UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended JuneSeptember 30, 2013

OR

For the Transition Period From                    To                    

Commission File Number: 001-35470

Annie’s, Inc.

(Exact name of registrant as specified in its charter)

(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  ¨

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  ¨

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    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 JulyOctober 15, 2013, the registrant had 16,889,23916,912,015 shares of common stock, par value $0.001 per share, outstanding.

Annie’s, Inc.

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

ITEM 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Annie’s, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands)

See accompanying notes to the unaudited condensed consolidated financial statements

Annie’s, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except share and per share amounts)

See accompanying notes to the unaudited condensed consolidated financial statements

Annie’s, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(unaudited)

(in thousands, except share amounts)

See accompanying notes to the unaudited condensed consolidated financial statements

Annie’s, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

See accompanying notes to the unaudited condensed consolidated financial statements

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Annie’s, Inc. (the “Company”), a Delaware corporation incorporated on April 28, 2004, is a natural and organic food company. The Company offers over 135 products in the following three product categories: meals; snacks; and dressings, condiments and other. The Company’s products are sold throughout the U.S. and Canada via a multi-channel distribution network that serves the mainstream grocery, mass merchandiser and natural retailer channels. The Company’s headquarters are located in Berkeley, California.

Basis of Presentation and Consolidation

The accompanying interim condensed consolidated balance sheets as of JuneSeptember 30, 2013 and March 31, 2013, the interim condensed consolidated statement of stockholders’ equity for the threesix months ended March 31,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 threesix months ended JuneSeptember 30, 2013 and 2012 are unaudited. These interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, 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. The March 31, 2013 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 consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to state fairly our financial position as of JuneSeptember 30, 2013 and results of our operations for the three and six months ended September 30, 2013 and 2012, and cash flows for the threesix months ended JuneSeptember 30, 2013 and 2012. The interim results for the threesix months ended JuneSeptember 30, 2013 are not necessarily indicative of the results that may be expected for the year ending March 31, 2014.

The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-ownedwholly owned subsidiaries, Annie’s Homegrown, Inc., Annie’s Enterprises, Inc. and Napa Valley Kitchen, Inc. and Annie’s Enterprises, Inc. 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 of common stock at aan offering price of $19.00 per share and raised $11.1 million in net proceeds after deducting underwriting discounts and commissions of $1.3 million and other offering expenses of $5.6 million. In addition, certain of the Company’s stockholders, including funds affiliated with Solera Capital, LLC, sold 4.8 million shares at the $19.00 offering price in the IPO. The Company sometimes refers to Solera Capital, LLC and its affiliates as Solera in this Quarterly Report onForm 10-Q.

Immediately prior to the closing of the IPO, the outstanding shares of convertible preferred stock were automatically converted into 15,221,571 shares of common stock, the Company’s outstanding convertible preferred stock warrant was automatically converted into a common stock warrant to purchase a total of 80,560 shares of common stock and the related convertible preferred stock warrant liability was reclassified to additional paid-in capital.

Pursuant to the Company’s Amended and Restated Certificate of Incorporation or Charter and its Amended and Restated Bylaws, which became effective upon consummation of the IPO, the Company has authorized 35,000,000 shares of capital stock, 30,000,000 shares, par value $0.001 per share, of which are common stock and 5,000,000 shares, par value $0.001 per share, of which are preferred stock. As of JuneSeptember 30, 2013, 16,889,06016,909,546 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. 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.

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 filing 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.

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.

Concentration Risk

The table below provides net sales, expressed as a percentageCustomers with 10% or more of the Company’s net sales fromconsist of the three largest customers during the three months ended June 30, 2013 and 2012:following:

As of JuneSeptember 30, 2013, three customers represented 31%, 20%19% 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 is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

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

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

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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 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

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 costs are included in property and equipment on the accompanying condensed consolidated balance sheets. As of JuneSeptember 30, 2013, the Company had $2.1$2.2 million capitalized software development costs, net of accumulated amortization, including $0.5$0.6 million in construction in progress. As of March 31, 2013, the Company had $2.1 million capitalized software development costs, net of accumulated amortization, including $0.4 million in construction in progress.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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 $1.5$1.8 million and $1.3$1.5 million for the three months ended JuneSeptember 30, 2013 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 $0.8$0.7 million for the three months ended JuneSeptember 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 JuneSeptember 30, 2013 and 2012 included in selling, general and administrative expenses were $0.4 million and $0.3$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 JuneSeptember 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.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Inventory

Inventory is comprised of the following (in thousands):

Property and Equipment, Net

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

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company incurred depreciation expense of $294,000$313,000 and $185,000 during$607,000 for the three and six months ended JuneSeptember 30, 2013, respectively. The depreciation expense for the same periods in the prior year was $248,000 and 2012,$433,000, respectively.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Intangible Assets, Net

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

The Company incurred amortization expense of $15,000 and $30,000 on its intangible assets during each of the three and six months ended JuneSeptember 30, 20132013. The amortization expense for the same periods over the prior year was $15,000 and 2012,$30,000, respectively.

