Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended SeptemberJune 30, 2013

2014

OR

¨
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period FromTo

Commission File Number: 001-35470

Annie’s, Inc.

(Exact name of registrant as specified in its charter)

Delaware 20-1266625

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1610 Fifth Street

Berkeley, CA

 94710
(Address of principal executive offices) (Zip Code)

(510) 558-7500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer¨x Accelerated filerxo
Non-accelerated filero¨  (Do(Do not check if a smaller reporting company)Smaller reporting company¨o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨o    No  x

Under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), Annie’s, Inc. qualifies as an “emerging growth company,” as defined under the JOBS Act.


On OctoberJuly 15, 2013,2014, the registrant had 16,912,01517,095,396 shares of common stock, par value $0.001 per share, outstanding.



Table of Contents

Annie’s, Inc.

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1.
 

Condensed Consolidated Financial Statements (Unaudited)

  
2Item 1.

Condensed Consolidated Balance Sheets as of September 30, 2013 and March 31, 2013

2

 3

 4

 5

6
Item 2.

18
Item 3.

31
Item 4.

  32
Item 1.

33
Item 1A.

33
Item 5.

34
Item 6.

 36

37


1


PART I – FINANCIAL INFORMATION

ITEM 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Annie’s, Inc.

Condensed Consolidated Balance Sheets

Statements of Operations

(unaudited)

(in thousands)

   September 30,
2013
  March 31,
2013
 

ASSETS

   

CURRENT ASSETS:

   

Cash

  $11,090   $4,930  

Accounts receivable, net of allowance

   19,100    20,015  

Inventory

   17,333    15,147  

Deferred tax assets

   2,558    2,558  

Income tax receivable

   —      588  

Prepaid expenses and other current assets

   5,411    5,050  
  

 

 

  

 

 

 

Total current assets

   55,492    48,288  

Property and equipment, net

   6,192    6,138  

Goodwill

   30,809    30,809  

Intangible assets, net

   1,086    1,116  

Deferred tax assets, long-term

   3,617    3,704  

Other non-current assets

   147    157  
  

 

 

  

 

 

 

Total assets

  $97,343   $90,212  
  

 

 

  

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

   

CURRENT LIABILITIES:

   

Accounts payable

  $7,512   $4,342  

Accrued liabilities

   13,652    12,021  
  

 

 

  

 

 

 

Total current liabilities

   21,164    16,363  

Credit facility

   —      7,007  

Other non-current liabilities

   984    913  
  

 

 

  

 

 

 

Total liabilities

   22,148    24,283  
  

 

 

  

 

 

 

Commitments and contingencies (Note 6)

   

STOCKHOLDERS’ EQUITY

   

Common stock

   17    17  

Additional paid-in capital

   94,875    93,190  

Accumulated deficit

   (19,697  (27,278
  

 

 

  

 

 

 

Total stockholders’ equity

   75,195    65,929  
  

 

 

  

 

 

 

Total liabilities and stockholders’ equity

  $97,343   $90,212  
  

 

 

  

 

 

 

thousands, except share and per share amounts)

 Three Months Ended June 30,
 2014 2013
Net sales$43,297
 $39,318
Cost of sales31,069
 24,278
Gross profit12,228
 15,040
Selling, general and administrative expenses14,176
 11,364
Income (loss) from operations(1,948) 3,676
Interest expense(91) (71)
Other income, net15
 26
Income (loss) before provision for (benefit from) income taxes(2,024) 3,631
Provision for (benefit from) income taxes(804) 1,459
Net income (loss)$(1,220) $2,172
Earnings (loss) per share   
—Basic$(0.07) $0.13
—Diluted$(0.07) $0.13
Weighted average shares of common stock outstanding used in computing earnings (loss) per share   
—Basic17,059,147
 16,869,557
—Diluted17,059,147
 17,353,222
See accompanying notes to the unaudited condensed consolidated financial statements


2


Annie’s, Inc.

Condensed Consolidated Statements of Operations

Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)

   Three Months Ended September 30,  Six Months Ended September 30, 
   2013  2012  2013  2012 

Net sales (including product recall benefit of $751 during the three and six months ended September 30, 2013)

  $58,650   $46,686   $97,690   $80,979  

Cost of sales (including product recall benefit of $490 and $273 during the three and six months ended September 30, 2013, respectively)

   36,749    28,786    61,027    49,272  
  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

   21,901    17,900    36,663    31,707  

Operating expenses:

     

Selling, general and administrative expenses (including product recall benefit of $32 and expense of $11 during the three and six months ended September 30, 2013, respectively)

   12,538    11,539    23,865    21,750  
  

 

 

  

 

 

  

 

 

  

 

 

 

Income from operations

   9,363    6,361    12,798    9,957  

Interest expense

   (104  (40  (175  (80

Other income (expense), net

   32    36    58    85  
  

 

 

  

 

 

  

 

 

  

 

 

 

Income before provision for income taxes

   9,291    6,357    12,681    9,962  

Provision for income taxes

   3,739    2,572    5,100    4,046  
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income

  $5,552   $3,785   $7,581   $5,916  
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income per share

     

—Basic

  $0.33   $0.22   $0.45   $0.35  
  

 

 

  

 

 

  

 

 

  

 

 

 

—Diluted

  $0.32   $0.21   $0.44   $0.34  
  

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average shares of common stock outstanding used in computing net income per share

     

—Basic

   16,896,227    17,070,327    16,882,965    17,003,534  
  

 

 

  

 

 

  

 

 

  

 

 

 

—Diluted

   17,392,447    17,702,516    17,376,646    17,656,356  
  

 

 

  

 

 

  

 

 

  

 

 

 

thousands)

 June 30,
2014
 March 31,
2014
ASSETS   
CURRENT ASSETS:   
Cash$1,644
 $17,308
Accounts receivable17,288
 18,324
Inventory27,719
 18,489
Deferred tax assets4,077
 3,312
Income tax receivable2,472
 
Prepaid expenses and other current assets4,661
 4,277
Total current assets57,861
 61,710
Restricted cash
 300
Property and equipment, net13,215
 6,620
Goodwill32,105
 30,809
Intangible assets, net1,070
 1,055
Deferred tax assets, long-term4,265
 3,039
Other non-current assets105
 108
Total assets$108,621
 $103,641
LIABILITIES AND STOCKHOLDERS’ EQUITY   
CURRENT LIABILITIES:   
Accounts payable$7,844
 $7,144
Accrued liabilities12,023
 10,680
Total current liabilities19,867
 17,824
Other non-current liabilities2,881
 905
Total liabilities22,748
 18,729
Commitments and contingencies (Note 6)
 
STOCKHOLDERS’ EQUITY   
Common stock17
 17
Additional paid-in capital99,912
 97,731
Accumulated deficit(14,056) (12,836)
Total stockholders’ equity85,873
 84,912
Total liabilities and stockholders’ equity$108,621
 $103,641
See accompanying notes to the unaudited condensed consolidated financial statements


3


Annie’s, Inc.

Condensed Consolidated StatementStatements of Stockholders’ Equity

Cash Flows

(unaudited)

(in thousands, except share amounts)

           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

   60,530     —       633     —      633  

Excess tax benefit from stock-based compensation

   —       —       643     —      643  

Stock-based compensation

   —       —       409     —      409  

Net Income

   —       —       —       7,581    7,581  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Balance at September 30, 2013

   16,909,546    $17    $94,875    $(19,697 $75,195  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

thousands)

 Three Months Ended June 30,
 2014 2013
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net income (loss)$(1,220) $2,172
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:   
Depreciation and amortization546
 309
Stock-based compensation1,223
 293
Excess tax benefit from stock-based compensation(321) (370)
Accretion of imputed interest on purchase of intangible asset36
 36
Deferred taxes(1,242) 144
Changes in operating assets and liabilities:   
Accounts receivable1,036
 4,328
Inventory(7,735) (3,326)
Income tax receivable(2,472) 588
Prepaid expenses, other current and non-current assets(478) 1,418
Accounts payable385
 (1,867)
Accrued expenses and other non-current liabilities1,982
 (583)
Net cash provided by (used in) operating activities(8,260) 3,142
CASH FLOWS FROM INVESTING ACTIVITIES:   
Acquisition of Joplin Plant(7,508) 
Purchase of property and equipment(1,221) (272)
Purchase of intangible assets(30) 
Restricted cash300
 
Net cash provided by (used in) investing activities(8,459) (272)
CASH FLOWS FROM FINANCING ACTIVITIES:   
Proceeds from credit facility2,877
 4,449
Payments under credit facility(2,877) (11,449)
Excess tax benefit from stock-based compensation321
 370
Proceeds from exercises of stock options734
 392
Net cash provided by (used in) financing activities1,055
 (6,238)
NET INCREASE (DECREASE) IN CASH(15,664) (3,368)
CASH—Beginning of period17,308
 4,930
CASH—End of period$1,644
 $1,562
See accompanying notes to the unaudited condensed consolidated financial statements


4


Annie’s, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

   Six Months Ended September 30, 
   2013  2012 

CASH FLOWS FROM OPERATING ACTIVITIES:

   

Net Income

  $7,581   $5,916  

Adjustments to reconcile net income to net cash provided by operating activities:

   

Depreciation and amortization

   637    463  

Stock-based compensation

   409    447  

Provision for doubtful accounts

   21    —    

Inventory reserves

   430    (80

Excess tax benefit from stock-based compensation

   (643  (5,266

Accretion of imputed interest on purchase of intangible asset

   72    71  

Change in fair value of convertible preferred stock warrant liability

   —      13  

Amortization of deferred financing costs

   6    9  

Deferred taxes

   87    217  

Changes in operating assets and liabilities:

   

Accounts receivable, net

   894    162  

Inventory

   (2,616  (2,119

Income tax receivable

   588    (149

Prepaid expenses, other current and non-current assets

   (174  4,092  

Accounts payable

   3,158    1,359  

Related-party payable

   —      (1,305

Accrued expenses and other non-current liabilities

   2,273    5,426  
  

 

 

  

 

 

 

Net cash provided by operating activities

   12,723    9,256  
  

 

 

  

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

   

Purchase of property and equipment

   (649  (1,009
  

 

 

  

 

 

 

Net cash used in investing activities

   (649  (1,009
  

 

 

  

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

   

Proceeds from credit facility

   7,720    2,663  

Payments to credit facility

   (14,727  (15,459

Proceeds from common shares issued in initial public offering, net of issuance costs

   —      11,146  

Excess tax benefit from stock-based compensation

   643    5,266  

Proceeds from exercises of stock options

   450    2,204  
  

 

 

  

 

 

 

Net cash provided by (used in) financing activities

   (5,914  5,820  
  

 

 

  

 

 

 

NET INCREASE IN CASH

   6,160    14,067  

CASH—Beginning of period

   4,930    562  
  

 

 

  

 

 

 

CASH—End of period

  $11,090   $14,629  
  

 

 

  

 

 

 

NONCASH INVESTING AND FINANCING ACTIVITIES:

   

Purchase of property and equipment funded through accounts payable

  $12   $13  

Conversion of convertible preferred stock into common stock

  $—     $81,373  

See accompanying notes to the unaudited condensed consolidated financial statements

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1.Description of Business

1. Description of Business
Annie’s, Inc. (the “Company”), a Delaware corporation incorporated on April 28, 2004, is a natural and organic food company. The Company offers over 135145 products in the following three product categories: meals; snacks; and dressings condiments and other.condiments. 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

2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation

The accompanying interim condensed consolidated balance sheets as of September 30, 2013, the interim condensed consolidated statement of stockholders’ equity for the six months ended September 30, 2013, and the interim condensed consolidated statements of operations for the three and six months ended September 30, 2013 and 2012, and cash flows for the six months ended September 30, 2013 and 2012 are unaudited. These interimunaudited condensed consolidated financial statements of Annie’s Inc. have been prepared in accordance withpursuant to generally accepted accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the applicable rules and regulations of the United States Securities and Exchange Commission (“SEC”(the “SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These 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 filed with the SEC on June 14, 2013.10-Q. The March 31, 20132014 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 complete financial statements.

The unaudited interim condensed consolidatedGAAP. Certain information and note disclosures normally included in annual financial statements have been prepared oncondensed or omitted pursuant to the same basis asrules and regulations of the audited consolidated financial statements and, inSEC. In the opinion of management, reflect all adjustments (consisting only of a normal recurring natureadjustments, except as noted in Note 7 below) considered necessary to state fairly our financial position as of September 30, 2013 andfor a fair statement have been included. The results of our operations for the three and six months ended SeptemberJune 30, 2013 and 2012, and cash flows for the six months ended September 30, 2013 and 2012. The interim results for the six months ended September 30, 20132014 are not necessarily indicative of the results that mayof operations to be expected for the year ending March 31, 2014.

entire fiscal year.

The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned direct and indirect subsidiaries, Annie’s Homegrown, Inc., Annie’s Enterprises, Inc. 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 Certain reclassifications were made to the Company’s stockholders, including funds affiliatedprior financial statements to conform to the current year presentation. These condensed consolidated financial statements should be read in conjunction with Solera Capital, LLC, sold 4.8 million shares at the $19.00 offering pricefinancial statements and notes thereto included in the IPO. The Company sometimes refers to Solera Capital, LLC and its affiliates as Solera in this QuarterlyCompany’s Annual Report on Form 10-Q.

Immediately prior10-K for the year ended March 31, 2014.

Recently Issued Accounting Standard
On May 28, 2014, the FASB issued a new financial accounting standard on revenue from contracts with customers. The standard outlines a single comprehensive model for entities 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 warrant to purchase a total of 80,560 shares of common stockuse in accounting for revenue arising from contracts with customers and the related convertible preferred stock warrant liability was reclassified to additional paid-in capital.

