IPO. No further option grants will be made under our 2004 Plan.None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering.The exhibits listed below are filed as a part of this Quarterly Report on Form 10-Q. Incorporation by Reference Description Form File No. Exhibit(s) Filing Date 2.1 Agreement of Purchase and Sale by and among Safeway Australia Holdings, Inc., Safeway Inc. and Annie’s, Inc., dated November 5, 2013 Form 10-Q 001-35470 2.1 November 7, 2013 3.1 Second Restated Certificate of Incorporation of Annie’s, Inc., dated September 10, 2013 Form 8-K 001-35470 3.3 September 13, 2013 3.2 Second Amended and Restated Bylaws of Annie’s, Inc., effective September 10, 2013 Form 8-K 001-35470 3.4 September 13, 2013 10.1 Executive Employment Agreement dated October 16, 2013 between Annie’s, Inc. and Zahir Ibrahim+ Form 8-K 001-35470 10.1 October 21, 2013 10.2 Transition and Separation Agreement dated October 16, 2013 between Annie’s, Inc. and Kelly J. Kennedy + Form 8-K 001-35470 10.2 October 21, 2013 10.3 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 November 7, 2013 10.4* 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. and Annie’s Baking, LLC 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 Company’s Quarterly Report on Form 10-Q for the three months ended December 31, 2013, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Condensed Consolidated Balance Sheets as of December 31, 2013 and March 31, 2013, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2013 and 2012, (iii) Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended December 31, 2013, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2013 and 2012 and (v) Notes to Condensed Consolidated Financial Statements. ExhibitNumberDescription 31.1Certification of the Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1Certification of Chief Executive Officer and Chief Financial Officer, pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.101The following materials from the Company’s Quarterly Report on Form 10-Q for the three and nine months ended December 31, 2012 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets, (ii) Unaudited Condensed Consolidated Statements of Operations, (iii) Unaudited Condensed Consolidated Statement of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (iv) Unaudited Condensed Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.11, 201310, 2014ANNIE’S, INC. By: Kelly J. Kennedy Kelly J. KennedyZahir M. Ibrahim Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer and Duly Authorized Officer) 36