NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2011 (Restated), 2010 (Restated) and 2009
(In thousands,
except share and per share information unless otherwise noted)
(1) Organization and Significant Accounting Policies
Business
Diamond Foods, Inc. (the Company or Diamond) is an innovative packaged food company focused on building and energizing brands. Diamond specializes in processing, marketing and
distributing snack products and culinary, in-shell and ingredient nuts. In 2004, Diamond complemented its strong heritage in the culinary nut market under the Diamond of California
®
brand by launching a line of snack nuts under the Emerald
®
brand. In September 2008, Diamond acquired the Pop Secret
®
brand of microwave popcorn products, which provided the Company with increased scale in the snack market, significant supply chain economies of scale and cross
promotional opportunities with its existing brands. In March 2010, Diamond acquired Kettle Foods, a leading premium potato chip company in the two largest potato chip markets in the world, the United States and United Kingdom, which added the
complementary premium Kettle Brand
®
to Diamonds existing portfolio of leading brands in the snack
industry. Diamond sells its products to global, national, regional and independent grocery, drug and convenience store chains, as well as to mass merchandisers, club stores, other retail channels and non-retail channels.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP).
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates.
On an ongoing basis, the Company evaluates its estimates, including those related to inventories, trade receivables and promotional allowances, fair value of investments, useful lives of property, plant
and equipment, intangible assets, goodwill and income taxes, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for
managements judgments about the carrying values of assets and liabilities.
Certain Risks and Concentrations
The Companys revenues are principally derived from the sale of snack products and culinary, in-shell and ingredient nuts.
Significant changes in customer buying behavior could adversely affect the Companys operating results. Sales to the Companys largest customer accounted for approximately 15%, 17% and 21% of net sales in 2011, 2010 and 2009, respectively.
Sales to the second largest customer accounted for approximately 11%, 12% and 13% of net sales in 2011, 2010 and 2009, respectively.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
43
Foreign Currency Translation
The functional currency of the Companys foreign operations is the applicable local currency, the British pound. The functional
currency is translated into U.S. dollars for balance sheet accounts using currency exchange rates in effect as of the balance sheet date and for revenue and expense accounts using an average exchange in effect during the applicable period. The
translation adjustments are deferred as a separate component of Stockholders equity in Accumulated other comprehensive income.
Cash and Cash Equivalents
Cash and cash equivalents include investment of surplus cash in securities (primarily money market funds) with maturities at date of purchase of three months or less. At July 31, 2011, the Company
had a total of $3.1 million in cash and cash equivalents. Of this balance, $2.7 million was held in the United Kingdom in foreign currencies. It is our intention to indefinitely reinvest all current and future foreign earnings at these
locations in order to ensure sufficient working capital and expand operations.
Inventories
All inventories are accounted for at the lower of cost (first-in, first-out or weighted average) or market. The Company has entered into
walnut purchase agreements with growers, under which they deliver their walnut crop to us during the Fall harvest season, and pursuant to the walnut purchase agreements, the Company determines the price for this inventory after delivery and by the
end of the fiscal year. This purchase price is determined by us based on our discretion provided in the agreements, taking into account market conditions, crop size, quality and nut varieties, among other relevant factors. Since the ultimate
purchase price to be paid will be determined subsequent to receiving the walnut crop, the Company estimates the final purchase price for our interim financial statements. Those interim estimates may subsequently change due to changes in the factors
described above and the effect of the change could be significant. Any such changes in estimates are accounted for in the period of change by adjusting inventory on hand or cost of goods sold if the inventory is sold through.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of assets ranging from 30 to 39 years for
buildings and ranging from 3 to 15 years for equipment.
Slotting and Other Contractual Arrangements
In certain situations, the Company pays slotting fees to retail customers to acquire access to shelf space. These payments are recognized
as a reduction of sales. In addition, the Company makes payments pursuant to contracts that stipulate the term of the agreement, the quantity and type of products to be sold and other requirements. Payments pursuant to these agreements are
capitalized and included in other current and long-term assets, and are amortized on a straight-line basis over the term of the contract. If no arrangement exists, the Company records payments as a reduction of sales.
Impairment of Long-Lived and Intangible Assets and Goodwill
Management reviews long-lived assets and certain identifiable intangible assets with finite lives for impairment in accordance with ASC 360,
Property, Plant, and Equipment
. Goodwill and
intangible assets not subject to amortization are reviewed annually for impairment in accordance with ASC 350,
Intangibles Goodwill and Other,
or more often if there are indications of possible impairment.
44
The analysis to determine whether or not an asset is impaired requires significant judgments
that are dependent on internal forecasts, including estimated future cash flows, estimates of long-term growth rates for our business, the expected life over which cash flows will be realized and assumed royalty and discount rates. Changes in these
estimates and assumptions could materially affect the determination of fair value and any impairment charge. While the fair value of these assets exceeds their carrying value based on managements current estimates and assumptions, materially
different estimates and assumptions in the future in response to changing economic conditions, changes in the business, increased competition or loss of market share, product innovation or obsolescence, product claims that result in a significant
loss of sales or profitability over the product life or for other reasons could result in the recognition of impairment losses.
For assets to be held and used, including acquired intangible assets subject to amortization, the Company initiates a review whenever
events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Recoverability of an asset is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset is
expected to generate. Any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Significant management judgment is required in this process.
The Company tests its brand intangible assets not subject to amortization for impairment annually, or whenever events or changes in
circumstances indicate that their carrying value may not be recoverable. In testing brand intangibles for impairment, Diamond compares the fair value with the carrying value. The determination of fair value is based on a discounted cash flow
analysis, using inputs such as forecasted future revenues attributable to the brand, assumed royalty rates and a risk-adjusted discount rate that approximates our estimated cost of capital. If the carrying value exceeds the estimated fair value, the
brand intangible asset is considered impaired and an impairment loss will be recognized in an amount equal to the excess of the carrying value over the fair value of the brand intangible asset.
The Company performs its annual goodwill impairment test required by ASC 350 as of June 30th of each year. In testing goodwill for
impairment, Diamond initially compares the fair value of the Companys single reporting unit with the net book value of the Company because it represents the carrying value of the reporting unit. Diamond has one operating and reportable
segment. If fair value of the reporting unit is less than the carrying value of the reporting unit, we perform an additional step to determine the implied fair value of goodwill. The implied fair value of goodwill is determined by first allocating
the fair value of the reporting unit to all assets and liabilities and then computing the excess of the reporting units fair value over the amounts assigned to the assets and liabilities. If the carrying value of goodwill exceeds the implied
fair value of goodwill, the excess represents the amount of goodwill impairment. Accordingly, the Company would recognize an impairment loss in the amount of such excess. The Company considers the estimated fair value of the reporting unit in
relation to the Companys market capitalization. To the extent our market capitalization results in a fair value of our common stock that is below our net book value, or if other indicators of potential impairment are present, then we will be
required to take further steps to determine if an impairment of goodwill has occurred and to calculate an impairment loss.
Revenue
Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, title and risk of loss
has transferred to the buyer, price is fixed, delivery occurs and collection is reasonably assured. Revenues are recorded net of rebates, introductory or slotting payments, coupons, promotion and marketing allowances. The amount the Company accrues
for promotion is based on an estimate of the level of performance of the trade promotion, which is dependent upon factors such as historical trends with similar promotions, expectations regarding customer and consumer participation and sales and
payment trends with similar previously offered programs. Customers have the right to return certain products. Product returns are estimated based upon historical results and are reflected as a reduction in sales.
45
Promotion and Advertising Costs
Promotional allowances, customer rebates, coupons and marketing allowances are recorded at the time the related revenue is recognized and
are reflected as reductions of sales. Annual volume rebates, promotion and marketing allowances are recorded based upon the terms of the arrangements. Coupon incentives are recorded at the time of distribution in amounts based on estimated
redemption rates. The Company expenses advertising costs as incurred. Payments to reimburse customers for cooperative advertising programs are recorded in accordance with ASC 605-50,
Revenue Recognition Customer Payments and
Incentives
.
Shipping and Handling Costs
Amounts billed to customers for shipping and handling costs are included in net sales. Shipping and handling costs are charged to cost of sales as incurred.
Acquisition and Integration Related Expenses
Acquisition and integration related expenses are costs incurred to effect a business combination and subsequently to integrate the acquired business into the Company. These expenses are shown as a
separate line within operating expenses and are expensed as incurred. These expenses may include transaction related bank, legal, human resource, purchase price valuation and business strategy consulting fees, as well as business and systems
integration costs.
Income Taxes
Diamond accounts for income taxes in accordance with ASC 740,
Income Taxe
s. which requires that deferred tax assets and liabilities be recognized for the tax effect of temporary
differences between the consolidated financial statement and tax basis of recorded assets and liabilities at current tax rates. This guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The recoverability of deferred tax assets is based on both the historical and anticipated earnings levels and is reviewed periodically to determine if any additional valuation
allowance is necessary when it is more likely than not that amounts will not be recovered.
There are inherent uncertainties
related to the interpretations of tax regulations in the jurisdictions in which the Company operates. Diamond may take tax positions that management believes are supportable, but are potentially subject to successful challenge by the applicable
taxing authority. Tax positions are evaluated and liabilities are established in accordance with the guidance on uncertainty in income taxes. Diamond reviews these tax uncertainties in light of changing facts and circumstances, such as the progress
of tax audits, and adjusts them accordingly.
Fair Value of Financial Instruments
The fair value of certain financial instruments, including cash and cash equivalents, trade receivables, accounts payable and accrued
liabilities approximate the amounts recorded in the balance sheet because of the relatively short term nature of these financial instruments. The fair value of notes payable and long-term obligations at the end of each fiscal period approximates the
amounts recorded in the balance sheet based on information available to Diamond with respect to current interest rates and terms for similar financial instruments.
Stock-Based Compensation
The Company accounts for stock-based
compensation arrangements, including stock option grants and restricted stock awards, in accordance with ASC 718,
Compensation Stock Compensation
. Under this
46
guidance, compensation cost is recognized based on the fair value of equity awards on the date of grant. The compensation cost is then amortized on a straight-line basis over the vesting period.
The Black-Scholes option pricing model is used to determine the fair value of stock options at the date of grant. This model requires the Company to make assumptions such as expected term, dividends, volatility and forfeiture rates that determine
the stock options fair value. These key assumptions are based on historical information and judgment regarding market factors and trends. If actual results are not consistent with the Companys assumptions and judgments used in estimating these
factors, the Company may be required to increase or decrease compensation expense, which could be material to its results of operations.
Related Party Transactions
Two members of the Diamond Board of Directors are growers or affiliates of growers from whom Diamond has purchased walnuts in the ordinary course of business. In fiscal 2009, 2010 and 2011, costs
associated with the acquisition of walnuts from these related parties were approximately $2,836 for the 2008 crop, $3,047 for the 2009 crop and $4,171 for the 2010 crop, respectively, of which $650, $1,223 and $1,805 were included in payables for
fiscal 2009, 2010 and 2011, respectively, at year end.
Recent Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2010-29,
Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations
. This guidance was issued to clarify that pro forma disclosures should be presented as though the
business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The disclosures should also be accompanied by a narrative description of the nature and amount of material,
nonrecurring pro forma adjustments. This new guidance is effective prospectively for business combinations consummated on or after the annual reporting period beginning on or after December 15, 2010. The Company early adopted this amendment for
fiscal 2011 and will apply this guidance to business combinations going forward.
In May 2011, the FASB issued ASU
No. 2011-04,
Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.
This guidance changes the wording used to describe many of the
requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The guidance is effective for interim and annual periods beginning after December 15, 2011. The Company does not believe that the
adoption of this guidance will have a material impact on its consolidated financial statements.
In June 2011, the FASB
issued ASU No. 2011-05,
Comprehensive Income (Topic 220): Presentation of Comprehensive Income
. This guidance requires entities to present the total of comprehensive income, the components of net income and the components of
other comprehensive income (OCI) in either a single continuous statement of comprehensive income or in two separate consecutive statements. The guidance does not change the components of OCI or when an item of OCI must be reclassified to net income,
or the earnings per share calculation. The guidance is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The Company does not believe that the adoption of this
guidance will have a material impact on its consolidated financial statements.
(2) Fair Value of Financial Instruments
The Company transacts business in foreign currencies and has international sales denominated in foreign currencies, subjecting the Company
to foreign currency risk. The Company may enter into foreign currency derivative contracts, generally with monthly maturities of twelve months or less, to reduce the volatility of cash flows primarily related to forecasted revenue denominated in
certain foreign currencies. The Company does not use foreign currency derivative contracts for speculative or trading purposes. On the date a foreign currency
47
hedging contract is entered into, the Company may designate the contract as a hedge, for a forecasted transaction, of the variability of cash flows to be received (cash flow hedge).