Pursuant to the Company’s Amended and Restated Certificate of Incorporation or Charter and its Amended and Restated Bylaws, which becamesupersedes most current revenue recognition guidance. The accounting standard is 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 September 30, 2013, 16,909,546 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 Offering

On August 6, 2012, the Company closed a secondary public offering, in which certain stockholders, including Solera, sold 3,649,976 shares of common stock at an offering price of $39.25 per share.for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early adoption is not permitted. The Company did not receive any proceeds fromis currently evaluating 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.

Shelf Registration Statement

On July 16, 2013, the Company filed a registration statement on Form S-3 to register 2,537,096 shares of common stock of the Company held by Solera. In connection with preparations for filingimpact of this registration statement, the Company incurred $86,000 for legal, accounting and other out-of-pocket expenses on Solera’s behalf in the six months ended September 30, 2013.

standard.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reported periods. Actual results could differ from those estimates.

Freight and Warehousing Costs
Freight and warehousing costs are included in selling, general and administrative expenses in the condensed consolidated statements of operations. Freight and warehousing costs were $1.9 million and $1.5 million for the three months ended June 30, 2014 and 2013, respectively.
Research and Development (R&D) Costs
R&D costs are included in selling, general and administrative expenses in the condensed consolidated statements of operations. R&D costs were $0.6 million for each of the three months ended June 30, 2014 and 2013, respectively.



5

Table of Contents
Annie’s, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

Advertising Costs
Advertising costs are included in selling, general and administrative expenses in the condensed consolidated statements of operations. Total advertising costs were $0.1 million and $0.4 million for the three months ended June 30, 2014 and 2013, respectively.
Revision of Financial Statements
In finalizing its fiscal 2014 results, the Company determined that the historical methodology for estimating certain trade allowances did not include all related trade promotion costs. Specifically, the methodology did not consider trade promotion activities conducted by the Company’s customers after quarter end related to sales that occurred prior to quarter end related to interim and annual periods through the third quarter of fiscal 2014. These misstatements were not material to any previously reported financial results; however, the Company revised its previously issued financial statements and accompanying notes in its Annual Report on Form 10-K for the year ended March 31, 2014, to reflect these items in the appropriate periods. As part of the revision, the Company also corrected certain additional previously-identified misstatements. The net effect of the revision for the three months ended June 30, 2013 is an increase in net income of $0.1 million.
The Company evaluated the cumulative impact of the errors on prior periods under the guidance in Accounting Standards Codification (“ASC”) 250-10, Accounting Changes and Error Corrections, and the guidance from the SEC in Staff Accounting Bulletin (“SAB”) No. 99, Materiality. The Company also evaluated the impact of correcting the errors through an adjustment to its financial statements under the guidance in ASC 250-10 relating to SAB No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements. The Company concluded that these errors were not material, individually or in the aggregate, to any of the prior reporting periods and, therefore, amendments of previously filed reports were not required.
The effects of the revision on the condensed consolidated financial statements for the three months ended June 30, 2013 are detailed below.
Condensed Consolidated Statement of Operations (in thousands, except per share amounts):
 Three Months Ended June 30, 2013
  Reported  Correction Revised
Net sales$39,040
 $278
 $39,318
Gross profit14,762
 278
 15,040
Selling, general and administrative expenses11,327
 37
 11,364
Income from operations3,435
 241
 3,676
Income before provision for income taxes3,390
 241
 3,631
Provision for income taxes1,361
 98
 1,459
Net income2,029
 143
 2,172
Earnings per share—basic$0.12
 $0.01
 $0.13
Earnings per share—diluted$0.12
 $0.01
 $0.13

6

Table of Contents
Annie’s, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

Condensed Consolidated Statement of Cash Flows (in thousands):
 Three Months Ended June 30, 2013
  Reported  Correction Revised
CASH FLOWS FROM OPERATING ACTIVITIES:     
Net income$2,029
 $143
 $2,172
Adjustments to reconcile net income to net cash provided by operating
     activities:
     
     Deferred taxes31
 113
 144
     Changes in operating assets and liabilities:     
     Accounts receivable4,606
 (278) 4,328
     Accrued expenses and other non-current liabilities(605) 22
 (583)
     Net cash provided by (used in) operating activities3,142
 
 3,142
3. Balance Sheet Components
Accounts Receivable and Concentration Risk

Customers withthat generated 10% or more of the Company’s net sales consist of the following:

   Net Sales 
   Customer A  Customer B  Customer C 

Three Months Ended September 30,

    

2013

   19  16  16

2012

   27  13  14

Six Months Ended September 30,

    

2013

   21  13  14

2012

   27  11  12

 Net Sales
 Customer A Customer B Customer C
Three Months Ended June 30,     
201412% 12% 14%
201324% 9% 12%
As of SeptemberJune 30, 2013,2014, two customers represented 26% and 19%, respectively, of accounts receivable. As of March 31, 2014, three customers represented 31%, 19%17%, and 10%, respectively, of accounts receivable. The same three customers represented 26%, 36% and 10%, respectively, of accounts receivable as of March 31, 2013.

Fair Value of Financial Instruments

Fair value

Inventory
Inventory is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full termcomprised of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair valuefollowing (in thousands):

 June 30,
2014
 March 31,
2014
Raw materials$4,901
 $1,442
Work in process815
 616
Finished goods22,003
 16,431
Inventory$27,719
 $18,489

7

Table of the assets or liabilities.

Contents

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The carrying amounts


Property and Equipment, Net
Property and equipment, net are comprised of the Company’s financial instruments, including accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. Upon consummation of the IPO on April 2, 2012, prior to the automatic conversion of the convertible preferred stock warrant into a common stock warrant, it 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 (Note 7).

Property and Equipment

following (in thousands):

 June 30,
2014
 March 31,
2014
Equipment and automotive$8,807
 $4,004
Software3,499
 2,722
Leasehold improvements1,408
 1,381
Building and improvements920
 
Plates and dies501
 402
Land180
 
Construction in progress1,378
 1,058
Total property and equipment16,693
 9,567
Less: Accumulated depreciation and amortization(3,478) (2,947)
Property and equipment, net$13,215
 $6,620
The Company capitalizes certain internal and external costs related to the development and enhancement of the Company’s internal-use software. Capitalized internal-use software, development costswhich are included in property and equipment onin the accompanying condensed consolidated balance sheets. As of September 30, 2013, theThe Company had $2.2$3.2 million and $2.7 million in capitalized software development costs, net of accumulated amortization, including $0.6$0.9 million and $1.0 million in construction in progress. Asconstruction-in-progress as of June 30, 2014 and March 31, 2013, the Company had $2.1 million capitalized software development costs, net of accumulated amortization, including $0.4 million in construction in progress.

Shipping and Handling Costs

Shipping and handling costs are included in selling, general and administrative expenses in the condensed consolidated statements of operations. Shipping and handling 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. Shipping and handling costs recorded as a component of selling, general and administrative expenses were $1.82014, respectively.

Depreciation expense was $0.5 million and $1.5$0.3 million for the three months ended SeptemberJune 30, 20132014 and 2012, respectively and were $3.3 million and $2.8 million for the six months ended September 30, 2013 and 2012, respectively.

Research and Development Costs

Research and development costs consist of the costs incurred to develop new products. 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 development costs recorded as a component of selling, general and administrative expenses were $0.6 million and $0.7 million for the three months ended September 30, 2013 and 2012, respectively and were $1.2 million and $1.5 million for the six months ended September 30, 2013 and 2012, respectively.

Advertising Costs

Advertising costs include the costs of producing 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 September 30, 2013 and 2012 included in selling, general and administrative expenses were $0.4 million and $0.1 million, respectively, and were $0.8 million and $0.4 million for the six months ended September 30, 2013 and 2012, respectively.

Product Recall

The Company establishes reserves for product recalls on a product-specific basis when circumstances giving rise to the recall become known. The Company, when establishing reserves for a product recall, considers cost estimates for any fees and incentives to customers for their effort to return the product, freight and destruction charges for returned products, warehouse and inspection fees, repackaging materials, point-of-sale materials and other costs including costs incurred by contract manufacturers. Additionally, the Company estimates product returns from consumers and customers across distribution channels, utilizing third-party data and other assumptions. These factors are updated and reevaluated each period and the related reserves are adjusted when these factors indicate that the recall reserves are either insufficient to cover or exceed the estimated product recall expenses.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Significant changes in the assumptions used to develop estimates for product recall reserves could affect key financial information, including accounts receivable, inventory, accrued liabilities, net sales, gross profit, operating expenses and net income. In addition, estimating product recall reserves requires a high degree of judgment in areas such as estimating consumer returns, shelf and in-stock inventory at retailers across distribution channels, fees and incentives to be earned by customers for their effort to return the products, future freight rates and consumers’ claims.

Net Income Per Share of Common Stock

Basic net income per share of common stock is calculated by dividing the net income attributable to common stockholders by the weighted-average number of 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 securities outstanding during the period. The Company utilizes the treasury stock method to calculate potential common shares that underlie its stock options to purchase common stock and restricted stock units. Performance share units were excluded from potential common shares since no shares were issuable as of September 30, 2013 and March 31, 2013. Certain stock options to purchase our common stock and restricted stock units had an anti-dilutive effect on the earnings per share for the periods presented, and were also excluded.

3.Balance Sheet Components

Inventory

Inventory is comprised of the following (in thousands):

   September 30,
2013
   March 31,
2013
 

Raw materials

  $2,063    $1,391  

Work in process

   1,020     2,142  

Finished goods

   14,250     11,614  
  

 

 

   

 

 

 

Inventory

  $17,333    $15,147  
  

 

 

   

 

 

 

Property and Equipment, Net

Property and equipment, net are comprised of the following (in thousands):

   September 30,
2013
  March 31,
2013
 

Equipment and automotive

  $3,835   $2,959  

Software

   2,410    2,410  

Leasehold improvements

   1,344    1,195  

Plates and dies

   318    244  
  

 

 

  

 

 

 

Total property and equipment

   7,907    6,808  

Less: Accumulated depreciation and amortization

   (2,364  (1,760

Construction in progress

   649    1,090  
  

 

 

  

 

 

 

Property and equipment, net

  $6,192   $6,138  
  

 

 

  

 

 

 

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company incurred depreciation expense of $313,000 and $607,000 for the three and six months ended September 30, 2013, respectively. The depreciation expense for the same periods in the prior year was $248,000 and $433,000, respectively.

Intangible Assets, Net

Intangible assets, net are comprised of the following (in thousands):

   September 30,
2013
  March 31,
2013
 

Product formulas

  $1,023   $1,023  

Other intangible assets

   189    189  
  

 

 

  

 

 

 

Total intangible assets

   1,212    1,212  

Less: accumulated amortization

   (126  (96
  

 

 

  

 

 

 

Intangible assets, net

  $1,086   $1,116  
  

 

 

  

 

 

 

The Company incurred amortization

 June 30, 2014 March 31, 2014  
 Gross   Net Gross   Net  
 Carrying Accumulated Carrying Carrying Accumulated Carrying Useful
 Amount Amortization Amount Amount Amortization Amount Lives
Product formulas$1,053
 $(132) $921
 $1,023
 $(119) $904
 5 - 25 years
Other intangible assets189
 (40) 149
 189
 (38) 151
 5 - 25 years
Total$1,242
 $(172) $1,070
 $1,212
 $(157) $1,055
  
Amortization expense of $15,000 and $30,000 on its intangible assets duringwas $15,000 for each of the three and six months ended SeptemberJune 30, 2014 and 2013. The amortization expense for the same periods over the prior year was $15,000 and $30,000, respectively.

The estimated future amortization expense relating to intangible assets is anticipated to be $47,000 for the remainder of fiscal 2014,2015, $62,000 for each of the next five years from fiscal 2016 through fiscal 20192020, totaling $310,000, and thereafter is $30,000, $60,000 and $756,000, respectively.

$713,000 after fiscal 2020.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets as of SeptemberJune 30, 20132014 and March 31, 20132014 include receivables from contract manufacturers and suppliers of $3.0$2.3 million and $3.9$2.7 million, respectively.


8

Table of Contents
Annie’s, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

Accrued Liabilities

The following table shows the components of accrued liabilities (in thousands):

   September 30,
2013
   March 31,
2013
 

Payroll and employee-related expenses

  $2,310    $3,779  

Accrued trade expenses

   5,060     2,299  

Inventory received not invoiced

   4,818     4,038  

Deferred rent

   253     260  

Brokerage commissions

   231     407  

Other accrued liabilities

   980     1,238  
  

 

 

   

 

 

 

Total accrued liabilities

  $13,652    $12,021  
  

 

 

   

 

 

 

 June 30,
2014
 March 31, 2014
Payroll and employee-related expenses$3,244
 $2,907
Inventory received not invoiced4,114
 2,744
Accrued trade expenses2,373
 1,601
Accrued professional fees1,413
 566
Income tax payable
 1,727
Other accrued liabilities879
 1,135
Total accrued liabilities$12,023
 $10,680
4. Joplin Acquisition
On April 2, 2014, the Company acquired a snack manufacturing business including a plant in Joplin, Missouri (the “Joplin Plant”) for $6.0 million of cash, plus the value of inventory and supplies at closing. The Joplin Plant has been the primary manufacturer of the Company's cookie and cracker products for more than ten years. The Company funded the acquisition with $7.2 million in cash on hand and restricted cash of $0.3 million, which was allocated to tangible assets acquired and liabilities assumed based on their respective estimated fair values on the date of acquisition. The excess of the consideration paid over the fair value of the identifiable net assets acquired of $1.3 million was recorded as goodwill, of which $0.2 million is expected to be deductible for tax purposes. In connection with the closing of the acquisition, the Company entered into a three-year supply agreement with an affiliate of Safeway Inc. (“Safeway”), pursuant to which the Company will manufacture products for the affiliate. The Company recorded deferred revenue of $1.9 million related to this supply agreement that will be recorded as revenue over the term of the agreement. Since the date of acquisition, the Joplin Plant generated net sales to Safeway of $2.0 million and had net income of $0.1 million through June 30, 2014. The preliminary allocation of the aggregate cost of the acquisition was as follows (in thousands):
 
Total Purchase
Price Allocation
Machinery and equipment$4,727
Inventory1,495
Building and improvement920
Deferred tax asset, long-term749
Land180
Deferred revenue(1,859)
Goodwill1,296
Total purchase price$7,508
The acquisition of the Joplin Plant was not material to the Company’s financial position or results of operations, and therefore pro forma operating results are not presented, since the results would not be significantly different than reported results.