The estimated future amortization expense relating to intangible assets is anticipated to be $45,000 for the remainder of fiscal 2014; $60,0002014, for each of the next five years from fiscal 2015 through fiscal 2019 totaling $300,000;and thereafter is $30,000, $60,000 and $756,000, after fiscal 2019.respectively.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets as of JuneSeptember 30, 2013 and March 31, 2013 includedinclude receivables from contract manufacturers and suppliers of $2.2$3.0 million and $3.9 million, respectively.

Accrued Liabilities

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

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

In 2005, the Company entered into a bank line of credit agreement (the “Credit Agreement”) with Bank of America, N.A., which provided for revolving loans and letters of credit up to $11.0 million. In March 2008, the Company amended the Credit Agreement with Bank of America to establish an inter-creditor agreement with another lender (Note 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 America that, among other things, provided for an increase in its line of credit to $20.0 million and an extension of the term through August 2014. In March 2013, the Company entered into another amendment to its credit facility. This amendment provides for, among other things, an increase in the line of credit to $40.0 million and extension of the term through August 2016. The Credit Agreement is collateralized by substantially all of the Company’s assets.

The Company may select from three interest rate options for borrowings under the credit facility: (i) LIBOR (as defined in the credit facility) plus 1.25%, (ii) IBOR (as defined in the credit facility) plus 1.25% or (iii) Prime Rate (as defined in the credit facility). Weighted average interest was 1.5%1.4% and 1.5% for the three and six months ended JuneSeptember 30, 2013, respectively. Weighted average interest was 1.5% for each of the three and 2012, respectively.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 JuneSeptember 30, 2013 and March 31, 2013, there was $40.0 million and $33.0 million, respectively, of availability for borrowings under the Credit Agreement. Interest is payable monthly.

The credit facility contains restrictions on, among other things, 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.

There are various financial and other covenants under the Credit Agreement. Financial covenants, as defined in the Credit Agreement include a net income covenant, total liabilities to tangible net worth covenant and a minimum fixed charge coverage covenant, through the term of the agreement. The Credit Agreement requires the Company to submit interim and annual financial statements by specified dates after each reporting period. The Company was in compliance with the covenants as of JuneSeptember 30, 2013 and March 31, 2013.

AgreementAgreements with Solera Capital, LLC

The Company had an advisory services agreement with Solera, which it terminated upon the consummation of the IPO and as such the Company paid Solera a one-time termination fee of $1.3 million in April 2012.

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 $34,000$86,000 for legal and other out-of-pocket expenses on Solera’s behalf during the threesix months ended JuneSeptember 30, 2013.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Lease Commitments

The Company leases its offices and other equipment under noncancelablenon-cancelable operating leases that expire through fiscal year 2019. Rent expense for non-cancellablenon-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 JuneSeptember 30, 2013 was $156,000 and $306,000, respectively. Rent expense for the three and six months ended September 30, 2012 was $150,000$120,000 and $120,000,$239,000, respectively.

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

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 JuneSeptember 30, 2013, the Company’s purchase commitments totaled $19.2$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 JuneSeptember 30, 2013, the remaining obligation under the agreement for overhead fees was $400,000.$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 JuneSeptember 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 obligations.

Legal Matters

FromOn September 4, 2013, a private organization called the Center for Environmental Health (“CEH”) issued a 60-day notice of intent to sue (“Notice”) the Company and its subsidiary, Annie’s Homegrown, Inc., 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 for alleged exposures to lead and lead compounds from cookies, 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)

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 under other California laws.

Although CEH has not yet filed a lawsuit naming the Company or Annie’s Homegrown, Inc., within the past 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. The Company cannot at this time reasonably estimate a range of exposure, if any, of the potential liability should a suit be brought in connection with the Notice.