The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are
designated as cash flow hedges to anticipated transactions. The Company also formally assesses, both at the hedges inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in
offsetting changes in cash flows of hedged items. Effective changes in derivative contracts designated and qualifying as cash flow hedges of forecasted revenue are reported in other comprehensive income. These gains and losses are reclassified into
interest income or expense, as a component of revenue, in the same period as the hedged revenue is recognized. The Company includes time value in the assessment of effectiveness of the foreign currency derivatives. The ineffective portion of the
hedge is recorded in interest expense or income. No hedge ineffectiveness for foreign currency derivatives was recorded for the year ended July 31, 2011. The maximum length of time over which the Company is hedging its exposure to the
variability in future cash flows associated with forecasted foreign currency transactions is less than twelve months. Within the next twelve months, amounts expected to be reclassified from other comprehensive income to revenue for foreign currency
derivatives are zero.
In the three months ended July 31, 2010, the Company entered into three interest rate swap
agreements in accordance with Company policy to mitigate the impact of LIBOR based interest expense fluctuations on Company profitability. These swap agreements, with a total hedged notional amount of $100 million were entered into to hedge future
cash interest payments associated with a portion of the Companys variable rate bank debt. The Company has designated these swaps as cash flow hedges of future cash flows associated with its variable rate debt. All effective changes in the fair
value of the designated swaps are recorded in other comprehensive income (loss) and are released to interest income or expense on a monthly basis as the hedged debt payments are accrued. Ineffective changes, if any, are recognized in interest income
or expense immediately. For the year ended July 31, 2011, the Company recognized other comprehensive income of $84 based on the change in fair value of the swap agreements; no hedge ineffectiveness for these swap agreements was recognized in
interest income or expense over the same period. Other comprehensive loss of $581 is expected to be reclassified to interest expense within the next twelve months.
The fair values of the Companys derivative instruments as of July 31were as follows:
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
|
|
|
2011
|
|
|
2010
|
|
Derivatives designated as hedging
instruments under ASC 815:
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
Accounts payable and accrued liabilities
|
|
$
|
(581
|
)
|
|
$
|
(668
|
)
|
Interest rate contracts
|
|
Other liabilities
|
|
|
(4
|
)
|
|
|
|
|
Foreign currency contracts
|
|
Accounts payable and accrued liabilities
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments under ASC 815
|
|
|
|
$
|
(585
|
)
|
|
$
|
(680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under ASC 815:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Accounts payable and accrued liabilities
|
|
$
|
(11
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instrument under ASC 815
|
|
|
|
$
|
(11
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
(596
|
)
|
|
$
|
(680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
48
The effects of the Companys derivative instruments on the Consolidated Statements of
Operations for the years ended July 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in ASC 815 Cash
Flow Hedging Relationships
|
|
Amount of Loss
Recognized in OCI on
Derivative
(Effective
Portion)
|
|
|
Location of Loss
Reclassified from
Accumulated OCI into
Income
(Effective
Portion)
|
|
Amount of Loss
Reclassified from
Accumulated OCI
into
Income
(Effective
Portion)
|
|
|
Location of Loss
Recognized in
Income on
Derivative
(Ineffective
Portion)
|
|
Amount of
Loss
Recognized in
Income on
Derivative
(Ineffective
Portion)
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
2011
|
|
|
2010
|
|
Interest rate
contracts
|
|
$
|
(643
|
)
|
|
$
|
(479
|
)
|
|
Interest expense
|
|
$
|
(728
|
)
|
|
$
|
(52
|
)
|
|
Interest expense
|
|
$
|
|
|
|
$
|
|
|
Foreign currency contracts
|
|
|
(182
|
)
|
|
|
(12
|
)
|
|
Net sales
|
|
|
(194
|
)
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(825
|
)
|
|
$
|
(491
|
)
|
|
|
|
$
|
(922
|
)
|
|
$
|
(52
|
)
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging
Instruments under ASC 815
|
|
Location of Loss Recognized in
Income on Derivative
|
|
Amount of Loss Recognized in
Income on Derivative
|
|
|
|
|
|
2011
|
|
|
2010
|
|
Foreign currency contracts
|
|
Interest expense
|
|
$
|
(145
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(145
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASC 820 requires that assets and liabilities carried at fair value be measured using the following three
levels of inputs:
Level 1
: Quoted market prices in active markets for identical assets or liabilities
Level 2
: Observable market based inputs or unobservable inputs that are corroborated by market data
Level 3
: Unobservable inputs that are not corroborated by market data
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The
Companys cash equivalents measured at fair value on a recurring basis was $586 as of July 31, 2010. These investments were classified as Level 1 based on quoted prices in active markets for identical assets, to value the cash equivalents.
There were no cash equivalents as of July 31, 2011.
The Companys derivative liabilities measured at fair value on
a recurring basis were $596 and $680 as of July 31, 2011 and 2010, respectively. The Company has elected to use the income approach to value the derivative liabilities, using observable Level 2 market expectations at the measurement date and
standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated, but not compelled to transact. Level 2 inputs for the valuations are limited to quoted prices for similar assets or
liabilities in active markets (specifically futures contracts on LIBOR for the first two years) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates). Mid-market pricing is used
as a practical expedient for fair value measurements. Under Accounting Standards Codification (ASC) 820,
Fair Value Measurements and Disclosures,
the fair value measurement of an asset or liability must reflect the
nonperformance risk of the entity and the counterparty. Therefore, the impact of the counterpartys creditworthiness when in an asset position and the Companys creditworthiness when in a liability position has also been factored into the
fair value measurement of the derivative instruments.
49
(3) Equity Offering and Stock-Based Compensation
In March 2010, the Company issued and sold 5,175,000 shares of its common stock for $37.00 per share. After deducting the underwriting
discount and other related expenses, the Company received total net proceeds from the sale of its common stock of approximately $179.7 million. The proceeds from the equity offering were used to fund a portion of the purchase price for the Kettle
Foods acquisition.
The Company uses a broad based equity incentive plan to help align employee and director incentives with
stockholders interests. The 2005 Equity Incentive Plan (the Plan) was approved in March 2005 and provides for the awarding of options, restricted stock, stock bonuses, restricted stock units, and stock appreciation rights. The
Compensation Committee of the Board of Directors administers the Plan. A total of 2,500,000 shares of common stock were initially reserved for issuance under the Plan, and the number of shares available for issuance under the Plan is increased by an
amount equal to 2% of the Companys total outstanding shares as of July 31 each year.
In 2005, the Company began
granting shares of restricted stock and stock options under the Plan. The shares of restricted stock vest over three, four or five-year periods. The stock options expire in ten years and vest over three, four or five years. As of July 31, 2011,
options to purchase 1,771,253 shares of common stock were outstanding, of which 1,235,297 were exercisable. At July 31, 2011, the Company had 685,187 shares available for future grant under the Plan.
ASC 718,
Compensation Stock Compensation,
requires the recognition of compensation expense in an amount equal
to the fair value of share-based awards. Beginning with the Companys adoption of ASC 718 in August 2005, the fair value of all stock options granted subsequent to August 1, 2005 is recognized as an expense in the Companys statement
of operations, typically over the related vesting period of the options. The guidance requires use of fair value computed at the date of grant to measure share-based awards. The fair value of restricted stock awards is recognized as stock-based
compensation expense over the vesting period, generally three, four or five years from date of grant or award. The Company recorded total stock-based compensation expense of $7,680, $5,796, and $3,901 for the years ended July 31, 2011, 2010,
and 2009, respectively.
Stock Option Awards:
The fair value of each stock option grant was estimated on the
date of grant using the Black-Scholes option valuation model. Expected stock price volatilities were estimated based on the Companys implied historical volatility. The expected term of options granted is based on the simplified method due to
the lack of historical Company information. Forfeiture rates were based on assumptions and historical data to the extent it is available. The risk-free rates were based on U.S. Treasury yields in effect at the time of the grant. For purposes of this
valuation model, dividends are based on the historical rate.
Assumptions used in the Black-Scholes model are presented below
(for the year ended July 31):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Average expected life, in years
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
Expected volatility
|
|
|
41.63
|
%
|
|
|
43.77
|
%
|
|
|
38.50
|
%
|
Risk-free interest rate
|
|
|
2.10
|
%
|
|
|
3.04
|
%
|
|
|
3.23
|
%
|
Dividend rate
|
|
|
0.34
|
%
|
|
|
0.50
|
%
|
|
|
0.70
|
%
|
50
The following table summarizes option activity during the years ended July 31, 2011,
2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average Exercise
Price Per Share
|
|
|
Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
Outstanding at July 31, 2008
|
|
|
1,510
|
|
|
$
|
17.74
|
|
|
|
7.5
|
|
|
|
$9,979
|
|
Granted
|
|
|
128
|
|
|
|
26.06
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(294
|
)
|
|
|
17.78
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(12
|
)
|
|
|
17.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 31, 2009
|
|
|
1,332
|
|
|
|
18.54
|
|
|
|
6.9
|
|
|
$
|
12,871
|
|
Granted
|
|
|
191
|
|
|
|
40.79
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(45
|
)
|
|
|
18.35
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(26
|
)
|
|
|
38.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 31, 2010
|
|
|
1,452
|
|
|
|
21.11
|
|
|
|
6.4
|
|
|
$
|
34,027
|
|
Granted
|
|
|
442
|
|
|
|
46.59
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(97
|
)
|
|
|
18.61
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(26
|
)
|
|
|
38.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 31, 2011
|
|
|
1,771
|
|
|
|
27.34
|
|
|
|
6.3
|
|
|
$
|
78,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at July 31, 2009
|
|
|
1,107
|
|
|
|
17.76
|
|
|
|
6.6
|
|
|
$
|
11,562
|
|
Exercisable at July 31, 2010
|
|
|
1,218
|
|
|
|
18.32
|
|
|
|
5.9
|
|
|
$
|
31,939
|
|
Exercisable at July 31, 2011
|
|
|
1,235
|
|
|
|
19.98
|
|
|
|
5.1
|
|
|
$
|
63,756
|
|
The weighted average fair value of options granted during 2011, 2010 and 2009 was $18.95, $18.18 and
$10.67, respectively. The total intrinsic value of options exercised during 2011, 2010 and 2009 was $3,035, $829 and $2,816, respectively. The total fair value of options vested during 2011, 2010 and 2009 was $2,076, $1,378 and $1,402, respectively.
Changes in the Companys nonvested options during 2011 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
Nonvested at July 31, 2010
|
|
|
234
|
|
|
$
|
15.28
|
|
Granted
|
|
|
442
|
|
|
|
18.95
|
|
Vested
|
|
|
(130
|
)
|
|
|
15.98
|
|
Cancelled
|
|
|
(10
|
)
|
|
|
17.53
|
|
|
|
|
|
|
|
|
|
|
Nonvested at July 31, 2011
|
|
|
536
|
|
|
|
18.09
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2011, there was $7.7 million of total unrecognized compensation cost net of
forfeitures related to nonvested stock options, which is expected to be recognized over a weighted average period of 2.7 years.
51
Restricted Stock Awards:
Restricted stock activity during 2011, 2010 and 2009
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average Grant
Date Fair Value
Per Share
|
|
|
|
(In thousands)
|
|
|
|
|
Outstanding at July 31, 2008
|
|
|
332
|
|
|
$
|
17.74
|
|
Granted
|
|
|
194
|
|
|
|
25.80
|
|
Vested
|
|
|
(111
|
)
|
|
|
18.02
|
|
Cancelled
|
|
|
(79
|
)
|
|
|
19.94
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 31, 2009
|
|
|
336
|
|
|
|
21.79
|
|
Granted
|
|
|
193
|
|
|
|
34.29
|
|
Vested
|
|
|
(76
|
)
|
|
|
20.92
|
|
Cancelled
|
|
|
(45
|
)
|
|
|
31.60
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 31, 2010
|
|
|
408
|
|
|
|
26.78
|
|
Granted
|
|
|
115
|
|
|
|
47.04
|
|
Vested
|
|
|
(115
|
)
|
|
|
24.51
|
|
Cancelled
|
|
|
(15
|
)
|
|
|
38.44
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 31, 2011
|
|
|
393
|
|
|
|
32.96
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of restricted stock vested in 2011, 2010 and 2009 was $5,482, $2,192 and
$2,771, respectively.
As of July 31, 2011, there was $8.2 million of unrecognized compensation cost net of forfeitures
related to nonvested restricted stock awards, which is expected to be recognized over a weighted average period of 2.2 years.
(4) Earnings
Per Share
ASC 260-10,
Earnings Per Share
impacted the determination and reporting of earnings per share
by requiring the inclusion of restricted stock as participating securities, since they have the right to share in dividends, if declared, equally with common shareholders. Participating securities are allocated a proportional share of net income
determined by dividing total weighted average participating securities by the sum of total weighted average common shares and participating securities (the two-class method). Including these shares in the Companys earnings per
share calculation during periods of net income has the effect of diluting both basic and diluted earnings per share.
52
The computations for basic and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
26,567
|
|
|
$
|
15,676
|
|
|
$
|
23,743
|
|
Less: income allocated to participating securities
|
|
|
(482
|
)
|
|
|
(310
|
)
|
|
|
(486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income attributable to common shareholders - basic
|
|
|
26,085
|
|
|
|
15,366
|
|
|
|
23,257
|
|
Add: undistributed income attributable to participating securities
|
|
|
412
|
|
|
|
295
|
|
|
|
469
|
|
Less: undistributed income reallocated to participating securities
|
|
|
(400
|
)
|
|
|
(287
|
)
|
|
|
(460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income attributable to common shareholders - diluted
|
|
$
|
26,097
|
|
|
$
|
15,374
|
|
|
$
|
23,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
|
|
21,577
|
|
|
|
18,313
|
|
|
|
16,073
|
|
Dilutive shares - stock options
|
|
|
656
|
|
|
|
530
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - diluted
|
|
|
22,233
|
|
|
|
18,843
|
|
|
|
16,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share attributable to common shareholders (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.21
|
|
|
$
|
0.84
|
|
|
$
|
1.45
|
|
Diluted
|
|
$
|
1.17
|
|
|
$
|
0.82
|
|
|
$
|
1.42
|
|
(1)
|
Computations may reflect rounding adjustments.
|
Options to purchase 1,771,253, 1,451,963 and 1,331,737 shares of common stock were outstanding at July 31, 2011, 2010 and 2009, respectively. Options to purchase 87,500, 156,000 and 48,000 shares of
common stock were not included in the computation of diluted earnings per share for 2011, 2010 and 2009 because their exercise prices were greater than the average market price of Diamonds common stock of $54.62, $36.43 and $25.87, and
therefore their effect would be antidilutive.
(5) Acquisitions
Kettle Foods
In March 2010, Diamond completed its acquisition of Kettle
Foods for a purchase price of approximately $616.2 million in cash. The acquisition was accounted for under the purchase method of accounting in accordance with ASC 805,
Business Combinations
.
The total purchase price has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:
|
|
|
|
|
Accounts receivable
|
|
$
|
29,188
|
|
Inventory
|
|
|
12,526
|
|
Deferred tax asset
|
|
|
1,017
|
|
Prepaid expenses and other assets
|
|
|
3,617
|
|
Property, plant and equipment
|
|
|
66,289
|
|
Brand intangibles
|
|
|
235,000
|
|
Customer relationships
|
|
|
120,000
|
|
Goodwill
|
|
|
323,565
|
|
Assumed liabilities
|
|
|
(39,211
|
)
|
Deferred tax liabilities
|
|
|
(135,769
|
)
|
|
|
|
|
|
Purchase price
|
|
$
|
616,222
|
|
|
|
|
|
|
53
Goodwill associated with the Kettle Foods acquisition is not amortized and is not deductible
for tax purposes.
Customer relationships of Kettle Foods will be amortized on a straight-line basis over an estimated life of
20 years. Brand intangibles relate to the Kettle Foods brand name, which has an indefinite life based on the lack of contractual or economic limitations of use as well as the Companys intent to use the brand indefinitely, and
therefore is not amortizable.
Pro Forma Financial Information
The following reflects the unaudited pro forma combined results of operations of the Company and Kettle Foods as if the acquisition had
taken place at the beginning of the fiscal years presented:
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2010
|
|
|
2009
|
|
Net sales
|
|
$
|
856,743
|
|
|
$
|
828,863
|
|
Net income
|
|
$
|
27,764
|
|
|
$
|
28,753
|
|
Diluted earnings per share
|
|
$
|
1.24
|
|
|
$
|
1.31
|
|
The Company incurred a loss on extinguishment of debt of $1.8 million when Diamond replaced an existing
credit facility with a new secured credit facility to fund the Kettle Foods acquisition. Additionally, the Company incurred acquisition and integration costs of $11.3 million during the year ended July 31, 2010. These amounts are included in
the above pro forma results of operations for the twelve month periods for fiscal 2010 and fiscal 2009.
Kettle Foods
contributed net sales of $97.0 million for the year ended July 31, 2010. The earnings Kettle Foods has contributed to Diamonds results of operations are not determinable as certain operational and go-to-market activities of Kettle Foods
have been integrated into Diamond.
(6) Intangible Assets and Goodwill
The changes in the carrying amount of goodwill were as follows:
|
|
|
|
|
Balance as of July 31, 2009:
|
|
$
|
76,076
|
|
Pop Secret purchase price allocation changes
|
|
|
(833
|
)
|
Acquisition of Kettle Foods
|
|
|
323,565
|
|
Translation adjustments
|
|
|
4,456
|
|
|
|
|
|
|
Balance as of July 31, 2010:
|
|
|
403,264
|
|
Translation adjustments
|
|
|
6,471
|
|
|
|
|
|
|
Balance as of July 31, 2011:
|
|
$
|
409,735
|
|
|
|
|
|
|
Other intangible assets consisted of the following at July 31:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
Brand intangibles (not subject to amortization)
|
|
$
|
301,148
|
|
|
$
|
298,988
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
Customer contracts and related relationships
|
|
|
163,786
|
|
|
|
159,901
|
|
|
|
|
|
|
|
|
|
|
Total other intangible assets, gross
|
|
|
464,934
|
|
|
|
458,889
|
|
|
|
|
|
|
|
|
|
|
Less accumulated amortization on intangible assets:
|
|
|
|
|
|
|
|
|
Customer contracts and related relationships
|
|
|
(14,079
|
)
|
|
|
(5,782
|
)
|
|
|
|
|
|
|
|
|
|
Total other intangible assets, net
|
|
$
|
450,855
|
|
|
$
|
453,107
|
|
|
|
|
|
|
|
|
|
|
54
During the quarter ended July 31, 2009, the Company recorded a $1.2 million non-cash
impairment charge to write off the unamortized balance of the Harmony/Homa trademark and trade names, since we no longer utilize them as primary trade dress and concluded that they have no future value. This amount was included in selling, general
and administrative expenses on the Consolidated Statements of Operations.
Identifiable intangible asset amortization expense
in each of the five succeeding years will amount to approximately $8,189.
For the years ended July 31, 2011, 2010 and
2009, the amortization period for identifiable intangible assets was approximately 20 years with amortization expense of approximately $8,079, $3,865 and $1,761, respectively, recognized in selling, general and administrative expenses on the
Consolidated Statements of Operations.
The Company also performed its 2011 annual impairment test of goodwill and
non-amortizing intangible assets required by ASC 350 as of June 30, 2011. There were no goodwill or indefinite lived intangible asset impairments during 2011, 2010 and 2009.
(7) Notes Payable and Long-Term Obligations
In February 2010, Diamond
entered into an agreement to replace an existing credit facility with a five-year $600 million secured credit facility (the Secured Credit Facility) with a syndicate of lenders. The Company used the borrowings under the Secured Credit
Facility to fund a portion of the Kettle Foods acquisition and to fund ongoing operations.
Borrowings under the Secured
Credit Facility initially bear interest, at Diamonds option, at either the agents Base Rate plus a margin of 2.50%, or the London Interbank Offered Rate (LIBOR), plus a margin for LIBOR loans ranging from 2.25% to 3.50%,
based on the consolidated leverage ratio, which is defined as the ratio of total debt to earnings before interest, taxes, depreciation and amortization (EBITDA). For the year ended July 31, 2011, the blended interest rate was 3.92%
for the Companys consolidated borrowings. Substantially all of the Companys tangible and intangible assets are considered collateral security under the Secured Credit Facility. Diamonds Secured Credit Facility initially consisted
of a $200 million revolving credit facility and a $400 million term loan. In March 2011, the syndicate of lenders approved Diamonds request for a $35 million increase in our revolving credit facility to $235 million, under the same terms. In
August 2011, the syndicate of lenders approved Diamonds request for a $50 million increase in our revolving credit facility to $285 million, under the same terms.
As of July 31, 2011, the revolving credit facility had $235 million in capacity, of which $161 million was outstanding, and the term loan facility had $400 million in capacity, of which $350 million
outstanding. Scheduled principal payments on the term loan were $40 million for fiscal 2012 and each of the succeeding two years (due quarterly), and $10 million for each of the first two quarters in fiscal 2015, with the remaining principal balance
and any outstanding loans under the revolving credit facility to be repaid on the fifth anniversary of initial funding.
On
December 20, 2010, Kettle Foods obtained, and Diamond guaranteed, a 10-year fixed rate loan with respect to the Beloit, Wisconsin plant expansion (the Guaranteed Loan) in the principal amount of $21.2 million, of which $20.4 million
was outstanding as of July 31, 2011. Principal and interest payments are due monthly throughout the term of the loan. The Guaranteed Loan is being used to purchase equipment for the Beloit, Wisconsin plant expansion. Borrowed funds were placed
in an interest-bearing escrow account. Withdrawals from the escrow account were restricted to reimburse, dollar-for-dollar, approved expenditures directly related to equipment purchases. As the cash is being used to purchase non-current assets, such
restricted cash is classified as non-current on the balance sheet. The Guaranteed Loan also provides for customary affirmative and negative covenants, which are similar to the covenants under the Secured Credit Facility.
55
Initially, there was a limit to the debt to EBITDA ratio to no more than 4.35 to 1.00, and the fixed charge coverage ratio to no less than 1.05 to 1.00. As a result of the errors identified
causing the restatement of the consolidated financial statements, we were in default with certain financial and reporting covenants, which non-compliance was waived as of July 31, 2012. In addition, the financial covenants within the Guaranteed
Loan were reset to match those in the Third Amendment, as defined below.
The Secured Credit Facility provides for customary
affirmative and negative covenants and cross default provisions that may be triggered if Diamond fails to comply with obligations under their other credit facilities or indebtedness. The Secured Credit Facility initially included a covenant that
restricts the amount of indebtedness (including capital leases and purchase money obligations for fixed or capital assets) to no more than $25 million. On April 30, 2011, Diamond entered into a seven-year equipment lease for its Salem, Oregon
plant (the Kettle US Lease) that has been treated as a capital lease for accounting purposes. This accounting treatment caused the Company to be in default of the Secured Credit Facility covenant limiting other indebtedness. These
defaults were waived, with respect to the Kettle US Lease on August 23, 2012. Additionally, the Secured Credit Facility and the OCM PF/FF Adamantine Holdings, Ltd. (the Oaktree SPA) were each amended to allow the Company to incur up
to $31 million of capital leases and purchase money obligations for fixed or capital assets, which amount will be reduced from and after December 31, 2013 (a) to $25 million under the Secured Credit Facility and (b) to $27.5 million
under the Oaktree SPA.
As of July 31, 2011, our debt to EBITDA ratio was limited to no more than 4.25 to 1.00 and our
fixed charge coverage ratio to no less than 1.10 to 1.00. As a result of the errors identified causing the restatement of our consolidated financial statements, Diamond was non-compliant with certain financial and reporting covenants, which
non-compliance was waived as a result of the Third Amendment. Please refer to Note 17 of the Notes to Consolidated Financial Statements for information regarding the Forbearance agreement and the Third Amendment to the Secured Credit Facility.
Please refer to Note 17 of the Notes to Consolidated Financial Statements for information regarding developments related to
the Companys recapitalization.
(8) Balance Sheet Items
Inventories consisted of the following at July 31:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
Raw materials and supplies
|
|
$
|
64,060
|
|
|
$
|
64,700
|
|
Work in process
|
|
|
25,031
|
|
|
|
24,899
|
|
Finished goods
|
|
|
64,443
|
|
|
|
56,233
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
153,534
|
|
|
$
|
145,832
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities consisted of the following at July 31:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
Accounts payable
|
|
$
|
74,471
|
|
|
$
|
42,964
|
|
Payable to growers
|
|
|
76,700
|
|
|
|
56,505
|
|
Accrued salaries and benefits
|
|
|
16,616
|
|
|
|
17,587
|
|
Accrued promotion
|
|
|
27,358
|
|
|
|
22,544
|
|
Accrued taxes
|
|
|
4,099
|
|
|
|
731
|
|
Other
|
|
|
6,609
|
|
|
|
5,425
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
205,853
|
|
|
$
|
145,756
|
|
|
|
|
|
|
|
|
|
|
56
(9) Property, Plant and Equipment
Property, plant and equipment consisted of the following at July 31:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
Land and improvements
|
|
$
|
10,822
|
|
|
$
|
10,012
|
|
Buildings and improvements
|
|
|
41,303
|
|
|
|
38,231
|
|
Machinery, equipment and software
|
|
|
168,974
|
|
|
|
164,926
|
|
Construction in progress
|
|
|
28,230
|
|
|
|
7,633
|
|
Capital leases of equipment
|
|
|
5,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
254,705
|
|
|
|
220,802
|
|
Less accumulated depreciation
|
|
|
(120,238
|
)
|
|
|
(102,567
|
)
|
Less accumulated amortization
|
|
|
(192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
134,275
|
|
|
$
|
118,235
|
|
|
|
|
|
|
|
|
|
|
(10) Income Taxes
The components of income before income taxes, by tax jurisdiction, are as follows for the fiscal years ended July 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
United States
|
|
$
|
42,269
|
|
|
$
|
25,242
|
|
|
$
|
38,687
|
|
Foreign
|
|
|
(12,599
|
)
|
|
|
(2,034
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,670
|
|
|
$
|
23,208
|
|
|
$
|
38,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense consisted of the following for the fiscal years ended July 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
7,250
|
|
|
$
|
887
|
|
|
$
|
14,831
|
|
State
|
|
|
785
|
|
|
|
(1,020
|
)
|
|
|
2,913
|
|
Foreign
|
|
|
5,600
|
|
|
|
1,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
13,635
|
|
|
|
1,555
|
|
|
|
17,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(3,389
|
)
|
|
|
7,171
|
|
|
|
(2,830
|
)
|
State
|
|
|
(2,719
|
)
|
|
|
274
|
|
|
|
30
|
|
Foreign
|
|
|
(4,424
|
)
|
|
|
(1,468
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(10,532
|
)
|
|
|
5,977
|
|
|
|
(2,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax provision
|
|
$
|
3,103
|
|
|
$
|
7,532
|
|
|
$
|
14,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
A reconciliation of the statutory federal income tax rate of 35% to Diamonds effective
income tax rate is as follows for the fiscal years ended July 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Federal tax at statutory rate
|
|
$
|
10,385
|
|
|
$
|
8,124
|
|
|
$
|
13,540
|
|
State tax, net of federal benefit
|
|
|
(255
|
)
|
|
|
(530
|
)
|
|
|
1,908
|
|
Net tax benefit of earnings at lower rates
|
|
|
(10,489
|
)
|
|
|
(3,197
|
)
|
|
|
|
|
Accrual for uncertain tax positions
|
|
|
7,507
|
|
|
|
2,026
|
|
|
|
|
|
Acquisition costs
|
|
|
|
|
|
|
2,282
|
|
|
|
|
|
Compensation
|
|
|
897
|
|
|
|
744
|
|
|
|
297
|
|
Domestic production activities deduction
|
|
|
(600
|
)
|
|
|
(89
|
)
|
|
|
(894
|
)
|
Impact of tax law changes
|
|
|
(3,972
|
)
|
|
|
(1,271
|
)
|
|
|
|
|
Changes in estimates
|
|
|
300
|
|
|
|
(712
|
)
|
|
|
|
|
Other
|
|
|
(670
|
)
|
|
|
155
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
3,103
|
|
|
$
|
7,532
|
|
|
$
|
14,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applicable U.S. income taxes have not been provided on approximately $24,968 of undistributed earnings of
certain foreign subsidiaries at July 31, 2011, because these earnings are considered indefinitely reinvested. The net federal income tax liability that would arise if these earnings were not indefinitely reinvested is approximately $8,739.
With respect to the Companys stock option plans, realized tax benefits in excess of tax benefits recognized in net
earnings are recorded as increases to additional paid-in capital. Excess tax benefits of approximately $1,447, $692, and $1,067, were realized and recorded to additional paid-in capital for fiscal 2011, 2010 and 2009, respectively.
The tax effect of temporary differences and net operating losses which give rise to deferred tax assets and liabilities consist of the
following as of July 31:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
2,033
|
|
|
$
|
943
|
|
Receivables
|
|
|
253
|
|
|
|
378
|
|
Accruals
|
|
|
7,816
|
|
|
|
6,506
|
|
Compensation
|
|
|
3,896
|
|
|
|
3,661
|
|
State tax
|
|
|
48
|
|
|
|
95
|
|
Other
|
|
|
11
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
14,057
|
|
|
|
11,685
|
|
|
|
|
|
|
|
|
|
|
Non-current:
|
|
|
|
|
|
|
|
|
State tax credits
|
|
|
6,328
|
|
|
|
5,627
|
|
Retirement benefits
|
|
|
3,938
|
|
|
|
4,341
|
|
Other comprehensive income
|
|
|
2,013
|
|
|
|
1,530
|
|
Net operating loss carryover
|
|
|
1,863
|
|
|
|
2,006
|
|
Employee stock compensation benefits
|
|
|
4,351
|
|
|
|
2,609
|
|
Acquisition and integration related expenses
|
|
|
6,133
|
|
|
|
380
|
|
Other
|
|
|
1,403
|
|
|
|
874
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
26,029
|
|
|
|
17,367
|
|
Valuation allowance
|
|
|
|
|
|
|
(944
|
)
|
|
|
|
|
|
|
|
|
|
Total non-current
|
|
$
|
26,029
|
|
|
$
|
16,423
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
|
|
|
$
|
14
|
|
Non-current:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
13,617
|
|
|
|
11,272
|
|
Intangibles
|
|
|
129,358
|
|
|
|
129,769
|
|
Foreign unremitted earnings
|
|
|
9,019
|
|
|
|
8,483
|
|
Other
|
|
|
692
|
|
|
|
1,055
|
|
|
|
|
|
|
|
|
|
|
Total non-current
|
|
|
152,686
|
|
|
|
150,579
|
|
|
|
|
|
|
|
|
|
|
Total deferred taxes, net
|
|
$
|
(112,600
|
)
|
|
$
|
(122,485
|
)
|
|
|
|
|
|
|
|
|
|
Composed of:
|
|
|
|
|
|
|
|
|
Net current deferred taxes
|
|
$
|
14,057
|
|
|
$
|
11,671
|
|
Net non-current deferred taxes
|
|
|
(126,657
|
)
|
|
|
(134,156
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred taxes, net
|
|
$
|
(112,600
|
)
|
|
$
|
(122,485
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowances have been provided to reduce deferred tax assets to amounts considered recoverable.
The Companys valuation allowance was zero as of July 31, 2011 and $944 as of July 31, 2010.
As of
July 31, 2011, the Company had no cumulative federal tax loss carryforwards and $19,328 of cumulative state tax loss carryforwards. State tax loss carryforwards will expire beginning fiscal 2017 through fiscal 2023. As of July 31, 2011,
the Company also has a foreign net operating loss carryforward of $7,540 with no expiration period.
As of July 31, 2011,
the state tax credits of $10,863 are California Enterprise Zone Credits, which have no expiration date.
A reconciliation of
the beginning and ending amount of the gross unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Balance, beginning of year
|
|
$
|
5,454
|
|
|
$
|
313
|
|
|
$
|
233
|
|
Tax position related to current year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
7,977
|
|
|
|
5,429
|
|
|
|
|
|
Tax positions related to prior years:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
840
|
|
|
|
10
|
|
|
|
227
|
|
Reductions
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
(269
|
)
|
|
|
(46
|
)
|
Statute of limitations closures
|
|
|
|
|
|
|
(29
|
)
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
14,260
|
|
|
$
|
5,454
|
|
|
$
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the balance of unrecognized tax benefits at July 31, 2011, July 31, 2010 and
July 31, 2009, respectively, are potential benefits of $9,065, $2,611, and $313, respectively, that if recognized, would affect the effective tax rate on earnings.
The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. The Company accrued $65, $49 and $40, net of federal benefit, in interest and $64,
$12 and $1 in penalties associated with uncertain tax positions for each of the years ended July 31, 2011, 2010 and 2009.
59
In the twelve months following July 31, 2011, audit resolutions, lapse of statute of
limitations, and filing the amended returns could potentially reduce total unrecognized tax benefits by up to $11,244, substantially all of which would impact the effective tax rate.
The Company files income tax returns in the U.S. federal and various states, local and foreign jurisdictions. The Companys income
tax returns for fiscal 2006 through fiscal 2011 remain open to examination.
(11) Commitments and Contingencies
In November 2011, December 2011 and June 2012, various putative shareholder class action and derivative complaints were filed in
federal and state court against Diamond and certain current and former Diamond directors and officers.
In re Diamond
Foods, Inc., Securities Litigation
Beginning on November 7, 2011, the first of a number of putative securities class
action suits was filed in the United States District Court for the Northern District of California against Diamond and certain of its former executive officers (defendants). These suits allege that defendants made materially false and
misleading statements, or failed to disclose material facts, regarding Diamonds financial results, operations and prospects, including its accounting for payments to walnut growers and the anticipated closing of Diamonds proposed
acquisition of the Pringles business from The Procter & Gamble Company (P&G). The various suits assert claims covering the period from December 9, 2010 through November 4, 2011 and seek compensatory damages, interest
thereon, costs and expenses incurred in such actions, as well as equitable or other relief. On January 24, 2012, these class actions were consolidated by the court as
In re Diamond Foods Inc., Securities Litigation
. On March 20,
2012, the court appointed a lead plaintiff, and on June 13, 2012, the court appointed legal counsel for the plaintiff. On July 30, 2012, an amended complaint was filed in the consolidated action naming Diamond, certain of its former
executive officers and our outside auditor as defendants. On September 28, 2012, Diamond moved to dismiss the action.
In re Diamond Foods Inc. Shareholder Derivative Litigation
Beginning on November 14, 2011, three putative shareholder derivative lawsuits were filed in the Superior Court for the State of
California, San Francisco County, purportedly on behalf of Diamond Foods and naming certain executive officers and the members of the Companys board of directors as individual defendants. On January 17, 2012, the court consolidated these
actions as
In re Diamond Foods, Inc. Shareholder Derivative Litigation
and appointed co-lead counsel. On February 16, 2012 plaintiffs filed their consolidated complaint, naming certain current and former executive officers and members of
the Companys board, and the Companys outside auditor, as individual defendants. The consolidated complaint arises from the same or similar alleged facts as alleged in the federal securities action and the federal derivative litigation
(discussed in the next paragraph below), and purported to set forth claims for breach of fiduciary duty, unjust enrichment, abuse of control and gross mismanagement, and against the auditor for professional negligence and breach of contract. The
suit seeks the recovery of unspecified damages allegedly sustained by Diamond, which is named as a nominal defendant, corporate reforms, disgorgement, restitution, the recovery of plaintiffs attorneys fees and other relief. On
August 20, 2012, Diamond filed a demurrer seeking to dismiss the action. On October 23, 2012, the court sustained the Companys demurrer with leave to amend the complaint excluding the gross mismanagement claim, which the court
sustained with prejudice.
In re Diamond Foods, Inc., Derivative Litigation
On November 28, 2011 and December 19, 2011, two putative shareholder derivative lawsuits were filed in the United States
District Court for the Northern District of California, purportedly on behalf of Diamond Foods and naming certain current and former executive officers and members of the Companys board of directors as
60
individual defendants. On February 16, 2012, the court consolidated these actions as
In re Diamond Foods, Inc., Derivative Litigation
. Plaintiffs filed their consolidated complaint on
March 1, 2012, again naming certain current and former executive officers and members of the Companys board of directors as individual defendants, and also adding the Companys outside auditor as a defendant. The suit was based on
essentially the same allegations as those in the federal securities action and the state derivative litigation, and purported to set forth claims under Section 14 (a) of the Securities Exchange Act of 1934 alleging that defendants made
materially false or misleading statements or omissions in proxy statements issued on or about November 26, 2010 and on or about September 26, 2011, and for breach of fiduciary duty, unjust enrichment, contribution and indemnification,
gross mismanagement, and, against the Companys auditor, for professional negligence, accounting malpractice and aiding and abetting the breach of fiduciary duties of the other individual defendants. The suit sought to recover unspecified
damages allegedly sustained by Diamond, which was named as a nominal defendant, corporate reforms, restitution, equitable and/or injunctive relief, to recover plaintiffs attorneys fees and other relief. On April 16, 2012, Diamond
moved to dismiss the action. On May 29, 2012, the court granted Diamonds motion and dismissed the action with prejudice, based on lack of subject matter jurisdiction related to deficiencies in plaintiffs Section 14(a) claims.
The court entered judgment in favor of Diamond the same day. On June 4, 2012, one of the plaintiffs in the consolidated matter filed a Notice of Appeal with the United States Court of Appeals for the Ninth Circuit, seeking to appeal the
May 29, 2012 order granting Diamonds motion to dismiss. On October 12, 2012, the appellant filed its opening brief.
Astor BK Realty Trust v. Diamond Foods, Inc.
On February 22, 2012
,
an action was filed in Delaware Chancery Court by a shareholder seeking to enforce a demand to inspect certain of Diamonds records pursuant to Section 220 of the Delaware General Corporation Law, as a possible prelude to the
shareholder bringing a derivative action. This action has been stayed by the agreement of the parties.
Delaware
Derivative Litigation
On June 27, 2012, two putative shareholder derivative lawsuits,
Board of Trustees of City of
Hialeah Employees Retirement System v. Mendes, et al.
and
Lucia v. Mendes et al.
, were filed in the Delaware Chancery Court purportedly on behalf of the Company and naming certain current and former executive officers and members of
the Companys board of directors as individual defendants. On August 7, 2012, the court consolidated these actions as
In re Diamond Foods, Inc. Derivative Litigation
and appointed co-lead counsel. Plaintiffs filed their consolidated
complaint on September 19, 2012, again naming certain current and former executive officers and members of our board of directors as individual defendants. The suit is based on essentially the same allegations as those in the federal securities
action and the federal and California derivative litigation and purports to set forth claims for breach of fiduciary duty, unjust enrichment, contribution and indemnification, gross mismanagement and breach of the duty of loyalty. The suit seeks
recovery of unspecified damages allegedly sustained by the Company, which is named as a nominal defendant, corporate reforms, disgorgement, restitution, equitable and/or injunctive relief, to recover plaintiffs attorneys fees and other
relief.
Governmental Proceedings
On December 14, 2011, Diamond received a formal order of investigation from the staff of the United States Securities and Exchange Commission (SEC). Diamond also has had contact with the
U.S. Attorneys office for the Northern District of California (DOJ). We have cooperated with the government and expect to continue to do so.
Other
The Company is involved in other various legal actions in the
ordinary course of our business. Such matters are subject to many uncertainties that make their outcomes, and any potential liability we may incur, unpredictable.
61
We do not believe it is feasible to predict or determine the outcome or resolution of the
above litigation proceedings, or to estimate the amounts of, or potential range of, loss with respect to those proceedings. In addition, the timing of the final resolution of these proceedings is uncertain. The range of possible resolutions of these
proceedings could include judgments against the Company or settlements that could require substantial payments by the Company, which could have a material impact on Diamonds financial position, results of operations and cash flows.
At July 31, 2011, the Company had $2.6 million of letters of credit outstanding related to normal business transactions and
commitments of $10.9 million to purchase new equipment.
Operating lease expense for the year ended July 31, 2011, 2010
and 2009 was $4.7 million, $3.2 million and $2.5 million, respectively.
At July 31, 2011, future minimum payments under
non-cancelable operating leases (primarily for real property) were as follows:
|
|
|
|
|
2012
|
|
$
|
5,260
|
|
2013
|
|
|
3,769
|
|
2014
|
|
|
2,423
|
|
2015
|
|
|
2,190
|
|
2016
|
|
|
1,600
|
|
Thereafter
|
|
|
6,672
|
|
|
|
|
|
|
Total
|
|
$
|
21,914
|
|
|
|
|
|
|
The current and long term portion of capital leases are reflected as Accounts payable and accrued
liabilities and Other liabilities, respectively, on the Consolidated Balance Sheets. At July 31, 2011, future minimum payments under non-cancelable capital leases (primarily for real property) were as follows:
|
|
|
|
|
2012
|
|
$
|
938
|
|
2013
|
|
|
938
|
|
2014
|
|
|
938
|
|
2015
|
|
|
938
|
|
2016
|
|
|
938
|
|
Thereafter
|
|
|
1,643
|
|
|
|
|
|
|
Total
|
|
$
|
6,333
|
|
|
|
|
|
|
(12) Segment Reporting
The Company operates in a single reportable segment: the processing, marketing and distribution of culinary, in-shell and ingredient/food service nuts and snack products. The geographic presentation of
net sales below is based on the destination of the sale. The Europe category consists primarily of United Kingdom, Germany, Netherlands and Spain. The Other category consists primarily of Canada, South Korea, Japan, Turkey
and China. The geographic distributions of the Companys net sales were as follows for the year ended July 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
United States
|
|
$
|
676,829
|
|
|
$
|
556,141
|
|
|
$
|
486,614
|
|
Europe
|
|
|
161,365
|
|
|
|
64,909
|
|
|
|
33,743
|
|
Other
|
|
|
128,494
|
|
|
|
61,276
|
|
|
|
50,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
966,688
|
|
|
$
|
682,326
|
|
|
$
|
570,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
Net sales by channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Snack
|
|
$
|
553,676
|
|
|
$
|
323,620
|
|
|
$
|
188,900
|
|
Culinary and Retail In-shell
|
|
|
263,161
|
|
|
|
248,960
|
|
|
|
276,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retail
|
|
|
816,837
|
|
|
|
572,580
|
|
|
|
465,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Non-Retail
|
|
|
119,017
|
|
|
|
69,206
|
|
|
|
68,890
|
|
North American Ingredient/Food Service Other
|
|
|
30,834
|
|
|
|
40,540
|
|
|
|
36,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Retail
|
|
|
149,851
|
|
|
|
109,746
|
|
|
|
105,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
966,688
|
|
|
$
|
682,326
|
|
|
$
|
570,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The geographic distributions of the Companys long-lived assets as of July 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
United States
|
|
$
|
107,077
|
|
|
$
|
90,289
|
|
United Kingdom
|
|
|
27,198
|
|
|
|
27,946
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
134,275
|
|
|
$
|
118,235
|
|
|
|
|
|
|
|
|
|
|
(13) Valuation Reserves and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of Period
|
|
|
Charged to
Expense
|
|
|
Charged to
Reserve
|
|
|
End of
Period
|
|
Allowance for Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended July 31, 2009
|
|
$
|
441
|
|
|
$
|
269
|
|
|
$
|
(210
|
)
|
|
$
|
500
|
|
Year ended July 31, 2010
|
|
|
500
|
|
|
|
106
|
|
|
|
|
|
|
|
606
|
|
Year ended July 31, 2011
|
|
|
606
|
|
|
|
55
|
|
|
|
(19
|
)
|
|
|
642
|
|
(14) Retirement Plans
Diamond provides retiree medical benefits and sponsors two defined benefit pension plans. One of the defined benefit plans is a qualified plan covering all bargaining unit employees and the other is a
nonqualified plan for certain salaried employees. The amounts shown for pension benefits are combined amounts for all plans. Diamond uses a July 31 measurement date for its plans. Plan assets are held in trust and primarily include mutual funds
and money market accounts. Any employee who joined the Company after January 15, 1999 is not entitled to retiree medical benefits.
In March 2010, the Company determined that the defined benefit pension plan for the bargaining unit employees would be frozen at July 31, 2010 in conjunction with the execution of a new union
contract. This amendment was accounted for in accordance with ASC 715,
Compensation Retirement Benefits
.
63
Obligations and funded status of the remaining benefit plans at July 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
Change in Benefit Obligation
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Benefit obligation at beginning of year
|
|
$
|
24,186
|
|
|
$
|
20,832
|
|
|
$
|
2,204
|
|
|
$
|
2,360
|
|
Service cost
|
|
|
79
|
|
|
|
728
|
|
|
|
65
|
|
|
|
63
|
|
Interest cost
|
|
|
1,258
|
|
|
|
1,198
|
|
|
|
107
|
|
|
|
133
|
|
Plan participants contributions
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
74
|
|
Plan amendments
|
|
|
|
|
|
|
(412
|
)
|
|
|
|
|
|
|
|
|
Actuarial loss (gain)
|
|
|
1,809
|
|
|
|
2,253
|
|
|
|
61
|
|
|
|
(267
|
)
|
Benefits paid
|
|
|
(464
|
)
|
|
|
(413
|
)
|
|
|
(195
|
)
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
26,868
|
|
|
$
|
24,186
|
|
|
$
|
2,269
|
|
|
$
|
2,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
Change in Plan Assets
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Fair value of plan assets at beginning of year
|
|
$
|
13,144
|
|
|
$
|
12,120
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
1,771
|
|
|
|
1,320
|
|
|
|
|
|
|
|
|
|
Employer contribution
|
|
|
|
|
|
|
117
|
|
|
|
168
|
|
|
|
85
|
|
Plan participants contributions
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
74
|
|
Benefits paid
|
|
|
(464
|
)
|
|
|
(413
|
)
|
|
|
(195
|
)
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
14,451
|
|
|
$
|
13,144
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(12,417
|
)
|
|
$
|
(11,042
|
)
|
|
$
|
(2,269
|
)
|
|
$
|
(2,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (liabilities) recognized in the consolidated balance sheets at July 31 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Current liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(114
|
)
|
|
$
|
(117
|
)
|
Noncurrent liabilities
|
|
|
(12,417
|
)
|
|
|
(11,042
|
)
|
|
|
(2,155
|
)
|
|
|
(2,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(12,417
|
)
|
|
$
|
(11,042
|
)
|
|
$
|
(2,269
|
)
|
|
$
|
(2,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income (pre-tax) as of July 31 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Net loss (gain)
|
|
$
|
9,545
|
|
|
$
|
9,120
|
|
|
$
|
(5,086
|
)
|
|
$
|
(5,942
|
)
|
Prior service cost
|
|
|
87
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,632
|
|
|
$
|
9,222
|
|
|
$
|
(5,086
|
)
|
|
$
|
(5,942
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for all defined benefit pension plans was $24.4 million and $21.8
million at July 31, 2011 and 2010.
Information for pension plans with an accumulated benefit obligation in excess of
plan assets as of July 31 was as follows:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
Projected benefit obligation
|
|
$
|
26,868
|
|
|
$
|
24,186
|
|
Accumulated benefit obligation
|
|
|
24,400
|
|
|
|
21,772
|
|
Fair value of plan assets
|
|
|
14,451
|
|
|
|
13,144
|
|
64
Components of net periodic benefit cost for the fiscal years ended July 31 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Net Periodic Benefit Cost / (Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
79
|
|
|
$
|
728
|
|
|
$
|
475
|
|
|
$
|
65
|
|
|
$
|
63
|
|
|
$
|
103
|
|
Interest cost
|
|
|
1,258
|
|
|
|
1,198
|
|
|
|
1,062
|
|
|
|
107
|
|
|
|
133
|
|
|
|
284
|
|
Expected return on plan assets
|
|
|
(1,031
|
)
|
|
|
(952
|
)
|
|
|
(1,059
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
16
|
|
|
|
26
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net (gain) loss
|
|
|
643
|
|
|
|
517
|
|
|
|
37
|
|
|
|
(795
|
)
|
|
|
(824
|
)
|
|
|
(539
|
)
|
Curtailment cost
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost / (income)
|
|
$
|
965
|
|
|
$
|
1,520
|
|
|
$
|
541
|
|
|
$
|
(623
|
)
|
|
$
|
(628
|
)
|
|
$
|
(152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated net loss and prior service cost for the defined benefit pension plans that will be
amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $0.8 million and zero, respectively. The estimated net gain and prior service cost for the other defined benefit postretirement plans
that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $0.8 million and zero, respectively.
For calculation of retiree medical benefit cost, prior service cost is amortized on a straight-line basis over the average remaining years of service to full eligibility for benefits of the active plan
participants. For calculation of net periodic pension cost, prior service cost is amortized on a straight-line basis over the average remaining years of service of the active plan participants.
Assumptions
Weighted-average assumptions used to determine benefit obligations at July 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Discount rate
|
|
|
5.00
|
%
|
|
|
5.28
|
%
|
|
|
5.80
|
%
|
|
|
4.70
|
%
|
|
|
5.00
|
%
|
|
|
5.80
|
%
|
Rate of compensation increase
|
|
|
5.50
|
|
|
|
5.50
|
|
|
|
5.50
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Weighted-average assumptions used to determine net periodic benefit cost for the fiscal years ended
July 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Discount rate
|
|
|
5.28
|
%
|
|
|
5.80
|
%
|
|
|
7.00
|
%
|
|
|
5.00
|
%
|
|
|
5.80
|
%
|
|
|
7.00
|
%
|
Expected long-term return on plan assets
|
|
|
8.00
|
|
|
|
8.00
|
|
|
|
8.00
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of compensation increase
|
|
|
5.50
|
|
|
|
5.50
|
|
|
|
5.50
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The expected long-term rate of return on plan assets is based on the established asset allocation.
Assumed trend rates for medical plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Health care cost trend rate assumed for next year
|
|
|
9.0
|
%
|
|
|
9.5
|
%
|
|
|
10.0
|
%
|
Rate to which the cost trend rate assumed to decline (the ultimate trend rate)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
Year the rate reaches ultimate trend rate
|
|
|
2028
|
|
|
|
2020
|
|
|
|
2020
|
|
65
Assumed health care cost trend rates have a significant effect on the amounts reported for
health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
One
Percentage
Point
Increase
|
|
|
One
Percentage
Point
Decrease
|
|
Effect on total of service and interest cost
|
|
$
|
24
|
|
|
$
|
(20
|
)
|
Effect on post-retirement benefit obligation
|
|
|
250
|
|
|
|
(215
|
)
|
Plan Assets
The fair values of the Companys pension plan assets by asset category were as follows (see Note 2 for description of levels):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at July 31, 2011
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Asset Category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
419
|
|
|
$
|
|
|
|
$
|
419
|
|
|
$
|
|
|
Mutual funds - equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
5,681
|
|
|
|
5,681
|
|
|
|
|
|
|
|
|
|
International
|
|
|
2,180
|
|
|
|
2,180
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
|
1,909
|
|
|
|
1,909
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
3,547
|
|
|
|
3,547
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
715
|
|
|
|
715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,451
|
|
|
$
|
14,032
|
|
|
$
|
419
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at July 31, 2010
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Asset Category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
178
|
|
|
$
|
|
|
|
$
|
178
|
|
|
$
|
|
|
Mutual funds - equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
5,445
|
|
|
|
|
|
|
|
5,445
|
|
|
|
|
|
International
|
|
|
1,456
|
|
|
|
|
|
|
|
1,456
|
|
|
|
|
|
Pooled Funds
|
|
|
6,065
|
|
|
|
|
|
|
|
6,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,144
|
|
|
$
|
|
|
|
$
|
13,144
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension obligations and expenses are most sensitive to the expected return on pension plan assets and
discount rate assumptions. Other post retirement benefit obligations and expenses are most sensitive to discount rate assumptions and health care cost trend rate. Diamond determines the expected return on pension plan assets based on an expectation
of the average annual returns over an extended period of time. This expectation is based, in part, on the actual returns achieved by the Companys pension plan in prior periods. The Company also considers the weighted average historical rates
of return on securities with similar characteristics to those in which the Companys pension assets are invested.