9

Table of Contents
Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

4.Credit Facility

In 2005, the


5. Credit Facility
The Company entered intohas a bank linerevolving credit facility of credit agreement (the “Credit Agreement”)$40.0 million with Bank of America, N.A., which provided for revolving loans up to $11.0 million. In March 2008, the Company amended the Credit Agreement with Bank of America to establish an inter-creditor agreement with another lender (Note 7). In August 2010, the Company amended the Credit Agreement to decrease the maximum borrowing limit on revolving loans to $10.0 million and extended the expiration date to August 20, 2012. In December 2011, the Company entered into a second amended and restated credit facility with Bank of AmericaN. A. that among other things, provided for an increaseexpires in its line of credit to $20.0 million and an extension of the term through August 2014. In March 2013, the Company entered into another amendment to its credit facility. This amendment provides for, among other things, an increase in the line of credit to $40.0 million and extension of the term through August 2016. The Credit Agreementcredit facility is collateralized by substantially all of the Company’s assets.

The Company may select from three interest rate options for borrowings under the credit facility: (i) LIBOR (as defined in the credit facility) plus 1.25%, (ii) IBOR (as defined in the credit facility) plus 1.25% or (iii) Prime Rate (as defined in the credit facility). Weighted average interest was 1.4% and 1.5% for the three and six months ended September 30, 2013, respectively. Weighted average interest was 1.5% for each of the three and six months ended September 30, 2012. The Company is required to pay a commitment fee on the unused credit facility commitments, if the outstanding balance is less than half the commitment, at an annual rate ranging from 0.25% to 0.40% depending on the utilization rate. As of September 30, 2013 and March 31, 2013, there was $40.0 million and $33.0 million, respectively, of availability forThere were no borrowings outstanding under the Credit Agreement. Interest is payable monthly.

The credit facility contains restrictions on, among other things,and the Company’s ability to incur additional indebtedness, pay dividends or make other distributions and make investments and loans. The credit facility also limits the Company’s ability to make capital expenditures in excess of $15.0 million. The credit facility requires that the Company maintain a Funded Debt (as defined in the credit facility) to Adjusted EBITDA (as defined in the credit facility) ratio of not more than 2.75 to 1.0 and a minimum Net Worth (as defined in the credit facility) equal to at least $50.0 million, plus 30% of earnings after taxes earned each quarter (if positive), beginning with the June 2013 quarterly earnings. 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 covenants as of SeptemberJune 30, 20132014 and March 31, 2013.

5.Related Party Transactions

Agreements with Solera Capital, LLC

The Company had an advisory services agreement with Solera, which it terminated upon the consummation of the IPO2014.

6. Commitments and as such the Company paid Solera a one-time termination fee of $1.3 million in April 2012.

Additionally, the Company is a party to an amended and restated registration rights agreement dated as of November 14, 2005, or Registration Rights Agreement, relating to its shares of common stock held by certain affiliates of Solera and certain other stockholders. On August 6, 2012, the Company closed a secondary public offering, in which certain stockholders, including Solera, sold 3,649,976 shares of common stock at an offering price of $39.25 per share. The Company did not receive any proceeds from the sale of shares by the selling stockholders. The offering expenses incurred by the Company were $0.7 million, including legal, accounting and printing costs and various other fees associated with the registration and sale of common stock sold in the secondary public offering.

In connection with Solera’s exercise of its rights under the Registration Rights Agreement, the Company filed a registration statement on Form S-3 on July 16, 2013 to register Solera’s remaining shares. In connection with preparations for filing of this registration statement, the Company incurred $86,000 for legal and other out-of-pocket expenses on Solera’s behalf during the six months ended September 30, 2013.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

6.Commitments and Contingencies

Contingencies

Lease Commitments

The Company leases its offices and 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 six months ended SeptemberJune 30, 2014 and 2013 was $156,000$180,000 and $306,000,$150,000, respectively. Rent expense for the three and six months ended September 30, 2012 was $120,000 and $239,000, respectively.

Future minimum lease payments under the non-cancelable operating leases as of September 30, 2013 are as follows (in thousands):

   Lease Payments 

Six Months Ending March 31, 2014

  $330  

Fiscal Year Ending March 31:

  

2015

   675  

2016

   673  

2017

   669  

2018

   662  

2019

   586  
  

 

 

 

Total future minimum lease payments

  $3,595  
  

 

 

 

Purchase Commitments

The Company has material non-cancelable purchase commitments, directly or through contract manufacturers, to purchase ingredients to be used in the future to manufacture its products. As of September 30, 2013, the Company’s purchase commitments totaled $14.5 million, which will substantially be incurred within a year.

In September 2011, the Company entered into an agreement with its contract warehousing company that includes minimum overhead fees of $200,000 annually beginning April 1, 2012 through June 30, 2015. As of September 30, 2013, the remaining obligation under the agreement for overhead fees was $350,000.

In November 2011, the Company entered into an agreement with one of its contract manufacturers for the purchase of product formulas for a purchase price of $2.0 million. The agreement requires annual payments of at least $150,000 in each of the first six years of the agreement with the balance of the $2.0 million payment due at the end of the seven-year term in November 2018. As of September 30, 2013, the Company’s remaining obligation for product formulas was $1.85 million.

Indemnifications

In the normal course of business, the Company enters into contracts that contain a variety of representations and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made. The 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 commercial obligations.

Legal Matters

On September 4,December 6, 2013, a private organization called the Center for Environmental Health (“CEH”) issued a 60-day notice of intent to sue (“Notice”)sued the Company and its subsidiary, Annie’s Homegrown, Inc., in Superior Court of the State of California in the County of Alameda under California Health & Safety Code §§ 25249.5 et seq. (commonly referred to as “Proposition 65”). In the Notice, CEH claims that warnings are required in California under Proposition 65 for alleged exposures to lead and lead compounds from cookies that contain ginger or molasses, including Annie’s Gluten-Free Ginger Snap Bunny Cookies. Under Proposition 65, any private enforcer such as CEH may file a lawsuit if it first issues a valid 60-day notice, and if the California Attorney General or other specified California public enforcers do not file suit within 60 days after service. A Proposition 65 plaintiff may seek

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

is seeking injunctive relief, as well as civil penalties which may be assessed up to a maximum of $2,500 per violation per day and a private plaintiff does not need to show that anyone has been harmed by the alleged exposures. A prevailing plaintiff may also seek its attorneys’ fees and costs undercosts. The lawsuit, entitled Center for Environmental Health v. Mondelez International, Inc., et al., Alameda County Superior Court Case No. RG13-677800, names twenty-two other California laws.

Although CEH hascompanies that are either suppliers or retailers of ginger- or molasses-containing cookies. The Company intends to vigorously defend against this claim and while the Company does not yetpresently believe that it will have a material adverse effect on its financial condition, given the early stages of the matter, it is not possible to estimate the amount or range of any potential loss.

On or about June 11, 2014, Steve Taormina filed a lawsuit namingpurported class action complaint against the Company, orand certain of its current and former officers, in the United States District Court for the Northern District of California. The lawsuit alleges violations of the Exchange Act by the Company and the officers for making allegedly material false and misleading public statements regarding the Company’s business and operations between August 8, 2013 and June 3, 2014 and seeks unspecified monetary damages and other relief against the defendants. On June 30, 2014, Donna Weiss filed a second purported class action complaint in the Northern District of California, against the same parties, containing substantially similar allegations and seeking a substantially similar recovery.
On June 18, 2014, Anna H. Goodman, filed a derivative complaint purportedly on behalf of Annie’s, Homegrown, Inc., withinagainst the pastCompany’s Board and Solera Capital LLC. On July 29, 2014 Dan Stanick, represented by the same law firm as Ms. Goodman, filed substantially the same complaint in the Superior Court of California, County of Alameda. These lawsuits generally allege breaches of fiduciary duties by each of the Board members and Solera Capital, by engaging in alleged wrongful conduct, including conduct complained of in the securities litigation matters described above, and seek unspecified monetary damages and other relief against the defendants.
The class action and derivative lawsuits described in the paragraphs above followed and relate to the Company’s announcement of a material weakness in internal controls over financial reporting as identified in Item 9A of the Company’s Annual Report on Form 10-K for the fiscal year CEH has filed several lawsuits against other manufacturers and retailers regarding various types of products containing molasses and/or ginger, such as licorice candy, cookies, and baking mix products. In CEH’s cases involving cookies and baking mix products, CEH’s operative complaints have put at issue only those cookies or baking mix products that contain ginger and/or molasses as ingredients.ended March 31, 2014. The Company cannot at this time reasonablyintends to defend vigorously against these claims and while the Company does not presently believe that they will have a material adverse effect on its financial condition, given the early stages of the matters, it is not possible to estimate athe amount or range of exposure, if any potential loss.

10

Table of the potential liability should a suit be brought in connection with the Notice.

Contents

Annie’s, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

Additionally, from time to time, the Company is subject to claims, assessments or other legal proceedings in the ordinary course of business, including product liability claims, employee claims, and other general liability claims. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that none of these legal proceedings, individually or in the aggregate, will have a material adverse effect on its financial position.

7.Convertible Preferred Stock Warrant

In March 2008, in connection with a prior term loan, the Company had issued a warrant to Hercules Technology II, L.P. (“Hercules”) for the purchaseposition or results of 80,560 shares of Series A 2005 Convertible Preferred Stock at an exercise price of $8.07 per share. The warrant was immediately exercisable on the date of issuanceoperations and was scheduled to expire at the earlier of five years from a qualifying IPO of the Company’s common stock or April 1, 2018. Upon the consummation of the Company’s IPO on April 2, 2012, the warrant became a warrant to purchase 80,560 shares of the Company’s common stock. As such, on April 2, 2012, the Company measured the fair value of the outstanding convertible preferred stock warrant using an option pricing method and recorded a non-cash charge of $13,000 related to the increase in the fair value of the convertible preferred stock 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 Company’s common stock by surrendering 17,367 shares to pay for the exercise. As a result, the Company issued Hercules 63,193 shares of common stock.

8.Preferred Stock

As of each of September 30, 2013 and March 31, 2013, the Company’s Charter authorized 5,000,000 shares of preferred stock, $0.001 par value per share. As of September 30, 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 Stock

As of each of September 30, 2013 and March 31, 2013, the Company’s Charter authorized 30,000,000 shares of common stock, $0.001 par value per share, respectively, of which 16,909,546 and 16,849,016 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 whenever funds are legally available therefor and if, as and when declared by the Company’s Board of Directors. No dividends were declared or paid during the six months ended September 30, 2013 and 2012, respectively.

10.Stock-Based Compensation

The Company has adopted performance incentive plans (the 2004 Stock Option Plan and the Omnibus Incentive Plan, which together are the “Plans”) under which nonqualified 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

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

continuance of the employment with the Company. The performance share units granted to employees vest based on achievement of required cumulative compounded adjusted diluted earnings per share growth during the stipulated three-year period applicable to a grant. cash flows.

7. Stock-Based Compensation
Stock-based compensation expense included in selling, general and administrative expenses was $116,000$1.2 million and $231,000$0.3 million for the three months ended SeptemberJune 30, 2014 and 2013, and 2012, respectively, and was $409,000 and $447,000respectively. In finalizing its results for the sixthree months ended SeptemberJune 30, 20132014, the Company identified $0.9 million of stock-based compensation expense that related to periods through March 31, 2014, but were not previously recorded. The Company determined that these costs were immaterial to its previously issued financial statements and 2012, respectively.

its expected results for fiscal 2015, and therefore previously issued financial statements were not revised and these costs were recorded in the three-month period ended June 30, 2014.

The following table summarizes thestock option activity of stock options during the sixthree months ended SeptemberJune 30, 2013:

   Number of Shares  Weighted-Average
Exercise Price
 

Balance, March 31, 2013

   1,203,990   $13.26  

Granted

   42,276    38.62  

Forfeited

   (77,746  18.31  

Exercised

   (60,530  10.46  
  

 

 

  

 

 

 

Balance, September 30, 2013

   1,107,990   $13.24  
  

 

 

  

 

 

 

2014:

 Number of Shares 
Weighted-Average
Exercise Price
Balance at March 31, 2014913,825
 $13.58
Granted73,737
 32.48
Forfeited(4,197) 19.00
Exercised(55,604) 13.20
Balance at June 30, 2014927,761
 $15.08
The weighted average grant date fair value of employee stock options granted during the sixthree months ended SeptemberJune 30, 20132014 was $14.03$11.15 per share. The total intrinsic value of stock options exercised during the sixthree months ended SeptemberJune 30, 20132014 was $1.9$1.1 million. The intrinsic value is calculated based on the difference between the exercise price and the fair value of the common stock at time of exercise.