Additionally, from time to time, the Company is subject to claims, and assessments or other legal proceedings in the ordinary course of business. The Companybusiness, including product liability claims, employee claims, and other general liability claims. While it is not currently a partyfeasible to any litigationpredict or determine the ultimate outcome of these matters, the Company believes that none of these legal proceedings, individually or in the aggregate, are expected towill have a material adverse effect on the Company’s business,its financial condition, results of operations or cash flows.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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 purchase 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 issuance and was scheduled to expire at the earlier of five years from a qualifying IPO of the Company’s common stock or April 1, 2018. Upon the consummation of the Company’s IPO on April 2, 2012, the warrant became a warrant to purchase 80,560 shares of ourthe Company’s common stock. As such, the Company 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 ourCompany’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.

As of each of JuneSeptember 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 JuneSeptember 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.

As of each of JuneSeptember 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 16,889,06016,909,546 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 threesix months ended JuneSeptember 30, 2013 and 2012, respectively.

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 performance period applicable to a grant. Stock-based compensation expense included in selling, general and administrative expenses was $293,000$116,000 and $216,000$231,000 for the three months ended JuneSeptember 30, 2013 and 2012, respectively, and was $409,000 and $447,000 for the six months ended September 30, 2013 and 2012, respectively.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

ActivityThe following table summarizes the activity of stock options under our 2004 Plan, non-plan option awards and Omnibus Incentive Plan is set forth below:during the six months ended September 30, 2013:

The weighted average grant date fair value of employee stock options granted during the threesix months ended JuneSeptember 30, 2013 was $13.99$14.03 per share. The total intrinsic value of stock options exercised during the threesix months ended JuneSeptember 30, 2013 was $1.1$1.9 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 units and performance share units:units during the six months ended September 30, 2013:

As of JuneSeptember 30, 2013, there were 83,13673,333 unvested performance share units outstanding, net of actual forfeitures. As of JuneSeptember 30, 2013, the number of shares estimated to be issued at the end of the performance period(s) is a total of 41,57436,672 shares. The maximum number of total shares that could be issued at the end of performance period(s) is 124,710110,005 shares.

As of JuneSeptember 30, 2013, there was $4.5$3.9 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 3.33.1 years.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company’s effective tax rate wasdecreased to 40.2% for the three months ended JuneSeptember 30, 2013, compared to 40.9%40.5% for the three months ended JuneSeptember 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. 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 JuneSeptember 30, 2013 was lower than the effective tax rate for the three and six months ended JuneSeptember 30, 2012 due to the impact of permanent items and federal and state income tax credits. The Company expects its full year effective tax rate for fiscal 2014 to be approximately 40% to 41%.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

A reconciliation of the basic and diluted net income per share attributable to common stockholders is as follows (in thousands except share and per share amounts):

The Company’s net sales by geographic areas,area, based on the location to wherewhich the product was shipped, are summarized as follows (in thousands):

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

All of the Company’s long-lived assets are located in the U.S.

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 JuneSeptember 30, 2013.

The Company recorded the estimated customer and consumer returns as a reduction of net sales, related costs associated with product returns, destruction charges, inventory write-off and costs incurred by contract manufacturers as cost of sales, and administrative costs associated with the recall such as legal expenses as selling, general and administrative expenses. AsThe Company recorded $1.2 million for insurance recoveries and a result$0.1 million in reduction of net sales reserve in connection with the product recall in each of the voluntary product recall,three and six months ended September 30, 2013, respectively. The impact of the Company recordedrecall-related charges for product returns and recall-related costs of approximately $0.3 million forrelated insurance recoveries in the three and six months ended JuneSeptember 30, 2013 is as follows (in thousands except per share amount):

The accrual for product returns is based on the Company’s estimate of cases of pizza products at retail stores and is derived from third-party data and other assumptions. A high degree of judgment is required in estimating consumer returns, shelf and in-stock inventory at retailers across distribution channels, fees and incentives to be earned by customers for their effort to return the products, future freight rates and consumers’ claims. Actual results could differ from those estimates. The Company expects to incur approximately $0.1 million ofdoes not expect any significant further additional costs associated with the voluntary product recall.

The Company carries product recall insurance and expects to recoverreceive additional recoveries from the involved insurance carriers in future quarters.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

On November 5, 2013, the Company entered into an agreement of purchase and sale with Safeway Inc. and Safeway Australia Holdings, Inc. (together the “Selling Parties”) to acquire a substantial portionsnack manufacturing plant in Joplin, Missouri (the “Joplin Plant”) for $6.0 million of cash, plus the recall-relatedvalue of inventory and supplies at closing (calculated based on the Selling Parties’ costs from its insurance carrier.and currently estimated at approximately $4.0 million). The Company may seekexpects to recover additional costsfund the acquisition with cash from operations and, if necessary, by drawing under its revolving credit facility and to close the third-party flour mill. The Company has submitted its claim toacquisition in the insurance company and, as of July 31, 2013, recovered $0.4 million against the claims submitted. The impact of the recovery from the insurance was included in net sales for the fourthfirst quarter of fiscal 2013.2015. 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.