The
investment objectives for the Diamond plans are to maximize total returns within reasonable and prudent levels of risk. The plan asset allocation is a key element in achieving the expected investment returns on plan assets. The current asset
allocation strategy targets an allocation of 60% for equity securities and 40% for debt securities with adequate liquidity to meet expected cash flow needs. Actual asset allocation may fluctuate within acceptable ranges due to market value
variability. If fluctuations cause an asset class to fall outside its strategic asset allocation range, the portfolio will be rebalanced as appropriate.
66
Cash Flows
Estimated future benefit payments, which reflect expected future service, as appropriate, expected to be paid are as follows:
|
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
|
Other
Benefits
|
|
2012
|
|
$
|
549
|
|
|
$
|
114
|
|
2013
|
|
|
4,515
|
|
|
|
126
|
|
2014
|
|
|
648
|
|
|
|
155
|
|
2015
|
|
|
738
|
|
|
|
162
|
|
2016
|
|
|
753
|
|
|
|
159
|
|
2017 - 2021
|
|
|
4,481
|
|
|
|
826
|
|
Defined Contribution Plan
The Company also recognized defined contribution plan expenses of $1.4 million, $0.7 million and $0.5 million for the years ended July 31, 2011, 2010 and 2009, respectively. The Company expects to
contribute approximately $1.8 million to the defined contribution plan during fiscal 2012.
(15)
|
Restatement of Consolidated Financial Statements
|
Walnut Correction
Subsequent to the issuance of the fiscal 2011
consolidated financial statements, the Audit Committee initiated an independent investigation into walnut grower payments made subsequent to fiscal year end 2011 and 2010, of approximately $61.5 million (the Momentum Payments) and $20.8
million (the Continuity Payments), respectively. The Company previously accounted for those walnut grower payments as expenses in the fiscal years when the payments were made (fiscal 2012 and fiscal 2011, respectively), reflecting the
payments as pre-payments for the walnut crop to be delivered in the respective fiscal years. As a result of an evaluation of the substance of information obtained in this investigation, we determined that the Momentum Payments and Continuity
Payments related to the prior year walnut crops and such payments were not accounted for in the correct periods. The Company and Audit Committee concluded that the original accounting for the walnut grower payments in fiscal 2011 and fiscal 2010 was
not sufficiently supported and was not based on consideration of all relevant information available at the time. Accordingly, the previously issued consolidated financial statements as of and for the years ended July 31, 2011 and 2010 needed to be
restated to record these walnut grower payments in the appropriate periods.
For fiscal 2011, the corrected walnut costs
increased cost of sales by $35.6 million for inventories sold during the fiscal year ended July 31, 2011, increased inventories by $7.7 million for inventories not sold as of July 31, 2011 and increased accounts payable and accrued
liabilities by $61.5 million. For fiscal 2010, the corrected walnut costs increased cost of sales by $18.3 million for inventories sold during the fiscal year ended July 31, 2010, increased inventories by $2.5 million for inventories not sold
as of July 31, 2010 and increased accounts payable and accrued liabilities by $20.8 million. The effect of correcting these errors for the fiscal years ended July 31, 2011 and 2010 is summarized below. The corrections summarized below include
consideration of the income tax effect of the restatement adjustments. The corrections summarized below include consideration of the income tax effect of the restatement adjustments.
Accounts Payable and Accrued Expenses Correction
Subsequent to the
issuance of the consolidated financial statements for the fiscal year ended July 31, 2011, an invoice for services related to the then-pending Pringles merger was identified as not properly accrued for as of July 31, 2011. In
response to this information, the Company performed an extensive review of vendor invoices
67
and supporting documentation to determine whether other unrecorded liabilities existed for the periods in the fiscal years ended July 31, 2011 and 2010. The review identified certain
expenses that were not properly reflected in accounts payable and accrued liabilities as of July 31, 2011 and 2010. Accordingly, we restated net income with a decrease of $3.5 million and $0.1 million for fiscal 2011 and fiscal 2010,
respectively, to correct accounts payable and accrued liabilities and related expenses or capitalized costs. The effect of correcting these errors for the fiscal years ended July 31, 2011 and 2010 is summarized below. The corrections summarized
below include consideration of the income tax effect of the restatement adjustments. The corrections summarized below include consideration of the income tax effect of the restatement adjustments.
Other Corrections
In addition to the restatements described above, the Company has made other corrections, some of which were previously identified, but
were not corrected because management had determined they were not material, individually or in the aggregate, to our consolidated financial statements. These corrections related to stock-based compensation, foreign currency translation, timing of
prepaid and expense recognition, capital lease designation, and deferred income tax. The effect of correcting these errors for the fiscal years ended July 31, 2011 and 2010 is summarized below. The corrections summarized below include consideration
of the income tax effect of the restatement adjustments. The corrections summarized below include consideration of the income tax effect of the restatement adjustments.
Additionally, the Company has corrected certain disclosures, the most significant of which are discussed below:
|
|
|
Expected volatility assumptions used in the Black-Scholes model for the fiscal years ended July 31, 2011 and July 31, 2010, were previously
reported as 35.25% and 46.00%, respectively, and were restated to 41.63% and 43.77%, respectively. This change impacted several disclosures in Note 3 to the Notes to Consolidated Financial Statements. The weighted average fair value per share of
options granted during 2011 was previously reported as $16.37 and restated to $18.95. The total fair value of options vested during 2011 was previously reported as $2.0 million and restated to $2.1 million. The unrecognized compensation cost net of
forfeitures related to nonvested stock options as of July 31, 2011 was previously reported as $7.2 million and restated to $7.7 million. The unrecognized compensation cost net of forfeitures related to nonvested restricted stock awards as of
July 31, 2011 was previously reported as $9.9 million and restated to $8.2 million. Finally, the change in expected volatility impacted the calculation of diluted shares for the year ended July 31, 2011 resulting in a decrease from
22,241,581 previously reported to 22,233,143 as restated.
|
|
|
|
As of July 31, 2011, the weighted average period over which total unrecognized compensation cost net of forfeitures related to nonvested stock
options is expected to be recognized was previously reported as 2.2 years and was restated to 2.7 years.
|
|
|
|
Note 1 to the Notes to Consolidated Financial Statements includes previously omitted disclosures related to related party transactions and our foreign
currency translation policy.
|
|
|
|
Note 14 to the Notes to Consolidated Financial Statements includes a disclosure for expected contributions to the defined contribution plan.
Additionally, the defined contribution plan expenses for the year ended July 31, 2011 were previously reported as $1.2 million and were restated to $1.4 million.
|
68
The effects of the restatement on the consolidated balance sheet as of July 31, 2011
are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2011
|
|
|
|
(In thousands, except share and
|
|
|
|
per share information)
|
|
|
|
|
|
|
|
|
|
Previously
Reported
|
|
|
Walnut
Correction
|
|
|
Accounts
Payable and
Accrued
Expenses
Correction
|
|
|
Other
Corrections
|
|
|
Restated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,112
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,112
|
|
Trade receivables, net
|
|
|
98,218
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
|
|
98,275
|
|
Inventories
|
|
|
145,575
|
|
|
|
7,678
|
|
|
|
8
|
|
|
|
273
|
|
|
|
153,534
|
|
Deferred income taxes
|
|
|
13,249
|
|
|
|
|
|
|
|
|
|
|
|
1,241
|
|
|
|
14,490
|
|
Prepaid income taxes
|
|
|
2,783
|
|
|
|
17,611
|
|
|
|
1,455
|
|
|
|
(4,350
|
)
|
|
|
17,499
|
|
Prepaid expenses and other current assets
|
|
|
13,102
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
13,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
276,039
|
|
|
|
25,289
|
|
|
|
1,463
|
|
|
|
(2,792
|
)
|
|
|
299,999
|
|
Restricted cash
|
|
|
15,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,795
|
|
Property, plant and equipment, net
|
|
|
127,407
|
|
|
|
|
|
|
|
1,683
|
|
|
|
5,185
|
|
|
|
134,275
|
|
Deferred income taxes
|
|
|
3,870
|
|
|
|
|
|
|
|
|
|
|
|
1,506
|
|
|
|
5,376
|
|
Goodwill
|
|
|
407,587
|
|
|
|
|
|
|
|
|
|
|
|
2,148
|
|
|
|
409,735
|
|
Other intangible assets, net
|
|
|
450,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,855
|
|
Other long-term assets
|
|
|
6,842
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
6,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,288,395
|
|
|
$
|
25,289
|
|
|
$
|
3,176
|
|
|
$
|
6,047
|
|
|
$
|
1,322,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
41,700
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
41,700
|
|
Accounts payable and accrued liabilities
|
|
|
144,060
|
|
|
|
61,514
|
|
|
|
6,826
|
|
|
|
(6,547
|
)
|
|
|
205,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
185,760
|
|
|
|
61,514
|
|
|
|
6,826
|
|
|
|
(6,547
|
)
|
|
|
247,553
|
|
Long-term obligations
|
|
|
490,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
490,001
|
|
Deferred income taxes
|
|
|
131,870
|
|
|
|
|
|
|
|
|
|
|
|
600
|
|
|
|
132,470
|
|
Other liabilities
|
|
|
25,969
|
|
|
|
|
|
|
|
|
|
|
|
6,419
|
|
|
|
32,388
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; Authorized: 5,000,000 shares; no shares issued or outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; Authorized: 100,000,000 shares; 22,319,016 and 22,121,534 shares issued and 22,049,636 and
21,891,928 shares outstanding at July 31, 2011 and 2010, respectively
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
Treasury stock, at cost: 269,380 and 229,606 shares at July 31, 2011 and 2010, respectively
|
|
|
(6,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,867
|
)
|
Additional paid-in capital
|
|
|
318,083
|
|
|
|
|
|
|
|
|
|
|
|
651
|
|
|
|
318,734
|
|
Accumulated other comprehensive income
|
|
|
18,500
|
|
|
|
|
|
|
|
|
|
|
|
(772
|
)
|
|
|
17,728
|
|
Retained earnings
|
|
|
125,057
|
|
|
|
(36,225
|
)
|
|
|
(3,650
|
)
|
|
|
5,696
|
|
|
|
90,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
454,795
|
|
|
|
(36,225
|
)
|
|
|
(3,650
|
)
|
|
|
5,575
|
|
|
|
420,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,288,395
|
|
|
$
|
25,289
|
|
|
$
|
3,176
|
|
|
$
|
6,047
|
|
|
$
|
1,322,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
The effects of the restatement on the consolidated balance sheet as of July 31, 2010
are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010
|
|
|
|
(In thousands, except share and
|
|
|
|
per share information)
|
|
|
|
|
|
|
|
|
|
Previously
Reported
|
|
|
Walnut
Correction
|
|
|
Accounts
Payable and
Accrued
Expenses
Correction
|
|
|
Other
Corrections
|
|
|
Restated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,642
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,642
|
|
Trade receivables, net
|
|
|
65,553
|
|
|
|
|
|
|
|
|
|
|
|
145
|
|
|
|
65,698
|
|
Inventories
|
|
|
143,405
|
|
|
|
2,480
|
|
|
|
|
|
|
|
(53
|
)
|
|
|
145,832
|
|
Deferred income taxes
|
|
|
10,497
|
|
|
|
|
|
|
|
|
|
|
|
1,721
|
|
|
|
12,218
|
|
Prepaid income taxes
|
|
|
9,225
|
|
|
|
5,913
|
|
|
|
24
|
|
|
|
(1,580
|
)
|
|
|
13,582
|
|
Prepaid expenses and other current assets
|
|
|
5,767
|
|
|
|
|
|
|
|
|
|
|
|
(375
|
)
|
|
|
5,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
240,089
|
|
|
|
8,393
|
|
|
|
24
|
|
|
|
(142
|
)
|
|
|
248,364
|
|
Property, plant and equipment, net
|
|
|
117,816
|
|
|
|
|
|
|
|
419
|
|
|
|
|
|
|
|
118,235
|
|
Deferred income taxes
|
|
|
13,625
|
|
|
|
|
|
|
|
|
|
|
|
(9,253
|
)
|
|
|
4,372
|
|
Goodwill
|
|
|
396,788
|
|
|
|
|
|
|
|
|
|
|
|
6,476
|
|
|
|
403,264
|
|
Other intangible assets, net
|
|
|
449,018
|
|
|
|
|
|
|
|
|
|
|
|
4,089
|
|
|
|
453,107
|
|
Other long-term assets
|
|
|
8,536
|
|
|
|
|
|
|
|
|
|
|
|
194
|
|
|
|
8,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,225,872
|
|
|
$
|
8,393
|
|
|
$
|
443
|
|
|
$
|
1,364
|
|
|
$
|
1,236,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
40,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
40,000
|
|
Accounts payable and accrued liabilities
|
|
|
127,921
|
|
|
|
20,750
|
|
|
|
549
|
|
|
|
(3,464
|
)
|
|
|
145,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
167,921
|
|
|
|
20,750
|
|
|
|
549
|
|
|
|
(3,464
|
)
|
|
|
185,756
|
|
Long-term obligations
|
|
|
516,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
516,100
|
|
Deferred income taxes
|
|
|
144,755
|
|
|
|
|
|
|
|
|
|
|
|
(5,680
|
)
|
|
|
139,075
|
|
Other liabilities
|
|
|
17,153
|
|
|
|
|
|
|
|
|
|
|
|
1,445
|
|
|
|
18,598
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; Authorized: 5,000,000 shares; no shares issued or outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; Authorized: 100,000,000 shares; 22,121,534 and 16,753,796 shares issued and 21,891,928 and
16,552,019 shares outstanding at July 31, 2010 and 2009, respectively
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
Treasury stock, at cost: 229,606 and 201,777 shares at July 31, 2010 and 2009, respectively
|
|
|
(5,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,050
|
)
|
Additional paid-in capital
|
|
|
307,032
|
|
|
|
|
|
|
|
|
|
|
|
765
|
|
|
|
307,797
|
|
Accumulated other comprehensive income (loss)
|
|
|
(869
|
)
|
|
|
|
|
|
|
|
|
|
|
6,370
|
|
|
|
5,501
|
|
Retained earnings
|
|
|
78,808
|
|
|
|
(12,357
|
)
|
|
|
(106
|
)
|
|
|
1,928
|
|
|
|
68,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
379,943
|
|
|
|
(12,357
|
)
|
|
|
(106
|
)
|
|
|
9,063
|
|
|
|
376,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,225,872
|
|
|
$
|
8,393
|
|
|
$
|
443
|
|
|
$
|
1,364
|
|
|
$
|
1,236,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
The effects of the restatement on the consolidated statement of operations for the year
ended July 31, 2011 are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31, 2011
|
|
|
|
(In thousands, except per share information)
|
|
|
|
|
|
|
|
|
|
Previously
Reported
|
|
|
Walnut
Correction
|
|
|
Accounts
Payable and
Accrued
Expenses
Correction
|
|
|
Other
Corrections
|
|
|
Restated
|
|
Net sales
|
|
$
|
965,922
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
766
|
|
|
$
|
966,688
|
|
Cost of sales
|
|
|
714,775
|
|
|
|
35,566
|
|
|
|
341
|
|
|
|
(473
|
)
|
|
|
750,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
251,147
|
|
|
|
(35,566
|
)
|
|
|
(341
|
)
|
|
|
1,239
|
|
|
|
216,479
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
96,960
|
|
|
|
|
|
|
|
161
|
|
|
|
385
|
|
|
|
97,506
|
|
Advertising
|
|
|
44,415
|
|
|
|
|
|
|
|
620
|
|
|
|
|
|
|
|
45,035
|
|
Acquisition and integration related expenses
|
|
|
16,792
|
|
|
|
|
|
|
|
3,853
|
|
|
|
(295
|
)
|
|
|
20,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
158,167
|
|
|
|
|
|
|
|
4,634
|
|
|
|
90
|
|
|
|
162,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
92,980
|
|
|
|
(35,566
|
)
|
|
|
(4,975
|
)
|
|
|
1,149
|
|
|
|
53,588
|
|
Interest expense, net
|
|
|
23,840
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
23,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
69,140
|
|
|
|
(35,566
|
)
|
|
|
(4,975
|
)
|
|
|
1,071
|
|
|
|
29,670
|
|
Income taxes
|
|
|
18,929
|
|
|
|
(11,698
|
)
|
|
|
(1,431
|
)
|
|
|
(2,697
|
)
|
|
|
3,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
50,211
|
|
|
$
|
(23,868
|
)
|
|
$
|
(3,544
|
)
|
|
$
|
3,768
|
|
|
$
|
26,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.28
|
|
|
$
|
(1.08
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
0.17
|
|
|
$
|
1.21
|
|
Diluted
|
|
$
|
2.22
|
|
|
$
|
(1.06
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
0.17
|
|
|
$
|
1.17
|
|
|
|
|
|
|
|
Shares used to compute earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
21,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,577
|
|
Diluted
|
|
|
22,242
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
22,233
|
|
|
|
|
|
|
|
Dividends declared per share
|
|
$
|
0.18
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.18
|
|
71
The effects of the restatement on the consolidated statement of operations for the year
ended July 31, 2010 are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31, 2010
|
|
|
|
(In thousands, except per share information)
|
|
|
|
|
|
|
|
|
|
Previously
Reported
|
|
|
Walnut
Correction
|
|
|
Accounts
Payable and
Accrued
Expenses
Correction
|
|
|
Other
Corrections
|
|
|
Restated
|
|
Net sales
|
|
$
|
680,162
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,164
|
|
|
$
|
682,326
|
|
Cost of sales
|
|
|
519,161
|
|
|
|
18,270
|
|
|
|
|
|
|
|
53
|
|
|
|
537,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
161,001
|
|
|
|
(18,270
|
)
|
|
|
|
|
|
|
2,111
|
|
|
|
144,842
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
64,301
|
|
|
|
|
|
|
|
130
|
|
|
|
120
|
|
|
|
64,551
|
|
Advertising
|
|
|
32,962
|
|
|
|
|
|
|
|
|
|
|
|
764
|
|
|
|
33,726
|
|
Acquisition and integration related expenses
|
|
|
11,508
|
|
|
|
|
|
|
|
|
|
|
|
(180
|
)
|
|
|
11,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
108,771
|
|
|
|
|
|
|
|
130
|
|
|
|
704
|
|
|
|
109,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
52,230
|
|
|
|
(18,270
|
)
|
|
|
(130
|
)
|
|
|
1,407
|
|
|
|
35,237
|
|
Interest expense, net
|
|
|
10,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,180
|
|
Other expense, net
|
|
|
1,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
40,201
|
|
|
|
(18,270
|
)
|
|
|
(130
|
)
|
|
|
1,407
|
|
|
|
23,208
|
|
Income taxes
|
|
|
13,990
|
|
|
|
(5,913
|
)
|
|
|
(24
|
)
|
|
|
(521
|
)
|
|
|
7,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
26,211
|
|
|
$
|
(12,357
|
)
|
|
$
|
(106
|
)
|
|
$
|
1,928
|
|
|
$
|
15,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.40
|
|
|
$
|
(0.66
|
)
|
|
$
|
|
|
|
$
|
0.10
|
|
|
$
|
0.84
|
|
Diluted
|
|
$
|
1.36
|
|
|
$
|
(0.63
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.10
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
Shares used to compute earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,313
|
|
Diluted
|
|
|
18,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,843
|
|
|
|
|
|
|
|
Dividends declared per share
|
|
$
|
0.18
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.18
|
|
72
The effects of the restatement on the consolidated statement of cash flows for the year
ended July 31, 2011 are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31, 2011
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Previously
Reported
|
|
|
Walnut
Correction
|
|
|
Accounts
Payable and
Accrued
Expenses
Correction
|
|
|
Other
Corrections
|
|
|
Restated
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
50,211
|
|
|
$
|
(23,868
|
)
|
|
$
|
(3,544
|
)
|
|
$
|
3,768
|
|
|
$
|
26,567
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
29,465
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
29,865
|
|
Deferred income taxes
|
|
|
(7,534
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,998
|
)
|
|
|
(10,532
|
)
|
Excess tax benefit from stock option transactions
|
|
|
(2,274
|
)
|
|
|
|
|
|
|
|
|
|
|
827
|
|
|
|
(1,447
|
)
|
Stock-based compensation
|
|
|
6,974
|
|
|
|
|
|
|
|
|
|
|
|
713
|
|
|
|
7,687
|
|
Other, net
|
|
|
1,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,055
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
(32,665
|
)
|
|
|
|
|
|
|
|
|
|
|
(210
|
)
|
|
|
(32,875
|
)
|
Inventories
|
|
|
(2,170
|
)
|
|
|
(5,198
|
)
|
|
|
(8
|
)
|
|
|
(327
|
)
|
|
|
(7,703
|
)
|
Prepaid expenses and other current assets and income taxes
|
|
|
(893
|
)
|
|
|
(11,698
|
)
|
|
|
(1,431
|
)
|
|
|
2,706
|
|
|
|
(11,316
|
)
|
Accounts payable and accrued liabilities
|
|
|
17,577
|
|
|
|
40,764
|
|
|
|
5,013
|
|
|
|
(4,981
|
)
|
|
|
58,373
|
|
Other, net
|
|
|
5,921
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
1,126
|
|
|
|
7,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
65,667
|
|
|
|
|
|
|
|
|
|
|
|
1,024
|
|
|
|
66,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(27,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,703
|
)
|
Deposits of restricted cash
|
|
|
(21,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,200
|
)
|
Proceeds from restricted cash
|
|
|
5,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,405
|
|
Other, net
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(43,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of revolving line of credit under the Secured Credit Facility
|
|
|
(4,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,800
|
)
|
Proceeds from issuance of long-term debt
|
|
|
21,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,350
|
|
Payment of long-term debt and notes payable
|
|
|
(40,884
|
)
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
(40,799
|
)
|
Dividends paid
|
|
|
(3,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,962
|
)
|
Excess tax benefit from stock option transactions
|
|
|
2,274
|
|
|
|
|
|
|
|
|
|
|
|
(827
|
)
|
|
|
1,447
|
|
Other, net
|
|
|
940
|
|
|
|
|
|
|
|
|
|
|
|
(282
|
)
|
|
|
658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(25,082
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,024
|
)
|
|
|
(26,106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
|
|
Net decrease in cash and cash equivalents
|
|
|
(2,530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,530
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
5,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
3,112
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
21,998
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
754
|
|
|
$
|
22,752
|
|
Income taxes
|
|
|
8,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,751
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued capital expenditures
|
|
|
2,323
|
|
|
|
|
|
|
|
1,683
|
|
|
|
|
|
|
|
4,006
|
|
Capital lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,376
|
|
|
|
5,376
|
|
73
The effects of the restatement on the consolidated statement of cash flows for the year
ended July 31, 2010 are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended July 31, 2010
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Previously
Reported
|
|
|
Walnut
Correction
|
|
|
Accounts
Payable and
Accrued
Expenses
Correction
|
|
|
Other
Corrections
|
|
|
Restated
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
26,211
|
|
|
$
|
(12,357
|
)
|
|
$
|
(106
|
)
|
|
$
|
1,928
|
|
|
$
|
15,676
|
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
17,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,154
|
|
Deferred income taxes
|
|
|
7,072
|
|
|
|
|
|
|
|
|
|
|
|
(1,095
|
)
|
|
|
5,977
|
|
Excess tax benefit from stock option transactions
|
|
|
(434
|
)
|
|
|
|
|
|
|
|
|
|
|
(258
|
)
|
|
|
(692
|
)
|
Stock-based compensation
|
|
|
3,231
|
|
|
|
|
|
|
|
|
|
|
|
507
|
|
|
|
3,738
|
|
Other, net
|
|
|
1,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,109
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables, net
|
|
|
(2,873
|
)
|
|
|
|
|
|
|
|
|
|
|
(145
|
)
|
|
|
(3,018
|
)
|
Inventories
|
|
|
(45,852
|
)
|
|
|
(2,480
|
)
|
|
|
|
|
|
|
53
|
|
|
|
(48,279
|
)
|
Prepaid expenses and other current assets and income taxes
|
|
|
(6,437
|
)
|
|
|
(5,913
|
)
|
|
|
(24
|
)
|
|
|
1,955
|
|
|
|
(10,419
|
)
|
Accounts payable and accrued liabilities
|
|
|
(5,462
|
)
|
|
|
20,750
|
|
|
|
130
|
|
|
|
(5,987
|
)
|
|
|
9,431
|
|
Other, net
|
|
|
4,693
|
|
|
|
|
|
|
|
|
|
|
|
2,784
|
|
|
|
7,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(1,588
|
)
|
|
|
|
|
|
|
|
|
|
|
(258
|
)
|
|
|
(1,846
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(11,790
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,790
|
)
|
Acquisitions, net of cash acquired
|
|
|
(615,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(615,389
|
)
|
Other, net
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(626,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(626,561
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving line of credit borrowings under the Secured Credit Facility
|
|
|
176,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,000
|
|
Repayment of revolving line of credit under the Secured Credit Facility
|
|
|
(9,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,900
|
)
|
Proceeds from issuance of long-term debt
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
Debt issuance costs
|
|
|
(8,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,852
|
)
|
Payment of long-term debt and notes payable
|
|
|
(125,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(125,119
|
)
|
Gross proceeds from equity offering
|
|
|
191,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191,475
|
|
Equity offering costs
|
|
|
(11,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,738
|
)
|
Dividends paid
|
|
|
(3,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,462
|
)
|
Excess tax benefit from stock option transactions
|
|
|
434
|
|
|
|
|
|
|
|
|
|
|
|
258
|
|
|
|
692
|
|
Other, net
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
608,862
|
|
|
|
|
|
|
|
|
|
|
|
258
|
|
|
|
609,120
|
|
Effect of exchange rate changes on cash
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
Net decrease in cash and cash equivalents
|
|
|
(19,160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,160
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
24,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
5,642
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
9,088
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,088
|
|
Income taxes
|
|
|
11,113
|
|
|
|
|
|
|
|
|
|
|
|
(467
|
)
|
|
|
10,646
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued capital expenditures
|
|
|
1,076
|
|
|
|
|
|
|
|
419
|
|
|
|
|
|
|
|
1,495
|
|
74
(16) Quarterly Financial Information (unaudited)
Subsequent to the issuance of the fiscal 2011 consolidated financial statements, the Company identified Walnut Correction errors as
described in Note 15 of the Notes to Consolidated Financial Statements that affected the interim condensed consolidated financial statements as of and for the interim periods within the years ended July 31, 2011 and 2010. Additionally, as a result
of this error in walnut cost for inventories not sold as of July 31, 2010, cost of sales for the interim period ended October 31, 2010 was affected for the related inventories sold during the period. Further, the Company and Audit Committee
concluded that the original quarterly walnut crop cost estimates used in certain interim periods of fiscal 2011 and fiscal 2010 as well as the subsequent changes to the estimates in certain interim periods were not sufficiently supported and were
not based on consideration of all relevant information available at the time. Accordingly, the previously issued condensed consolidated financial statements as of and for the periods ended January 31, 2010, April 30, 2010, July 31, 2010 and October
31, 2010, January 31, 2011, April 30, 2011 and July 31, 2011 are restated to correct for these errors.