The following table summarizes the activity of unvested restricted stock unitsunit and performance share unitsunit activity during the sixthree months ended SeptemberJune 30, 2013:

Shares-Based Awards

  Shares  Weighted-Average
Grant Date
Fair Value
 

Unvested at March 31, 2013

   71,165   $21.73  

Granted

   47,366    39.91  

Vested

   (4,692  45.27  

Forfeited

   (13,442  24.16  
  

 

 

  

 

 

 

Unvested at September 30, 2013

   100,397   $28.69  
  

 

 

  

 

 

 

2014:

Shares-Based AwardsShares 
Weighted-Average
Grant Date
Fair Value
Unvested at March 31, 201488,910
 $31.84
Granted82,431
 32.48
Vested
 
Forfeited(1,789) 27.40
Unvested at June 30, 2014169,552
 $32.20
As of SeptemberJune 30, 2013,2014, there were 73,33399,458 unvested performance share units outstanding, net of actual forfeitures. As of SeptemberJune 30, 2013,2014, the number of shares estimated to be issued at the end of the performance period(s) is a total of 36,67237,039 shares. The maximum number of total shares that could be issued at the end of performance period(s) is 110,005149,208 shares.

As of SeptemberJune 30, 2013,2014, there was $3.9$5.3 million of total unrecognized compensation cost related to unvested share-based compensation arrangements which is expected to be recognized over a weighted average period of 3.1 years.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

11.Income Taxes

8. Income Taxes
The Company’s effective tax rate decreased towas 39.7% and 40.2% for the three months ended SeptemberJune 30, 2014 and 2013, compared to 40.5% for the three months ended September 30, 2012. The effective tax rate was 40.2% for the six months ended September 30, 2013, compared to 40.6% for the six months ended September 30, 2012.respectively. The effective tax rate is based on a projection of the Company’s annual fiscal year results. The effective tax rate for the three and six months ended SeptemberJune 30, 2014 is comparable to the three months ended June 30, 2013 was lower thanafter considering a discrete item in the effective tax ratecurrent period.

11

Table of Contents
Annie’s, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

9. Earnings Per Share
Basic earnings (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding for the threeperiod. Diluted earnings (loss) per share is computed by giving effect to all potentially dilutive securities outstanding during the period. The Company utilizes the treasury stock method to calculate potentially dilutive common shares that underlie its stock options to purchase common stock and six months ended Septemberrestricted stock units. Performance share units were excluded from potentially dilutive common shares since the performance condition had not been satisfied as of June 30, 2012 due to the impact of permanent items2014 and federal and state income tax credits.

12.Net Income per Share of Common Stock attributable to Common Stockholders

March 31, 2014.

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net incomeearnings (loss) per share of common stock for the periods presented, because including them would have been anti-dilutive:

   Three Months Ended September 30,   Six Months Ended September 30, 
   2013   2012   2013   2012 

Options to purchase common stock

   85,046     2,562     133,515     2,562  

Restricted stock units

   5,434     6,256     12,864     6,256  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   90,480     8,818     146,379     8,818  
  

 

 

   

 

 

   

 

 

   

 

 

 

 Three Months Ended June 30,
 2014 2013
Options to purchase common stock927,761
 132,737
Restricted stock units174,244
 7,640
Total1,102,005
 140,377
A reconciliation of the basic and diluted net incomeearnings (loss) per share attributable to common stockholders is as follows (in thousands, except share and per share amounts):

   Three Months Ended September 30,   Six Months Ended September 30, 
   2013   2012   2013   2012 

Net income per share:

        

Net income

  $5,552    $3,785    $7,581    $5,916  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares of common stock outstanding used in computing net income—basic

   16,896,227     17,070,327     16,882,965     17,003,534  

Potential dilutive options

   482,058     625,684     480,517     646,468  

Potential dilutive restricted stock units

   14,162     6,505     13,164     6,354  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares of common stock outstanding used in computing net income—diluted

   17,392,447     17,702,516     17,376,646     17,656,356  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share

        

—Basic

  $0.33    $0.22    $0.45    $0.35  
  

 

 

   

 

 

   

 

 

   

 

 

 

—Diluted

  $0.32    $0.21    $0.44    $0.34  
  

 

 

   

 

 

   

 

 

   

 

 

 

13.Geographic Areas and Product Sales

 Three Months Ended June 30,
 2014 2013
Earnings (loss) per share:   
Net income (loss)$(1,220) $2,172
Weighted average shares of common stock outstanding used in computing earnings (loss)—basic17,059,147
 16,869,557
Potential dilutive options
 472,117
Potential dilutive restricted stock units
 11,548
Weighted average shares of common stock outstanding used in computing earnings (loss)—diluted17,059,147
 17,353,222
Earnings (loss) per share   
—Basic$(0.07) $0.13
—Diluted$(0.07) $0.13
10. Geographic Areas and Product Sales
The Company’s net sales by geographic area, based on the location to which the product was shipped, are summarized as follows (in thousands):

   Three Months Ended September 30,   Six Months Ended September 30, 
   2013   2012   2013   2012 

United States

  $56,226    $44,423    $93,671    $77,571  

Canada

   2,424     2,263     4,019     3,408  
  

 

 

   

 

 

   

 

 

   

 

 

 
  $58,650    $46,686    $97,690    $80,979  
  

 

 

   

 

 

   

 

 

   

 

 

 

 Three Months Ended June 30,
 2014 2013
United States$41,436
 $37,712
Canada1,861
 1,606
 $43,297
 $39,318

12

Table of Contents
Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)


The following table sets forth net sales by product category (in thousands):

   Three Months Ended September 30,   Six Months Ended September 30, 
   2013   2012   2013   2012 

Meals

  $29,739    $21,869    $46,293    $36,536  

Snacks

   22,057     19,146     37,878     32,609  

Dressings, condiments and other

   6,854     5,671     13,519     11,834  
  

 

 

   

 

 

   

 

 

   

 

 

 
  $58,650    $46,686    $97,690    $80,979  
  

 

 

   

 

 

   

 

 

   

 

 

 

 Three Months Ended June 30,
 2014 2013
Meals$17,545
 $16,672
Snacks17,861
 15,934
Dressings and condiments5,852
 6,712
Sales to Safeway under supply agreement (Note 4)2,039
 
 $43,297
 $39,318
All of the Company’s long-lived assets are located in the U.S.

14.Product Recall

11. Product Recall
In January 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 six months ended SeptemberJune 30, 2013.

The Company recorded the estimated customer2014 and consumer returns2013 as a reduction of net sales, related costs associated with product returns, destruction charges, inventory write-off and costs incurred by contract manufacturers as cost of sales, and administrative costs associated with the recall such as legal expenses as selling, general and administrative expenses. The Company recorded $1.2 million for insurance recoveries and a $0.1 million in reduction of net sales reserve in connection with the product recall in each of the three and six months ended September 30, 2013, respectively. The impact of the recall-related charges and related insurance recoveriespresented in the three and six months ended September 30, 2013 is as followstable below (in thousands except per share amount)amounts):

   Three Months Ended
September 30, 2013
   Six Months Ended
September 30, 2013
 

Benefit to net sales

  $751    $751  

Benefit to cost of sales

   490     273  

Benefit to/(incremental) selling, general and administrative expenses

   32     (11
  

 

 

   

 

 

 

Total benefit to income before income taxes

  $1,273    $1,013  
  

 

 

   

 

 

 

Benefit to net income

  $761    $606  
  

 

 

   

 

 

 

Benefit to net income per diluted share

  $0.04    $0.03  
  

 

 

   

 

 

 

 Three Months Ended June 30,
 2014 2013
Benefit to/(incremental) cost of sales$18
 $(217)
Benefit to/(incremental) selling, general and administrative expenses
 (43)
Total benefit to/(reduction of) income before income taxes$18
 $(260)
Benefit to/(reduction of) net income (loss)$11
 $(156)
Benefit to/(reduction of) net income (loss) per diluted share$
 $(0.01)
The Company does not expect any significant further additional costs associated with the voluntary product recall. The Company expects to receive additional recoveries from the involved insurance carriersrecoveries in future quarters.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

15.Subsequent Events

On November 5, 2013, the Company entered into an agreement


13

Table of purchase and sale with Safeway Inc. and Safeway Australia Holdings, Inc. (together the “Selling Parties”) to acquire a snack 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 and to close the acquisition in the first quarter of fiscal 2015. The Joplin Plant has been the primary manufacturer of the Company’s cookie and cracker products for more than ten years. Company products produced in the Joplin Plant currently account for over 50% of its total snacks net sales and represent the majority of the Joplin Plant’s total production volume. In connection with the closing of the acquisition, 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.

On November 5, 2013, the Company entered into an amendment to its credit facility. This amendment provides for, among other things, consent for the Company to create a limited liability company (“LLC”) and guarantee performance of the LLC in the event and to the extent the Company assigns to the LLC any of its rights or obligations under the Purchase Agreement and for the issuance of letters of credit. Additionally, the amendment revises certain covenants and representations and warranties of the Company under the Credit Agreement.

Contents

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q (“Form 10-Q”) and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended March 31, 20132014 (“fiscal 2013”2014”) included in our Annual Report on Form 10-K (“Form 10-K”) filed with the SEC on June 14, 2013.2, 2014. 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,” or “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 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” including risks relating to competition; new product introductions; implementation of our growth strategy; our brand; our reputation; product liability claims; competition; new product recalls and related insurance recoveries (if any); economic disruptions; changes in consumer preferences;introductions; ingredient and packaging costs and availability; a material weakness in our internal control over financial reporting; reliance on a limited number of distributors, retailers, contract manufacturers and third-party suppliers and an outside warehouse facility; efficiency projects;our acquisition of Joplin Plant; economic disruptions; changes in consumer preferences; intellectual property and related disputes; regulatory compliance;compliance and independent certification; product labeling and marketing; transportation; our supply-chain; productivity initiatives; our and our customers’ inventory levels; seasonality; employee recruitment and seasonality.retention; information technology systems; and our revolving credit facility. 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.

Executive Overview

of Financial Results

Annie’s, Inc. is a 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.sold across the mainstream grocery, mass merchandiser and natural retailer channels. We have the #1number one natural and organic market position in four product lines: macaroni and cheese, snack crackers, fruit snacks and graham crackers.

Our loyal and growing consumer following has enabled us to migrate from our natural and organic roots to a brand sold across the mainstream grocery, mass merchandiser and natural retailer channels. We offer over 135 products and are present in over 26,500 retail locations in the United States and Canada.

Our net sales are derived primarily from the sale of meals, snacks, dressings condiments and other productscondiments under the Annie’s Homegrown and Annie’s Naturals brand names. We have experienced strong growth across all product categories, resulting from our focus on supporting our best-selling itemsexisting product portfolio and the introduction of new products in these categories.

Gross profit is net of cost of sales, which consists of the costs of ingredients in the manufacture of products, contract manufacturing fees, inventory write-off, packaging costsitems.

Key economic or industry-wide factors and in-bound freight charges. Ingredients accounttrends affecting our business
Consumers’ preference for the largest portion of the cost of sales followed by contract manufacturing fees and packaging costs.

Our selling, general and administrative expenses consist primarily of marketing and advertising expenses, freight and warehousing, wages, related payroll and employee benefit expenses, stock-based compensation, commissions to outside sales representatives, legal and professional fees, travel expenses, other facility related costs, such as rent and depreciation, and consulting expenses. The primary components of our marketing and advertising expenses include trade advertising, samples, consumer events, sales data, consumer research and search engine and digital advertising.

On November 5, 2013, we entered into an agreement with Safeway Inc. and Safeway Australia Holdings, Inc. (together the “Selling Parties”) to acquire a snack manufacturing plant in Joplin, Missouri (the “Joplin Plant”) for $6.0 million, plus the value of inventory and supplies at closing (calculated based on the Selling Parties’ costs and currently estimated at approximately $4.0 million) . We expect to fund the acquisition with cash from operations and, if necessary, by drawing under our revolving credit facility, and to close the acquisition in the first quarter of

fiscal 2015. The Joplin Plant has been the primary manufacturer of our cookie and cracker products for more than ten years. Our products produced in the Joplin Plant currently account for over 50% of our total snacks net sales and represent the majority of the Joplin Plant’s total production volume. In connection with the closing of the acquisition, we expect to enter into a three-year supply agreement with an affiliate of Safeway Inc., pursuant to which we will manufacture products for the affiliate. Including the impact of previously planned efficiency projects related to the Joplin Plant, the acquisition is not expected to materially impact our net income in fiscal 2015. The supply agreement is expected to have a positive impact on net sales and a negative impact on gross margin percentage. Over the long term, however, we expect the acquisition to have a positive impact on our gross margin percentage. Our Executive Vice President, Operations and Administration previously had oversight over the Joplin Plant when she was employed by Safeway, prior to joining us. Additionally, prior to joining us, our Senior Vice President, Supply Chain and Operations had experience running a variety of manufacturing plants.

At the end of fiscal year 2014, we will be deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and as a result, we will cease to be an “emerging growth company,” as defined in the JOBS Act. As a result, we will no longer be exempted from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and our independent registered public accounting firm will be required to evaluate and report on internal control over financial reporting. In connection with the auditor attestation, we expect to incur additional fees, consulting and other costs of approximately $0.3 million in fiscal 2014.

Voluntary Product Recall

We first began shipping organic frozen pizza in January 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 sourced 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.

Direct costs of the voluntary product recall include customer and consumer returns, costs associated with returned product, costs incurred by our contract manufacturers, incremental costs associated with short-term sourcing of replacement flour, destruction charges and inventory write-off, retailer margin and customer fees and incentives. We also incurred administrative costs such as legal expenses, accounting fees and public relations expenses.