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 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, 2013 (“fiscal 2013”) included in our Annual Report on Form 10-K filed with the SEC on June 14, 2013. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,( the “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; product recalls and related insurance proceedsrecoveries (if any); economic disruptions; changes in consumer preferences; ingredient and packaging costs and availability; reliance on a limited number of distributors, retailers, contract manufacturers and third-party suppliers and an outside warehouse facility; efficiency projects; intellectual property and related disputes; regulatory compliance; transportation; our supply-chain; our and our customers’ inventory levels; and seasonality. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

Overview

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. We have the #1 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 products 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 items 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 costs and in-bound freight charges. Ingredients account for the largest portion of the cost of sales followed by contract manufacturing fees and packaging costs.

Our selling, general and administrative expenses consist primarily of marketing and advertising expenses, freight and warehousing, wages, related payroll and employee benefit expenses, stock-based compensation, 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 sourcesourced our pizza flour. We then initiated a recall of all lots of pizza product manufactured with this supplier’s flour from our first purchase from the supplier in May 2012.

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.

As a result ofIn the voluntary product recall, we recorded charges that negatively impacted our gross profit and net income by $0.2 million and $0.3 million, respectively, for the three months ended June 30, 2013. The recorded charges are estimated and based on information available to us when we recorded the charges. So far we have recovered $0.4 million of the recall-related costs from our product recall insurance, which was recorded in the fourthsecond quarter of fiscal 2013.2013, 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 ourthe involved insurance or the third-party flour mill.carriers in future quarters. Recoveries are recorded to offset the charges once recovery is probable. We expect to receive additional recoveries from the effects of the voluntary product recall to continue to be reflectedinvolved insurance carriers in our financial statements over the next fewfuture quarters.

During the fourth quarter of fiscal 2013, we restarted the production of our certified organic and made with organic pizza products using flour from an alternative supplier with which we have a long-standing relationship and began shipping replacement product into distributors and retailers in February 2013 in order to replenish retail shelves and inventories.

Trends and Other Factors Affecting Our Business

The growth rates for the U.S. natural and organic food market have been, and are expected 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 products due to increasing concerns over the purity and safety of food as a result of the presence of pesticide residues, growth hormones and artificial and genetically engineered ingredients in the foods we eat. 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 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 of the Annie’s brand, and our offerings havewhich has contributed to increased growth in net sales.

Our top-line growth continues to be driven by our increased penetration of mainstream grocery and mass merchandiser channels, and improved placement in the mainstream grocery channel. Additionally, we believe ourchannel and continued product innovation includingwhich includes adding new flavors and sizes to existing lines and introducingas well as introduction of new product lines, will benefit net sales growth.lines. In June 2013, we entered into the single-serve microwavable cup segment of the macaroni and cheese category and in August 2013, we announced our entryentered into family-size frozen entrées.

We purchase finished products from our contract manufacturers. With an industry-wide commodity cost escalation starting in fiscal 2008, we became more directly involved in the sourcing of the ingredients for our products. This allowed us to consolidate ingredient sourcing across contract manufacturers in order to negotiate more favorable pricing on ingredients and, in some cases, to lock in ingredient pricing for typically six to twelve12 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 volatile and increasing commodity costs on our business. We plan to continue to expand our portfolio of contracted ingredients and negotiate pricing agreement for future purchases to allow us sufficient time to respond to changes in our ingredient costs over time.

Additionally, we have invested significant time and energy to improve gross marginsoffset higher costs and achieve permanent cost reductions and productivity improvements in our supply chain. These efficiency projects have focused on selecting more cost-effective contract manufacturers, negotiating lower tolling fees, consolidating in-bound freight, leveraging warehouse expense and reducing ingredient and packaging costs through increased volume buys, contract consolidation, direct purchasing, investment in capital equipment at our contract manufacturers to improve line throughput and reduce production costs, and price negotiation.

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; 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 administrative 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, and 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 and as a percentage of net sales for the periods presented:

Our discussion 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, andcosts 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, andcosts 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 voluntary product recall and shelf registration costs.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: