EFTA Document EFTA01381270

Form S-I Table of Conies& We rely upon a limited number of contract manufacturers to provide a significant portion of our supply of produds. There is limited available manufacturing capacity that meets our quality standards. Our current plans to meet expected production needs rely in large part on the successful ramping up of operations at our Heartland facility in Joplin, Missouri. See "—Risks Related to Our Business and Industry—We may not successfully ramp up operations at our Heartland facility or our Heartland facility may not operate in accordance with our expectations." We have agreements with a network of contract manufacturers that require them to provide us with specific finished products. Most of our agreements with our contract manufacturers expire in 2015 and will thereafter be automatically renewed for consecutive one-year terms until notice of non-renewal is given. Upon expiration of our existing agreements with these contract manufacturers, we may not be able to renegotiate the terms of our agreements with these contract manufacturers on a commercially reasonable basis, or at all. During the years ended December 31, 2012, 2013 and 2014 and the three months ended March 31, 2015, approximately 73%, 69%, 68% and 54% of our cost of sales, respectively. was derived from products purchase-xi from the Company's five largest contract manufacturers. We manufacture ow canned wet foods at two different locations owned by a single contract manufacturer and certain of our treats and cat litter products arc also manufactured by single-source contract manufacturers. The manufacture of our products may not be easily transferable to other sites in the event that any of our contract manufacturers experience breakdown, failure or substandard performance of equipment. disruption of supply or shortages of raw materials and other supplies, labor problems. power outages, adverse weather conditions and natural disasters or the need to comply with environmental and other directives of governmental agencies. From time to time, a contract manufacturer may experience financial difficulties. bankruptcy or other business disruptions, which could disrupt our supply of finished goods or require that we incur additional expense by providing fmancial accommodations to the contract manufacturer or taking other steps to seek to minimize or avoid supply disruption. such as establishing a new contract manufacturing arrangement with another provider. The loss of any of these contract manufacturers or the failure for any reason of any of these contract manufacturers to fulfill their obligations under their agreements with us, including a failure to meet ow quality controls and standards. may result in disruptions to our supply of finished goods. We may be unable to locate an additional or alternate contract manufacturing arrangement that meets our quality controls and standards in a timely manner or on commercially reasonable terms, if at all. To the extent our retailer customers purchase products in excess of consumer consumption in any period; our sales in a subsequent period may be adversely affected as our customers seek to reduce their inventory levels. From time to time, our retailer customers may purchase more product than they expect to sell to consumers during a particular time period. Our retailer customers may grow their inventory• in anticipation of, or during, our promotional events, which typically provide for reduced prices during a specified time or other customer or consumer incentives. Our retailer customers may also grow inventory in anticipation of a price increase for our products, or otherwise over-order our products as a result of overestimating demand for our products. If a retailer customer increases its inventory during a particular reporting period as a result of a promotional event, anticipated price increase or otherwise, then sales during the subsequent reporting period may be adversely impacted as our customers seek to reduce their inventory to customary levels. This effect may be particularly pronounced when the promotional event, price increase or other event occurs near the end or beginning of a reporting period or when there are changes in the timing of a promotional event, price increase or similar event, as compared to the prior year. To the extent our retailer customers seek to reduce their usual or customary inventory levels or change their practices regarding purchases in excess of consumer consumption, our net sales and results of operations may be materially adversely affected in that period. 21 httplAvnw.sce. gov/Arehi vas/edger/data/ 609989/000119312515218883/d734898dsl.htm(7/20/2015 10:30:13 AM) CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0080108 SDNY GM_00226292 EFTA01381270