In the second quarter of fiscal 2013, we recorded $1.2 million for insurance recoveries and $0.1 million in reduction of net sales reserve in connection with the recall. We expect to recover additional amounts from the involved insurance carriers in future quarters. Recoveries are recorded to offset the charges once recovery is probable. We expect to receive additional recoveries from the involved insurance carriers in future quarters.

Trends and Other Factors Affecting Our Business

The growth rates for the U.S. natural and organic food market have been, and are expectedproducts continues to continue to be, higher than those for the overall U.S. food market. We believe growth in the natural and organic food market is driven by various factors, including heightened awareness of the role that food and nutrition play in long-term health and wellness. Many consumers prefer natural and organic productsrise due to increasing concerns over the purity and safety of food as a result of the presence of pesticide residues, growth hormones and artificial and genetically engineered ingredients in the foods we eat. In this growing market, we expect competition from other natural and organic packaged food companies as well as mainstream conventional packaged food companies to increase, as they may seek to introduce or have introduced products in our key categories or seek to make existing products more attractive to the natural and organic consumer. We continue to experience greater consumer demand for natural and organic food products and increasing awareness

Key results of the Annie’s brand,quarter
Net sales increased 10%, with 5% coming from our base business and 5% coming from contract manufacturing revenues associated with our three-year supply agreement with Safeway, Inc. (“Safeway”), which has contributed to increased growthtook effect in net sales.

Our top-line growththe current quarter.

Sales volume continues to be driven bythe driver of our increased penetration of mainstream grocery and mass merchandiser channels, improved placementyear-over-year growth, with higher prices contributing approximately one percent to growth for the quarter.
Net sales growth in the mainstream grocery channelquarter was led by snacks, which increased 12% over the prior year. Our meals business grew approximately 5%, and continued product innovation which includes adding new flavorsour dressings and sizes to existing linescondiments business declined 13%. Overall, our revenue growth slowed in the quarter as well as introductiona result of new product lines. In June 2013, we entered into the single-serve microwavable cup segment of the macaroni and cheese category and45% reduction in August 2013, we entered into family-size frozen entrées.

We purchase finished productsorders from our contract manufacturers. With an industry-wide commodity cost escalation starting in fiscal 2008, we became more directly involvedlargest customer, UNFI, as they strive to decrease their inventories.

Gross margin for the quarter was 28.2%, down 10.1% versus prior year. The year-over-year gross margin decline was primarily due to higher trade spend costs, significant increases in the sourcing of the ingredients for our products. This allowed us to consolidate ingredient sourcing across contract manufacturers in order to negotiate more favorable pricing on ingredients and, in some cases, to lock in ingredient pricing for typically six to 12 months forward through non-cancelable purchase commitments, directly or through contract manufacturers. In fiscal 2013, our contracted ingredients represented approximately 50% of our materials costs and over 31% of our cost of sales. These efforts mitigated the impact of volatileorganic wheat, and increasing commodity costs on our business. We plan to continue to expand our portfolio of contracted ingredients and negotiate pricing agreement for future purchases to allow us sufficient time to respond to changes in our ingredient costs over time.

Additionally, we have invested significant time and energy to offset higher costs and achieve cost reductions and productivity improvements in our supply chain. These efficiency projects have focused on selecting more cost-effective contract manufacturers, negotiating lower tolling fees, consolidating in-bound freight, leveraging warehouse expense and reducing ingredient and packaging costs through increased volume buys, contract consolidation, direct purchasing, investment in capital equipment at our contract manufacturers to improve line throughput and reduce production costs, and price negotiation. We believe that our planned acquisition of the Joplin Plant is the next evolution of our hybrid model and provides us with the opportunity over the long-term to benefit from fixed cost leverage as we drive snacks volume.

While our cost structure continues to benefit from ongoing productivity and cost reducing initiatives, we have experienced increased margin pressure in fiscal 2014 resulting from several factors, including: continued input cost inflation; more limited price increases compared to prior years; a faster pace of product innovation; customer and product mix, changes; increased inventory obsolescence;partially offset by sales price increases and higher trade spending to support continued distribution and market share growth in a competitive food retailing environment. Although commodity costs for conventional ingredients have recently moderated or declined, we have not yet experienced similar cost changes to our ingredients and continue to experience year-over-year commodity increases.

Selling, general and administrativesaving initiatives.


14

Table of Contents

SG&A expenses have increased as a result of the investment we have made in building our organization and adding headcount to support our growth. 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, promote awareness of our brand, and compete effectively against conventional as well as natural and organic brands, and in research and development to support our robust innovation pipeline. Despite these increased investments, our selling, general and administrative expenses did not increase as significantly as net sales, and resulted in lower expense as a percent of net sales in the three and six months ended September 30, 2013.

Results of Operations

The following table sets forth items included in our consolidated statements of operations in dollars andquarter increased as a percentage of net sales for the periods presented:

  Three Months Ended
September 30,
  % of Net
Sales
  Six Months Ended
September 30,
  % of Net
Sales
 
  2013  2012  2013  2012  2013  2012  2013  2012 
  (in thousands, except for percentages) 

Net sales

 $58,650   $46,686    100.0  100.0 $97,690   $80,979    100.0  100.0

Cost of sales

  36,749    28,786    62.7  61.7  61,027    49,272    62.5  60.8
 

 

 

  

 

 

    

 

 

  

 

 

   

Gross profit

  21,901    17,900    37.3  38.3  36,663    31,707    37.5  39.2

Operating expenses:

        

Selling, general and administrative expenses

  12,538    11,539    21.4  24.7  23,865    21,750    24.4  26.9
 

 

 

  

 

 

    

 

 

  

 

 

   

Total operating expenses

  12,538    11,539    21.4  24.7  23,865    21,750    24.4  26.9
 

 

 

  

 

 

    

 

 

  

 

 

   

Income from operations

  9,363    6,361    16.0  13.6  12,798    9,957    13.1  12.3

Interest expense

  (104  (40  (0.2)%   (0.1)%   (175  (80  (0.2)%   (0.1)% 

Other income (expense), net

  32    36    0.1  0.1  58    85    0.1  0.1
 

 

 

  

 

 

    

 

 

  

 

 

   

Income before provision for income taxes

  9,291    6,357    15.8  13.6  12,681    9,962    13.0  12.3

Provision for income taxes

  3,739    2,572    6.4  5.5  5,100    4,046    5.2  5.0
 

 

 

  

 

 

    

 

 

  

 

 

   

Net income

 $5,552   $3,785    9.5  8.1 $7,581   $5,916    7.8  7.3
 

 

 

  

 

 

    

 

 

  

 

 

   

Our discussiondue to higher ongoing payroll costs, higher audit, legal and other consulting costs as well as additional stock-based compensation expense of our results of operations in this Quarterly Report on Form 10-Q includes certain adjusted net sales, gross profit, gross margin and net income figures that exclude the impact of our January 2013 voluntary product recall, costs associated with our planned acquisition of the Joplin Plant, shelf registration and secondary offering costs. These figures are non-GAAP financial measures. We calculate these non-GAAP figures by eliminating the impact of our January 2013 voluntary product recall, costs associated with our planned acquisition of the Joplin Plant, shelf registration and secondary offering costs, 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 items mentioned above. However, our computation of these non-GAAP measures is likely to differ from methods used by other companies in computing similarly titled or defined terms, limiting the usefulness of these measures. These non-GAAP 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. The table below reconciles these non-GAAP figures to the most directly comparable GAAP financial measures:

  Three months ended
September 30, 2013
  Three months ended
September 30, 2012
  Six months ended
September 30, 2013
  Six months ended
September 30, 2012
 
  Net Sales  Gross Profit  Net Income  Net Income  Net Sales  Gross Profit  Net Income  Net Income 

GAAP financial measures

 $58,650   $21,901   $5,552   $3,785   $97,690   $36,663   $7,581   $5,916  

Reversal of net sales reserve related to product recall

  (121  (121  (121  —      (121  (121  (121  —    

Recoveries from insurance carrier related to product recall:

        

Net sales

  (630  (630  (630  —      (630  (630  (630  —    

Cost of sales

  —      (490  (490  —      —      (273  (273  —    

Selling, general and administrative expenses

  —      —      (40  —      —      —      (40  —    

Administrative costs related to product recall

  —      —      8    —      —      —      51    —    

Costs associated with our planned acquisition of the Joplin Plant

  —      —      162    —      —      —      162    —    

Shelf registration costs

  —      —      52    —      —      —      86    —    

Secondary offering costs

  —      —      —      704    —      —      —      704  

Change in fair value of convertible preferred stock warrant liability

  —      —      —      —      —      —      —      13  

Provision for income taxes

  —      —      426    (285  —      —      308    (286
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Non-GAAP figures

 $57,899   $20,660   $4,919   $4,204   $96,939   $35,639   $7,124   $6,347  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012

Net Sales

   Three Months Ended September 30,   Change  % of Net Sales 
   2013   2012   $   %  2013  2012 
   (in thousands, except for percentages) 

Meals

  $29,739    $21,869    $7,870     36.0  50.7  46.9

Snacks

   22,057     19,146     2,911     15.2  37.6  41.0

Dressings, condiments and other

   6,854     5,671     1,183     20.9  11.7  12.1
  

 

 

   

 

 

   

 

 

    

 

 

  

 

 

 

Net sales

  $58,650    $46,686    $11,964     25.6  100.0  100.0
  

 

 

   

 

 

   

 

 

    

 

 

  

 

 

 

Net sales increased $12.0 million, or 25.6%, to $58.7 million in the three months ended September 30, 2013 compared to $46.7 million in the three months ended September 30, 2012. Net sales for the three months ended September 30, 2013 benefited from insurance recoveries of $0.6 million and a reversal of net sales reserve of $0.1$0.9 million related to our January 2013 voluntary product recall. The net sales increase was primarily driven by volume with approximately 240 basis pointsprior years.

For the quarter, we reported an operating loss of growth from higher average selling prices. Distribution gains and our mainline placement initiative contributed to the volume increase, primarily impacting mainstream grocery and mass merchandiser channels. These gains were partially offset by lower volume$(1.9) million versus operating income of $3.7 million a year ago.
Our loss per share in the natural channel, due primarilycurrent quarter was $(0.07) compared to diluted earnings per share of $0.13 a year ago.
Joplin Acquisition
On April 2, 2014, we acquired a snack manufacturing plant in Joplin, Missouri (the “Joplin Plant”) for $6.0 million of cash, plus the value of inventory reductions by a large customer.

The increase in net sales reflects a $7.9 million, $2.9 million and $1.2 million increase in net sales of meals, snacks and dressings, condiments and other, respectively. The increase in meals was predominantly driven by strong growth in natural, gluten-free and single-serve microwavable macaroni and cheese products combinedsupplies at closing. We funded the acquisition with initial shipments of frozen entrées which were introduced in August 2013. Net sales of meals also benefited from insurance recoveries and reversal of net sales reserve mentioned above. The increase in snacks was primarily due to growth in our fruit snacks, grahams, mixed snacks and granola bars product lines. The increase in the dressings, condiments and other category was driven by strength in both dressings and condiments.

Excluding the benefit of insurance recoveries and reversal of net sales reserve, our net sales would have increased $11.2 million, or 24.0%, to $57.9$7.2 million in cash on hand and restricted cash of $0.3 million. The Joplin Plant has been the three months ended September 30, 2013 compared to $46.7 million inprimary manufacturer of our cookie and cracker products for more than ten years. In connection with the three months ended September 30, 2012.

Gross Profit

   Three Months Ended September 30,  Change 
   2013  2012  $   % 
   (in thousands, except for percentages) 

Cost of sales

  $36,749   $28,786   $7,963     27.7
  

 

 

  

 

 

  

 

 

   

Gross profit

  $21,901   $17,900   $4,001     22.4
  

 

 

  

 

 

  

 

 

   

Gross margin %

   37.3  38.3   
  

 

 

  

 

 

    

Gross profit increased $4.0 million, or 22.4%, to $21.9 million in the three months ended September 30, 2013 from $17.9 million in the three months ended September 30, 2012. The increase in gross profit was primarily driven by higher net sales, insurance recoveries and the reversal of net sales reserve related to our January 2013 voluntary product recall, partially offset by higher commodity costs.

Gross margin decreased 1.0 percentage point to 37.3% in the three months ended September 30, 2013 from 38.3% in the three months ended September 30, 2012. The decrease in gross margin is primarily attributable to higher commodity costs, increased inventory obsolesce, customer and product mix changes, and increased trade spending, partially offset by higher average selling prices and insurance recoveries related to our January 2013 voluntary product recall.

Excluding the benefit of insurance recoveries and reversal of net sales reserve, our gross profit would have increased $2.8 million, or 15.4%, to $20.7 million in the three months ended September 30, 2013 from $17.9 million in the three months ended September 30, 2012 and gross margin would have decreased 2.6 percentage points to 35.7% from 38.3% in the three months ended September 30, 2013 compared to the three months ended September 30, 2012.

Operating Expenses

   Three Months Ended September 30,  Change 
   2013  2012  $   % 
   (in thousands, except for percentages) 

Operating expenses:

      

Selling, general and administrative expenses

  $12,538   $11,539   $999     8.7
  

 

 

  

 

 

  

 

 

   

Selling, general and administrative expense as a percentage of net sales

   21.4  24.7   

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $1.0 million, or 8.7%, to $12.5 million in the three months ended September 30, 2013 from $11.5 million in the three months ended September 30, 2012. This increase was due primarily to an increase in payroll expense resulting from increased headcount to support our growth. In addition, during the three months ended September 30, 2013, we incurred $0.2 million in legal, consulting and other costs associated with our planned acquisitionclosing of the Joplin Plant, $52,000 for legal, accounting and other out-of-pocket expenses on Solera’s behalfacquisition, we entered into a three-year supply agreement with an affiliate of Safeway, pursuant to which we will manufacture products for the registration statement on Form S-3 filed with the SEC on July 16, 2013, and $40,000 in insurance recoveries to offset pizza recall related expenses in prior quarters. During the three months ended September 30, 2012, we incurred $0.7 million in 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. As a percentage of net sales, selling, general and administrative expenses decreased 3.3 percentage points to 21.4% in the three months ended September 30, 2013 from 24.7% in the three months ended September 30, 2012.

Income from Operations

   Three Months Ended September 30,  Change 
   2013  2012  $   % 
   (in thousands, except for percentages) 

Income from operations

  $9,363   $6,361   $3,002     47.2
  

 

 

  

 

 

  

 

 

   

Income from operations as a percentage of net sales

   16.0  13.6   

As a result of the factors discussed above, income from operations increased $3.0 million, or 47.2%, to $9.4 million in the three months ended September 30, 2013, from $6.4 million in the three months ended September 30, 2012. Income from operations as a percentage of net sales increased 2.4 percentage points to 16.0% in the three months ended September 30, 2013, from 13.6% in the three months ended September 30, 2012.

Interest Expense

   Three Months Ended September 30,  Change 
   2013  2012  $  % 
   (in thousands, except for percentages) 

Interest expense

  $(104 $(40 $(64  160.0
  

 

 

  

 

 

  

 

 

  

Interest expense increased in the three months ended September 30, 2013 compared to the three months ended September 30, 2012 due to higher non-utilization fees under our revolving line of credit, which was increased to $40.0 million from $20.0 million in March 2013.

Other Income

   Three Months Ended September 30,   Change 
   2013   2012   $  % 
   (in thousands, except for percentages) 

Other income

  $32    $36    $(4  (11.1)% 
  

 

 

   

 

 

   

 

 

  

Other income during the three months ended September 30, 2013 and 2012 reflect royalty income.

Provision for income taxes

   Three Months Ended September 30,  Change 
   2013  2012  $   % 
   (in thousands, except for percentages) 

Provision for income taxes

  $3,739   $2,572   $1,167     45.4
  

 

 

  

 

 

  

 

 

   

Effective tax rate

   40.2  40.5   

Our effective tax rate decreased to 40.2% for the three months ended September 30, 2013, compared to 40.5% for the three months ended September 30, 2012. The effective tax rate is based on a projection of our annual fiscal year results. Our effective tax rate for the three months ended September 30, 2013 was lower than the effective tax rate for the three months ended September 30, 2012 due to the impact of permanent items and federal and state income tax credits. We expect our full year effective tax rate for fiscal 2014 to be approximately 40% to 41%.

Net income

   Three Months Ended September 30,   Change 
   2013   2012   $   % 
   (in thousands, except for percentages) 

Net income

  $5,552    $3,785    $1,767     46.7
  

 

 

   

 

 

   

 

 

   

As a result of the factors discussed above, net income increased $1.8 million, or 46.7%, to $5.6 million in the three months ended September 30, 2013 from $3.8 million in the three months ended September 30, 2012.

Excluding the impact of our recall-related insurance recoveries, reversal of net sales reserve, costs associated with our planned acquisition of the Joplin Plant and shelf registration costs recorded in the three months ended September 30, 2013, our net income would have increased $0.7 million, or 17.0%, to $4.9 million in the three months ended September 30, 2013 from $4.2 million in the three months ended September 30, 2012, which excludes secondary offering costs.

Six Months Ended September 30, 2013 Compared to Six Months Ended September 30, 2012

Net Sales

   Six Months Ended September 30,   Change  % of Net Sales 
   2013   2012   $   %  2013  2012 
   (in thousands, except for percentages) 

Meals

  $46,293    $36,536    $9,757     26.7  47.4  45.1

Snacks

   37,878     32,609     5,269     16.2  38.8  40.3

Dressings, condiments and other

   13,519     11,834     1,685     14.2  13.8  14.6
  

 

 

   

 

 

   

 

 

    

 

 

  

 

 

 

Net sales

  $97,690    $80,979    $16,711     20.6  100.0  100.0
  

 

 

   

 

 

   

 

 

    

 

 

  

 

 

 

Net sales increased $16.7 million, or 20.6%, to $97.7 million in the six months ended September 30, 2013 compared to $81.0 million in the six months ended September 30, 2012. Net sales for the six months ended September 30, 2013 benefited from insurance recoveries of $0.6 million and reversal of net sales reserve of $0.1 million related to our January 2013 voluntary product recall. The net sales increase was primarily driven by volume with approximately 210 basis points of growth from higher average selling prices. Distribution gains and our mainline placement initiative contributed to the volume increase, primarily impacting mainstream grocery and mass merchandiser channels. These gains were partially offset by lower volume in the natural channel, primarily driven by a reduction in inventory carrying levels at one of our major customers.

The increase in net sales reflects a $9.7 million, $5.3 million and $1.7 million increase in net sales of meals, snacks and dressings, condiments and other, respectively. The increase in meals was predominantly driven by strong growth in natural, gluten-free and single-serve microwavable macaroni and cheese products combined with initial shipments of frozen entrées which were introduced in August 2013. Net sales of meals also benefited from insurance recoveries and reversal of net sales reserve mentioned above. The increase in snacks was primarily due to growth in our fruit snacks, grahams, mixed snacks, granola bars and crackers product lines. The increase in the dressings, condiments and other category was driven by strength in both dressings and condiments.

Excluding the benefit of insurance recoveries and reversal of net sales reserve, our net sales would have increased $16.0 million, or 19.7%, to $96.9 million in the six months ended September 30, 2013 compared to $81.0 million in the six months ended September 30, 2012.

Gross Profit

   Six Months Ended September 30,  Change 
   2013  2012  $   % 
   (in thousands, except for percentages) 

Cost of sales

  $61,027   $49,272   $11,755     23.9
  

 

 

  

 

 

  

 

 

   

Gross profit

  $36,663   $31,707   $4,956     15.6
  

 

 

  

 

 

  

 

 

   

Gross margin %

   37.5  39.2   
  

 

 

  

 

 

    

Gross profit increased $5.0 million, or 15.6%, to $36.7 million in the six months ended September 30, 2013 from $31.7 million in the six months ended September 30, 2012. The increase in gross profit was primarily driven by higher net sales, insurance recoveries and the reversal of the net sales reserve related to our January 2013 voluntary product recall, partially offset by higher commodity costs.

Gross margin decreased 1.7 percentage points to 37.5% in the six months ended September 30, 2013 from 39.2% in the six months ended September 30, 2012. The decrease in gross margin is primarily attributable to higher commodity costs, increased inventory obsolescence, customer and product mix changes, and increased trade spending, partially offset by higher average selling prices and insurance recoveries related to our January 2013 voluntary product recall.

Excluding the benefit of insurance recoveries and the reversal of net sales reserve, our gross profit would have increased $3.9 million, or 12.4%, to $35.6 million in the six months ended September 30, 2013 from $31.7 million in the six months ended September 30, 2012 and gross margin would have decreased 2.4 percentage points to 36.8% from 39.2% in the six months ended September 30, 2013 compared to the six months ended September 30, 2012.

Operating Expenses

   Six Months Ended September 30,  Change 
   2013  2012  $   % 
   (in thousands, except for percentages) 

Operating expenses:

      

Selling, general and administrative expenses

  $23,865   $21,750   $2,115     9.7
  

 

 

  

 

 

  

 

 

   

Income from operations as a percentage of net sales

   24.4  26.9   

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $2.1 million, or 9.7%, to $23.9 million in the six months ended September 30, 2013 from $21.8 million in the six months ended September 30, 2012. This increase was due primarily to an increase in payroll expense resulting from increased headcount to support our growth. In addition, during the six months ended September 30, 2013, we incurred $0.2 million in legal, consulting and other costs associated with our planned acquisition of the Joplin Plant, $86,000 for legal, accounting and other out-of-pocket expenses on Solera’s behalf for the registration statement on Form S-3 filed with the SEC on July 16, 2013, and $11,000 in administrative costs associated with the voluntary product recall net of insurance recovery of $40,000. During the six months ended September 30, 2012, we incurred $0.7 million in 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. As a percentage of net sales, selling, general and administrative expenses decreased 2.5 percentage points to 24.4% in the six months ended September 30, 2013 from 26.9% in the six months ended September 30, 2012.

Income from Operations

   Six Months Ended September 30,  Change 
   2013  2012  $   % 
   (in thousands, except for percentages) 

Income from operations

  $12,798   $9,957   $2,841     28.5
  

 

 

  

 

 

  

 

 

   

Income from operations as a percentage of net sales

   13.1  12.3   

As a result of the factors discussed above, income from operations increased $2.8 million, or 28.5%, to $12.8 million in the six months ended September 30, 2013, from $10.0 million in the six months ended September 30, 2012. Income from operations as a percentage of net sales increased 0.8 percentage points to 13.1% in the six months ended September 30, 2013, from 12.3% in the six months ended September 30, 2012.

Interest Expense

   Six Months Ended September 30,  Change 
   2013  2012  $  % 
   (in thousands, except for percentages) 

Interest expense

  $(175 $(80 $(95  118.8
  

 

 

  

 

 

  

 

 

  

Interest expense increased in the six months ended September 30, 2013 compared to the six months ended September 30, 2012 due to higher non-utilization fees under our revolving line of credit, which was increased to $40.0 million from $20.0 million in March 2013.

Other Income (Expense), Net

   Six Months Ended September 30,   Change 
   2013   2012   $  % 
   (in thousands, except for percentages) 

Other income (expense), net

  $58    $85    $(27  (31.8)% 
  

 

 

   

 

 

   

 

 

  

Other income (expense), net during the six months ended September 30, 2013 reflects royalty income. Other income (expense), net during the six months ended September 30, 2012 primarily reflects royalty income partially offset by a 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.

Provision for income taxes

   Six Months Ended September 30,  Change 
   2013  2012  $   % 
   (in thousands, except for percentages) 

Provision for income taxes

  $5,100   $4,046   $1,054     26.1
  

 

 

  

 

 

  

 

 

   

Effective tax rate

   40.2  40.6   

Our effective tax rate decreased to 40.2% for the six months ended September 30, 2013, compared to 40.6% for the six months ended September 30, 2012. The effective tax rate is based on a projection of our annual fiscal year results. Our effective tax rate for the six months ended September 30, 2013 was lower than the effective tax rate for the six months ended September 30, 2012 due to the impact of permanent items and federal and state income tax credits. We expect our full year effective tax rate for fiscal 2014 to be approximately 40% to 41%.

Net income

   Six��Months Ended September 30,   Change 
   2013   2012   $   % 
   (in thousands, except for percentages) 

Net income

  $7,581    $5,916    $1,665     28.1
  

 

 

   

 

 

   

 

 

   

As a result of the factors discussed above, net income increased $1.7 million, or 28.1%, to $7.6 million in the six months ended September 30, 2013 from $5.9 million in the six months ended September 30, 2012.

Excluding the impact of our recall-related insurance recoveries, reversal of net sales reserve, costs associated with our planned acquisition of the Joplin Plant and shelf registration costs recorded in the six months ended September 30, 2013, our net income would have increased $0.8 million, or 12.2%, to $7.1 million in the six months ended September 30, 2013 from $6.3 million in the six months ended September 30, 2012, which excludes secondary offering costs and the change in fair value of convertible preferred stock warrant liability.

affiliate.

Seasonality

Historically, we have experienced greater net sales in the second and fourth fiscal quarters than in the first and third fiscal quarters due to our customers’ and retailers’ merchandising and promotional activities around the back-to-school and spring seasons. Concurrently, inventory levels and working capital requirements generally increase during the first and third fiscal quarters of each fiscal year to support higher levels of net sales in the subsequent quarters. We anticipate that this seasonal impact on our net sales and working capital is likely to continue. Accordingly, our results of operations for any particular quarter are not indicative of the results we expect for the full year.

Liquidity and Capital Resources

   September 30,
2013
   March 31,
2013
 
     
   (in thousands) 

Cash

  $11,090    $4,930  

Accounts receivable, net

   19,100     20,015  

Accounts payable

   7,512     4,342  

Accrued liabilities

   13,652     12,021  

Working capital(1)

   34,328     31,925  

(1)Working capital consists of total current assets less total current liabilities

Results of Operations
The following table sets forth items included in our consolidated statements of operations in dollars and as a percentage of net sales for the periods indicated,presented:
 Three Months Ended 
 June 30,
 
% of Net
Sales
 2014 2013 2014 2013
 (in thousands, except for percentages)
Net sales$43,297
 $39,318
 100.0 % 100.0 %
Cost of sales31,069
 24,278
 71.8 % 61.7 %
Gross profit12,228
 15,040
 28.2 % 38.3 %
Selling, general and administrative expenses14,176
 11,364
 32.7 % 28.9 %
Income (loss) from operations(1,948) 3,676
 (4.5)% 9.3 %
Interest expense(91) (71) (0.2)% (0.2)%
Other income, net15
 26
 0.0 % 0.1 %
Income (loss) before provision for (benefit from) income taxes(2,024) 3,631
 (4.7)% 9.2 %
Provision for (benefit from) income taxes(804) 1,459
 (1.9)% 3.7 %
Net income (loss)$(1,220) $2,172
 (2.8)% 5.5 %

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Table of Contents

Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013
Net Sales
 Three Months Ended June 30, Change % of Net Sales
 2014 2013 $ % 2014 2013
 (in thousands, except for percentages)
Meals$17,545
 $16,672
 $873
 5.2 % 40.5% 42.4%
Snacks17,861
 15,934
 1,927
 12.1 % 41.3% 40.5%
Dressings and condiments5,852
 6,712
 (860) (12.8)% 13.5% 17.1%
Sales to Safeway under supply agreement2,039
 
 2,039
 n/m
 4.7% %
Net sales$43,297
 $39,318
 $3,979
 10.1 % 100.0% 100.0%
The $4.0 million increase in net sales was largely driven by continued distribution gains, our beginningmainline placement initiative, recent product introductions and contract manufacturing revenues related to our supply agreement with an affiliate of Safeway. These factors were offset by lower sales in our natural channel, resulting from distributor inventory reductions. Higher average selling prices contributed approximately one percent to net sales growth.
The increase in net sales of snacks was primarily due to volume growth in our fruit snacks, cookies, and crackers. The increase in net sales to Safeway under supply agreement was due to contract manufacturing revenues associated with our three-year supply agreement entered into in connection with our acquisition of the Joplin Plant, which took effect during the quarter. The increase in net sales of meals was predominantly driven by strong growth in organic macaroni and cheese products and recent product introductions, including frozen entrées and microwavable cup macaroni and cheese. The decrease in net sales of dressings and condiments was primarily driven by volume declines in dressings as a result of distributor inventory reductions.
Gross Profit
 Three Months Ended June 30, Change
 2014 2013 $ %
 (in thousands, except for percentages)
Cost of sales$31,069
 $24,278
 $6,791
 28.0 %
Gross profit$12,228
 $15,040
 $(2,812) (18.7)%
Gross margin %28.2% 38.3%    
The $2.8 million decrease in gross profit was primarily the result of higher supply chain costs, higher trade spend and adverse mix which were offset by increases in volume and sales price. The increase in supply chain costs was primarily due to organic wheat inflation and the drivers of the increase in trade spend included promotional spend to support our new products as well the timing of promotional activities.
Selling, General and Administrative Expenses (SG&A)
 Three Months Ended June 30, Change
 2014 2013 $ %
 (in thousands, except for percentages)
SG&A$14,176
 $11,364
 $2,812
 24.7%
SG&A as a percentage of net sales32.7% 28.9%    
The $2.8 million increase in SG&A expenses was primarily due to a $0.6 million increase in payroll expense resulting from increased headcount, a $1.1 million increase in audit, legal and other consulting fees, a significant portion of which relates to fees incurred in addressing our material weakness and the legal matters relating thereto, and $0.9 million in additional stock-based compensation expense recorded in the three months ended June 30, 2014 related to prior years. As a percentage of net sales, SG&A increased 3.8 percentage points primarily due to the higher audit, legal and other consulting fees and the additional stock-based compensation expense.

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Table of Contents

Interest Expense
 Three Months Ended June 30, Change
 2014 2013 $ %
 (in thousands, except for percentages)
Interest expense$(91) $(71) $(20) 28.2%
Interest expense in the three months ended June 30, 2014 was comparable to the prior fiscal quarter.
Provision for (benefit from) income taxes
 Three Months Ended June 30, Change
 2014 2013 $ %
 (in thousands, except for percentages)
Provision for (benefit from) income taxes$(804) $1,459
 $(2,263) (155.1)%
Effective tax rate39.7% 40.2%    
Our effective tax rate decreased to 39.7% for the three months ended June 30, 2014, compared to 40.2% for the three months ended June 30, 2013. The effective tax rate is based on a projection of our annual fiscal year results. Our effective tax rate for the current quarter is comparable to the prior year quarter after considering a discrete item in the current period. We expect our annual fiscal year effective tax rate to approximate the prior year rate.
Liquidity and Capital Resources
Our primary cash needs are working capital and capital expenditures. Historically, we have generally financed these needs with cash provided by operations and borrowings under our credit facility. We typically take advantage of accelerated payment discounts offered to us by our vendors and contract manufacturers, usually 1% for net-10 payment.
Our principal sources of liquidity are our cash and accounts receivable. We have a credit facility with Bank of America, N.A., which provides for revolving loans and letters of credit up to $40.0 million that expires in August 2016. 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. We believe that our cash, cash flow from operating activities and available borrowings under our credit facility will be sufficient to meet our capital requirements for at least the next twelve months.
Our cash balance decreased by $15.7 million during the first quarter of fiscal 2015, of which we used $8.3 million in cash netfor operations. In addition, we invested approximately $1.2 million in property and equipment and on April 2, 2014, we funded our acquisition of the Joplin Plant with approximately $7.2 million in cash flowson hand and restricted cash of $0.3 million. In fiscal 2015 we expect our capital expenditures to be approximately $5.0 million to $7.0 million.
Cash Flows from Operating Activities
Net cash provided by (used in) operating investing and financing activities and our ending balance of cash:

   September 30,
2013
  September 30,
2012
 
    
   (in thousands) 

Cash at beginning of period

  $4,930   $562  

Net cash provided by operating activities

   12,723    9,256  

Net cash used in investing activities

   (649  (1,009

Net cash provided by (used in) financing activities

   (5,914  5,820  
  

 

 

  

 

 

 

Cash at end of period

  $11,090   $14,629  
  

 

 

  

 

 

 

Cash Flows from Operating Activities.

Operating activities in the sixthree months ended SeptemberJune 30, 2013 provided $12.72014 was $(8.3) million, of cashcompared to $3.1 million in the three months ended June 30, 2013.

Cash used in operating activities in the three months ended June 30, 2014 was primarily due to our net income of $7.6 million, which included non-cash charges totaling $1.6 million, primarily comprised of $0.6 million for depreciation and amortization, $0.4 million for stock-based compensation and $0.4 million for increased inventory reserves. Changes in operating assets and liabilities provided an additional $4.1 million of net cash, which is primarily comprised of a $3.2 million increase in accounts payable, a $2.3 million increase in accrued expenses and other non-current liabilities, a $0.9 million decrease in accounts receivable and a $0.6 million decrease in income tax receivable offset by a $2.6$7.7 million increase in inventory and a $0.2 million decrease in prepaid expenses, other current and non-current assets due to insurance recoveriesanticipation of $1.2 million from the insurance carrier against claims submitted for the recall. The increaseseasonally higher sales in accounts payable was driven by the timing of check payments relative to quarter end. The decrease in accounts receivable and increase in inventory reflects seasonality related to quarterly sales trends. These increases were partially offset by the excess tax benefit from stock-based compensation of $0.6 million.

Operating activities provided $9.3 million of cash during the six months ended September 30, 2012, primarily due to our net income of $5.9 million, which included non-cash charges of $0.5 million for depreciation and

amortization, $0.4 million for stock-based compensation and a $1.1 million reduction in allowances for trade discounts and other. Changes in operating asset and liability accounts provided an additional $8.6 million of net cash, which was comprised of a $5.4 million increase in accrued expenses, a $4.1 million increase in prepaid expenses, other current and non-current assets, a $1.4 million increase in accounts payable and a $1.3 million decrease in accounts receivable, partially offset by a $2.1 million increase in inventory, other current and non-current assets and a $1.3 million decrease in related party-payable, resulting from the termination of our advisory services agreement upon consummation of our IPO. This increase in cash was offset by the excess tax benefit from stock-based compensation of $5.3 million.

second quarter.

Cash Flows from Investing Activities.

Activities

Net cash used in investing activities in the three months ended June 30, 2014 was $8.5 million, compared to $0.3 million in the three months ended June 30, 2013.
Cash used in investing activities in the three months ended June 30, 2014 was primarily comprised of $7.5 million related to purchasesacquisition of propertythe Joplin Plant and equipment during the six months ended September 30, 2013 and 2012 was $0.6$1.2 million and $1.0 million, respectively.

in capital expenditures.

Cash Flows from Financing Activities.

Cash used inActivities

Net cash provided by (used in) financing activities totaled $5.9in the three months ended June 30, 2014 was $1.1 million, compared to $(6.2) million in the sixthree months ended SeptemberJune 30, 2013 including net pay down2013.

17

Table of $7.0 million for borrowings from our credit facility offsetContents

Cash provided by $0.5financing activities of $1.1 million in the three months ended June 30, 2014 related to cash proceeds of $0.7 million from exercises of stock options and $0.6$0.3 million inof excess tax benefit from stock-based compensation.

Cash provided by financing activities totaled $5.8 million during the six months ended September 30, 2012, comprised of:

net proceeds of $11.1 million received from common shares issued in the IPO, net of issuance costs;

excess tax benefit from stock-based compensation of $5.3 million;

proceeds of $2.2 million received from exercises of stock options; and

net pay down of $12.8 million of our credit facility

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of SeptemberJune 30, 2013:

   Payments Due by Period 
   Total   Less Than
One Year
   1-3 Years   3-5 Years   More than
Five Years
 
           
   (in thousands) 

Rent obligations(1)

  $3,466    $635    $1,286    $1,279    $266  

Equipment lease obligations(2)

   129     31     60     38     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating lease obligations

   3,595     666     1,346     1,317     266  

Purchase commitments(3)

   14,474     14,257     217     —       —    

Product formula obligations(4)

   1,850     150     300     1,400     —    

Warehousing overhead obligations(5)

   350     200     150     —       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $20,269    $15,273    $2,013    $2,717    $266  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

2014:
 Payments Due by Period
 Total 
Less Than
One Year
 1-3 Years 3-5 Years 
More than
Five Years
 
 (in thousands)
Rent obligations(1)$2,999
 $654
 $1,279
 $1,066
 $
Equipment lease obligations(2)126
 36
 73
 17
 
Total operating lease obligations3,125
 690

1,352

1,083


Purchase commitments(3)25,240
 24,878
 362
 
 
Product formula obligations(4)1,700
 150
 300
 1,250
 
Warehousing overhead obligations(5)200
 200
 
 
 
Total$30,265
 $25,918
 $2,014
 $2,333
 $
(1)We lease approximately 33,500 square feet of space that houses our corporate headquarters and a storage area at 1610 Fifth Street, Berkeley, California pursuant to a lease agreement or Lease, that was originally scheduled to expireexpires in February 2016. In September 2012, we entered into an amendment to the Lease and extended the initial term of the lease for three additional years to February 2019. The lease includes a provision to adjust the rent for the additionalfinal three years and provides that the rent will be equal to 95% of the then fair market rental rate for the property; however,property, provided, the monthly rent payable will not be less than the monthly rent payable during the immediately preceding month of the initial term. The landlord is required to deliver to us a notice of the fair market rental rate for the property no later than August 1, 2015. The table above assumes rent for the additional three years at the monthly rental rate applicable to the last month’s ratemonth of the original Lease.lease agreement.
(2)We lease equipment under non-cancelable operating leases. These leases expire at various dates through 2019, excluding extensions at our option, and contain provisions for rental adjustments.

(3)We have non-cancelable purchase commitments, directly or through contract manufacturers, to purchase ingredients and packaging materials to be used in the future to manufacture products.
(4)This represents ourWe have a product formula obligation of $1.1 million, on a discounted basis, to one of our contract manufacturers, for the product formulas purchased in November 2011. Of these amounts, $1.1 million is included in total liabilities in our condensed consolidated balance sheet as of September 30, 2013.manufacturers.
(5)We have an agreement with our contract warehousing company to pay minimum overhead fees through June 2015.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements or any holdings in variable interest entities.


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Table of Contents

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our Form 10-K for fiscal 2013, filed with the SEC on June 14, 2013,2014 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 six months ended SeptemberJune 30, 2013.

2014.

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ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures that are designed to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 as amended,(the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer (who are our Chief Executive Officer and Chief Financial Officer , respectively) as appropriate to allow timely decisions regarding required disclosure.

Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures.procedures (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) as of the end of the period covered by this report. Based on this review, theevaluation, our principal executive officer and principal financial officer of the Company have concluded that, the Company’sdue to a material weakness in internal control over financial reporting described below, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were not effective as of SeptemberJune 30, 2013.

2014.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
As previously reported in our Annual Report on Form 10-K for the fiscal year ended March 31, 2014, the material weakness we identified relates to an insufficient complement of finance and accounting resources, including employee turnover, within the organization resulting in design deficiencies in certain areas in which our controls were not precise enough to detect misstatements that in aggregate could be material to consolidated financial statements. Specifically, we have determined that (1) the historical methodology for estimating certain trade allowances was not designed to include all related trade promotion costs subsequent to period end and (2) our controls over accounting for contract manufacturing were not designed with an appropriate level of precision to evaluate the valuation and accuracy of all contract manufacturing receivables and payables.
The material weakness did not result in any material misstatements of the Company’s financial statements and disclosures for the years ended March 31, 2014, 2013 and 2012. For additional details, see Item 9A. Controls and Procedures—Management’s Report on Internal Control over Financial Reporting included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2014.
Management believes that significant progress has been made prior to filing this quarterly report on Form 10-Q in remediating the underlying causes of the material weakness. We have taken, and will continue to take, a number of actions to remediate this material weakness. Among other things, we have:
augmented and hired additional accounting and finance resources and professionals, including a new Chief Financial Officer in November 2013 and a new Controller in March 2014, together with other new hires in the senior accounting and finance organization;
developed and implemented an improved methodology and process for capturing and recording all trade promotion costs and this calculation will be reviewed by our Controller for each quarter;
made our President responsible for the oversight of all items included in the calculation of gross to net sales;
designed controls to ensure the timely accounting for contract manufacturer costs and the reconciliation of those costs with our contract manufacturers on a quarterly basis;
enhanced the documentation of our estimation and reconciliation of our contract manufacturing receivables and payables;
engaged an external audit firm to assist with our internal audit function and SOX testing; and
established a controls committee with participation from the Board of Directors, senior management and the aforementioned external audit firm, that reports directly to our Board of Directors.
We and our Board of Directors are committed to maintaining a strong internal control environment, and believe that these remediation efforts represent significant improvements in our control environment and in our controls over the accounting for trade promotion costs and contract manufacturing. Additional controls may also be required over time. The identified material weakness in internal control will not be considered fully addressed until the internal controls over these areas have been in operation for a sufficient period of time for our management to conclude that the material weakness has been fully remediated. We continue to work on implementing and testing the new controls in order to make this final determination.


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Table of Contents


Changes in Internal Control Over Financial Reporting

There was

Other than as expressly noted above, there were no changechanges in our internal control over financial reporting (as definedidentified in Rules 13a-15(f) and 15d-15(f) underconnection with the Exchange Act) that occurredevaluation of our controls performed during the quarterly periodquarter ended SeptemberJune 30, 20132014 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.


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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On September 4,December 6, 2013, a private organization called the Center for Environmental Health (“CEH”) issued a 60-day notice of intent to sue (“Notice”)sued us and our subsidiary, Annie’s Homegrown, Inc., in Superior Court of the State of California in the County of Alameda under California Health & Safety Code §§ 25249.5 et seq. (commonly referred to as “Proposition 65”). In the Notice, CEH claims that warnings are required in California under Proposition 65 for alleged exposures to lead and lead compounds from cookies that contain ginger or molasses, including our Gluten-Free Ginger Snap Bunny Cookies. Under Proposition 65, any private enforcer such as CEH may file a lawsuit if it first issues a valid 60-day notice, and if the California Attorney General or other specified California public enforcers do not file suit within 60 days after service. A Proposition 65 plaintiff may seekis seeking injunctive relief, as well as civil penalties which may be assessed up to a maximum of $2,500 per violation per day and a private plaintiff does not need to show that anyone has been harmed by the alleged exposures. A prevailing plaintiff may also seek its attorneys’ fees and costs undercosts. The lawsuit, entitled Center for Environmental Health v.Mondelez International, Inc., et al., Alameda County Superior Court Case No. RG13-677800, names twenty-two other California laws.

Although CEH hascompanies that are either suppliers or retailers of ginger- or molasses-containing cookies. We intend to vigorously defend against this claim and while we do not yetpresently believe that it will have a material adverse effect on our financial condition, given the early stages of the matter, it is not possible to estimate the amount or range of any potential loss.

On or about June 11, 2014, Steve Taormina filed a purported class action complaint against the Company, and certain of our current and former officers, in the United States District Court for the Northern District of California. The lawsuit naming us oralleges violations of the Exchange Act by the Company and the officers for making allegedly material false and misleading public statements regarding the Company’s business and operations between August 8, 2013 and June 3, 2014 and seeks unspecified monetary damages and other relief against the defendants. On June 30, 2014, Donna Weiss filed a second purported class action complaint in the Northern District of California, against the same parties, containing substantially similar allegations and seeking a substantially similar recovery.
On June 18, 2014, Anna H. Goodman, filed a derivative complaint purportedly on behalf of Annie’s, Homegrown, Inc., withinagainst our Board and Solera Capital LLC. On July 29, 2014 Dan Stanick, represented by the pastsame law firm as Ms. Goodman, filed substantially the same complaint in the Superior Court of California, County of Alameda. These lawsuits generally allege breaches of fiduciary duties by each of the Board members and Solera Capital, by engaging in alleged wrongful conduct, including conduct complained of in the securities litigation matters described above, and seek unspecified monetary damages and other relief against the defendants.
The class action and derivative lawsuits described in the paragraphs above followed and relate to the Company’s announcement of a material weakness in internal controls over financial reporting as identified in Item 9A of our Annual Report on Form 10-K for the fiscal year CEH has filed several lawsuitsended March 31, 2014. We intend to defend vigorously against other manufacturersthese claims and retailers regarding various typeswhile we do not presently believe that they will have a material adverse effect on our financial condition, given the early stages of products containing molasses and/or ginger, such as licorice candy, cookies, and baking mix products. In CEH’s cases involving cookies and baking mix products, CEH’s operative complaints have put at issue only those cookies or baking mix products that contain ginger and/or molasses as ingredients. We cannot at this time reasonablythe matters, it is not possible to estimate athe amount or range of exposure, if any of the potential liability should a suit be brought in connection with the Notice.

loss.

Additionally, from time to time, we are subject to claims, assessments or other legal proceedings in the ordinary course of business, including product liability claims, employee claims, and other general liability claims. While it is not feasible to predict or determine the ultimate outcome of these matters, we believe that none of these legal proceedings, individually or in the aggregate, will have a material adverse effect on our financial position.

position or results of operations and cash flows. We do not accrue for legal fees that may be incurred in the future in connection with defending litigation.

ITEM 1A. RISK FACTORS

The following risk factors

There have been added to address our planned acquisition of a snack manufacturing plant in Joplin, Missouri and are supplemental tono material changes from the risk factors previously disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for fiscal 2013 filed with the SEC on June 14, 2013.

Risks Related to the Acquisitionyear ended March 31, 2014.


22

Table of the Joplin Manufacturing Plant

Our business and prospects may be adversely affected by our failure to successfully consummate the recently announced acquisition of the Joplin manufacturing plant.

While we have signed an agreement to purchase the Joplin manufacturing plant from Safeway, there can be no assurance that we will complete the acquisition of the Joplin manufacturing plant under the terms set forth in the agreement, or at all, because the obligation of the parties to consummate the acquisition is subject to conditions as set forth in the agreement, many of which are beyond our control, including (i) receipt of necessary permits; (ii) acceptance by key employees of Safeway of employment by us; (iii) Safeway’s satisfaction that it has fulfilled any collective bargaining obligations that it is required to undertake with the labor organization presently representing employees at the plant; and (iv) satisfaction of other customary closing conditions. There can be no assurance that the conditions to closing will be satisfied.

If consummated, our results may be adversely affected if we fail to integrate the Joplin manufacturing operations successfully.

The acquisition of the Joplin manufacturing plant, if consummated, will pose additional risks, including the inability to integrate the acquired business efficiently into our existing operations, diversion of management’s attention from other business concerns, loss of employees key to the operation of the Joplin plant, potential assumption of unknown liabilities, potential disputes with the seller and potential impairment charges if purchase assumptions are not achieved or market conditions decline. These risks are exacerbated by the fact that we have not previously operated a manufacturing plant. Our business or financial results may be negatively affected if the Joplin acquisition is not successfully integrated.

We may fail to realize the productivity enhancements and other benefits expected from our acquisition of the Joplin manufacturing plant.

The success of the Joplin acquisition will depend, in part, on our ability to control costs, drive incremental volume and successfully integrate the Joplin manufacturing plant into our company. 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 sales growth in our cookie and cracker business. If the demand for our cookie and cracker products does not increase at the rate we expect over the long term, due to competition or other factors, our results of operations may be adversely affected. We cannot assure you that we will be able to integrate the operations of the Joplin manufacturing plant successfully, control costs, drive incremental volume or operate the Joplin manufacturing plant as profitably as anticipated. Our beliefs regarding the benefits to be derived from the acquisition of the Joplin manufacturing plant are based on numerous assumptions that are subject to risks and uncertainties that could deviate materially from our expectations.

In connection with the acquisition of the Joplin manufacturing plant, we will be expanding our business model to include manufacturing for us and for an affiliate of the seller. We cannot assure you that our expansion into manufacturing and co-packing will succeed.

We have not owned or operated a manufacturing plant in the past and we may encounter increased financial and operational difficulties in integrating the Joplin manufacturing plant with our current operations. In the past, we relied exclusively on contract manufacturers to produce our products and we have not previously manufactured products for others. While we have invested in manufacturing equipment and worked closely with our contract manufacturers on the manufacturing of our products and efficiency initiatives, the operation of a manufacturing plant presents additional challenges and risks for our business. Operating a manufacturing plant requires different operating strategies and different managerial experience than our current operations, and a manufacturing plant is subject to additional and different regulations than our current operations. Our lack of experience in operating manufacturing facilities and co-packing for third parties could result in fewer benefits to us than we anticipate, as well as increased costs. Further, we expect there to be additional costs in connection with the acquisition and integration of the Joplin manufacturing plant into our operations, including costs related to information technology systems, additional personnel needs at both the plant 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 operations and cause our existing business to suffer.

In addition, any interruption in, or the loss 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 we have committed to manufacture for Safeway, which could have a material adverse effect on our business, results of operations and financial condition, especially until such time as such interruption is resolved or an alternate source of production is secured.

ContentsITEM 5. OTHER INFORMATION

Agreement of Purchase and Sale

On November 5, 2013, we entered into an Agreement of Purchase and Sale (the “Agreement”) with Safeway Inc., a Delaware corporation (“Safeway”), and Safeway Australia Holdings, Inc., a Delaware corporation (“Safeway AUS” and, together with Safeway, the “Selling Parties”). Pursuant to the Agreement, we will acquire Safeway’s cookie and cracker manufacturing plant in Joplin, Missouri (the “Joplin Plant”) and related inventory and supplies (the “Joplin Acquisition”). The Joplin Plant has been the primary manufacturing facility for our cookie and cracker products for more than ten years. The aggregate purchase price for the Joplin Acquisition consists of $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). Effective at the closing of the Joplin Acquisition, we are also required to extend offers of employment (subject to customary pre-employment conditions) to 95% of Safeway’s active

employees at the Joplin Plant. The Agreement contains limited representations, warranties, covenants and indemnities by the Selling Parties. The Joplin Acquisition is subject to (i) the receipt of necessary permits; (ii) acceptance by key employees of Safeway of employment by us; (iii) Safeway’s satisfaction that it has fulfilled any collective bargaining obligations that it is required to undertake with the labor organization presently representing employees at the plant; and (iv) satisfaction of other customary closing conditions. The Joplin Acquisition is expected to close in the first quarter of fiscal 2015.

At closing of the Joplin Acquisition, we will enter into a contract manufacturing agreement with Lucerne Foods, Inc. (“Lucerne”), an indirect, wholly owned subsidiary of Safeway, pursuant to which we will produce and supply certain products to Lucerne for an initial term of three years. In addition, Safeway has agreed to provide us with transition services for up to one year after closing.

From time to time and in the ordinary course of business, we sell our products to Safeway. Except for the foregoing arms-length relationships, neither the Company nor any of its affiliates has any material relationships with Safeway, Safeway AUS or Lucerne, or any of their respective directors, officers or affiliates.

This description of the Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions of the Agreement, a copy of which is attached hereto as Exhibit 2.1 and is incorporated herein by reference.

Second Amendment to Credit Facility

On November 5, 2013, we entered into an Amendment No. 2 to Second Amended and Restated Loan Agreement (the “Amendment”) by and between Bank of America, N.A. (the “Bank”) and Annie’s, Inc., Annie’s Enterprises, Inc., Annie’s Homegrown, Inc. and Napa Valley Kitchens, Inc. The Amendment amends our Second Amended and Restated Loan Agreement dated as of December 21, 2011, as amended by that certain Amendment No. 1 to Second Amended and Restated Loan Agreement dated as of March 7, 2013 (together with any previous amendments, the “Loan Agreement”) in order to, among other things, (1) provide for the issuance of letters of credit under the Loan Agreement, (2) obtain the Bank’s consent to various transactions contemplated by or relating to the Agreement of Purchase and Sale dated November 5, 2013; and (3) amend covenants relating to other debt and permitted liens on our assets as well as certain representations and warranties.

This description of the Amendment does not purport to be complete and is qualified in its entirety by the terms and conditions of the Agreement, a copy of which is attached hereto as Exhibit 10.3 and is incorporated herein by reference.


ITEM 6. EXHIBITS

      

Incorporation by Reference

Exhibit

Number

  

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        
    3.3  Second Restated Certificate of Incorporation of Annie’s, Inc., dated September 10, 2013  Form 8-K  001-35470    3.3  September 12, 2013
    3.4  Second Amended and Restated Bylaws of Annie’s, Inc., effective September 10, 2013  Form 8-K  001-35470    3.4  September 12, 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.        
  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 September 30, 2013, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Condensed Consolidated Balance Sheets as of September 30, 2013 and March 31, 2013, (ii) Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2013 and 2012, (iii) Condensed Consolidated Statement of Stockholders’ Equity for the six months ended September 30, 2013, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2013 and 2012 and (v) Notes to Condensed Consolidated Financial Statements.        

+
Indicates a management contract or compensatory plan or arrangement.
Incorporation by Reference
Exhibit
Number
DescriptionFormFile No.Exhibit(s)Filing Date
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 June 30, 2014, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Condensed Consolidated Statements of Operations for the three months ended June, 2014 and 2013, (ii) Condensed Balance Sheets as of June 30, 2014 and March 31, 2014, (iii) Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2014 and 2013, and (v) Notes to Condensed Consolidated Financial Statements.
*
Furnished or filed herewith, as applicable

+    Indicates a management contract or compensatory plan or arrangement.
*    Furnished or filed herewith, as applicable

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: NovemberAugust 7, 2013

2014
ANNIE’S, INC.
By: 

/s/ Kelly J. Kennedy

Zahir M. Ibrahim
 Kelly J. KennedyZahir M. Ibrahim
 Executive Vice President, Chief Financial Officer and Treasurer
 (Principal Financial and Accounting
 Officer and Duly Authorized Officer)

37



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