Fiscal 2011 Quarterly
Walnut Estimate Correction
The Companys original walnut cost estimates used for the periods ended October 31,
2010, January 31, 2011, and April 30, 2011 were not sufficiently supported and were not based on consideration of all relevant information available at the time. We have determined that the contemporaneously available relevant information supports a
correction of the original walnut cost estimates in those periods. The Companys consolidated financial statements for the interim period and fiscal year ended July 31, 2011 are restated to record the Momentum Payments as a cost for fiscal 2011
as it related to the fiscal 2011 walnut crop. The effect of correcting these errors on each of the applicable interim periods in the fiscal year ended July 31, 2011 is summarized in the tables below. The corrections summarized below include
consideration of the income tax effect of the restatement adjustments.
Fiscal 2010 Quarterly Walnut Estimate Correction
The Companys original walnut cost estimate used for the periods ended January 31, 2010 and April 30,
2010 were not sufficiently supported and were not based on consideration of all relevant information available at the time. We have determined that the contemporaneously available relevant information supports a correction of the original walnut
cost estimates in those periods. The Companys consolidated financial statements for the interim period and fiscal year ended July 31, 2010 are restated to record the Continuity Payments as a cost for fiscal 2010 as it related to the
fiscal 2010 walnut crop. The effect of correcting these errors on each of the applicable interim periods in the fiscal year ended July 31, 2010 is summarized in the tables below. The corrections summarized below include consideration of the
income tax effect of the restatement adjustments.
Accounts Payable and Accrued Expenses Correction
Subsequent to the issuance of the consolidated financial statements for the fiscal year ended July 31, 2011, an invoice for services
related to the then-pending Pringles merger was identified as not properly accrued for as of July 31, 2011. In response to this information, the Company performed an extensive review of vendor invoices and supporting documentation to
determine whether other unrecorded liabilities existed in the interim periods or the fiscal years ended July 31, 2011 and 2010. The review identified certain expenses that were not properly reflected in accounts payable and accrued
liabilities as of July 31, 2011 and 2010 and the associated interim periods. The effect of correcting these errors on each of the applicable interim periods in the fiscal years ended July 31, 2011 and 2010 are summarized below. The
corrections summarized below include consideration of the income tax effect of the restatement adjustments.
75
Other Corrections
In addition to the restatements described above, the Company has made other corrections, some of which were previously identified, but were not corrected because management had determined they were not
material, individually or in the aggregate, to our consolidated financial statements. These corrections related to stock-based compensation, foreign currency translation, timing of prepaid and expense recognition, capital lease designation, pecan
inventory valuation, and deferred income tax. The Company also determined that a pecan inventory purchase price variance related to the second quarter of fiscal 2011 that had been previously recorded as an out of period adjustment in the third
quarter of fiscal 2011 should be corrected. The Company has corrected this amount by decreasing pecan inventories by $3.0 million and increasing cost of sales by $3.0 million in the second quarter of fiscal 2011 to properly reflect the purchase
price variance in the second quarter. The effect of correcting these errors on each of the applicable interim periods in the fiscal years ended July 31, 2011 and 2010 are summarized below. The corrections summarized below include consideration
of the income tax effect of the restatement adjustments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4th Quarter
(Condensed and unaudited)
|
|
|
|
|
|
|
|
|
|
Previously
Reported
|
|
|
Walnut
Corrections
|
|
|
Accounts
Payable and
Accrued
Expenses
Correction
|
|
|
Other
Corrections
|
|
|
Restated
|
|
For the three months ended July 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
232,773
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,944
|
|
|
$
|
234,717
|
|
Gross profit (1)
|
|
|
57,107
|
|
|
|
(10,227
|
)
|
|
|
(341
|
)
|
|
|
2,364
|
|
|
|
48,903
|
|
Operating expenses (2)
|
|
|
45,145
|
|
|
|
|
|
|
|
4,764
|
|
|
|
(498
|
)
|
|
|
49,411
|
|
Income from operations
|
|
|
11,962
|
|
|
|
(10,227
|
)
|
|
|
(5,105
|
)
|
|
|
2,862
|
|
|
|
(508
|
)
|
Net income (loss)
|
|
|
8,544
|
|
|
|
(7,239
|
)
|
|
|
(3,614
|
)
|
|
|
5,145
|
|
|
|
2,836
|
|
Basic earnings (loss) per share
|
|
|
0.39
|
|
|
|
(0.33
|
)
|
|
|
(0.16
|
)
|
|
|
0.23
|
|
|
|
0.13
|
|
Basic shares (in thousands)
|
|
|
21,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,652
|
|
Diluted earnings (loss) per share
|
|
|
0.37
|
|
|
|
(0.32
|
)
|
|
|
(0.16
|
)
|
|
|
0.23
|
|
|
|
0.12
|
|
Diluted shares (in thousands)
|
|
|
22,577
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
22,569
|
|
|
|
|
|
3rd Quarter
(Condensed and unaudited)
|
|
|
|
|
|
|
|
|
|
Previously
Reported
|
|
|
Walnut
Corrections
|
|
|
Accounts
Payable and
Accrued
Expenses
Correction
|
|
|
Other
Corrections
|
|
|
Restated
|
|
For the three months ended April 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
222,991
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
75
|
|
|
$
|
223,066
|
|
Gross profit (1)
|
|
|
59,588
|
|
|
|
(10,162
|
)
|
|
|
|
|
|
|
3,064
|
|
|
|
52,490
|
|
Operating expenses (2)
|
|
|
42,035
|
|
|
|
|
|
|
|
(288
|
)
|
|
|
151
|
|
|
|
41,898
|
|
Income from operations
|
|
|
17,553
|
|
|
|
(10,162
|
)
|
|
|
288
|
|
|
|
2,913
|
|
|
|
10,592
|
|
Net income
|
|
|
7,733
|
|
|
|
(6,397
|
)
|
|
|
181
|
|
|
|
1,834
|
|
|
|
3,351
|
|
Basic earnings per share
|
|
|
0.35
|
|
|
|
(0.29
|
)
|
|
|
0.01
|
|
|
|
0.08
|
|
|
|
0.15
|
|
Basic shares (in thousands)
|
|
|
21,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,604
|
|
Diluted earnings per share
|
|
|
0.34
|
|
|
|
(0.28
|
)
|
|
|
0.01
|
|
|
|
0.08
|
|
|
|
0.15
|
|
Diluted shares (in thousands)
|
|
|
22,341
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
22,332
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2nd Quarter
(Condensed and unaudited)
|
|
|
|
|
|
|
|
|
|
Previously
Reported
|
|
|
Walnut
Corrections
|
|
|
Accounts
Payable and
Accrued
Expenses
Correction
|
|
|
Other
Corrections
|
|
|
Restated
|
|
For the three months ended January 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
257,592
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(748
|
)
|
|
$
|
256,844
|
|
Gross profit (1)
|
|
|
70,856
|
|
|
|
(8,225
|
)
|
|
|
|
|
|
|
(3,653
|
)
|
|
|
58,978
|
|
Operating expenses (2)
|
|
|
34,916
|
|
|
|
|
|
|
|
158
|
|
|
|
171
|
|
|
|
35,245
|
|
Income from operations
|
|
|
35,940
|
|
|
|
(8,225
|
)
|
|
|
(158
|
)
|
|
|
(3,824
|
)
|
|
|
23,733
|
|
Net income
|
|
|
19,720
|
|
|
|
(5,809
|
)
|
|
|
(112
|
)
|
|
|
(2,701
|
)
|
|
|
11,098
|
|
Basic earnings per share
|
|
|
0.90
|
|
|
|
(0.26
|
)
|
|
|
(0.01
|
)
|
|
|
(0.12
|
)
|
|
|
0.51
|
|
Basic shares (in thousands)
|
|
|
21,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,565
|
|
Diluted earnings per share
|
|
|
0.87
|
|
|
|
(0.26
|
)
|
|
|
|
|
|
|
(0.12
|
)
|
|
|
0.49
|
|
Diluted shares (in thousands)
|
|
|
22,221
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
22,212
|
|
|
|
|
|
1st Quarter
(Condensed and unaudited)
|
|
|
|
|
|
|
|
|
|
Previously
Reported
|
|
|
Walnut
Corrections
|
|
|
Accounts
Payable and
Accrued
Expenses
Correction
|
|
|
Other
Corrections
|
|
|
Restated
|
|
For the three months ended October 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
252,566
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(505
|
)
|
|
$
|
252,061
|
|
Gross profit (1)
|
|
|
63,596
|
|
|
|
(6,952
|
)
|
|
|
|
|
|
|
(536
|
)
|
|
|
56,108
|
|
Operating expenses (2)
|
|
|
36,071
|
|
|
|
|
|
|
|
|
|
|
|
266
|
|
|
|
36,337
|
|
Income from operations
|
|
|
27,525
|
|
|
|
(6,952
|
)
|
|
|
|
|
|
|
(802
|
)
|
|
|
19,771
|
|
Net income
|
|
|
14,214
|
|
|
|
(4,422
|
)
|
|
|
|
|
|
|
(510
|
)
|
|
|
9,282
|
|
Basic earnings per share
|
|
|
0.65
|
|
|
|
(0.21
|
)
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
0.42
|
|
Basic shares (in thousands)
|
|
|
21,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,489
|
|
Diluted earnings per share
|
|
|
0.64
|
|
|
|
(0.20
|
)
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
0.42
|
|
Diluted shares (in thousands)
|
|
|
21,947
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
21,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4th Quarter
(Condensed and unaudited)
|
|
|
|
|
|
|
|
|
|
Previously
Reported
|
|
|
Walnut
Corrections
|
|
|
Accounts
Payable and
Accrued
Expenses
Correction
|
|
|
Other
Corrections
|
|
|
Restated
|
|
For the three months ended July 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
176,618
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,972
|
|
|
$
|
178,590
|
|
Gross profit
|
|
|
43,839
|
|
|
|
(2,876
|
)
|
|
|
|
|
|
|
1,919
|
|
|
|
42,882
|
|
Operating expenses (3)
|
|
|
28,503
|
|
|
|
|
|
|
|
130
|
|
|
|
687
|
|
|
|
29,320
|
|
Income from operations
|
|
|
15,336
|
|
|
|
(2,876
|
)
|
|
|
(130
|
)
|
|
|
1,232
|
|
|
|
13,562
|
|
Net income (loss)
|
|
|
6,740
|
|
|
|
(2,345
|
)
|
|
|
(106
|
)
|
|
|
1,837
|
|
|
|
6,126
|
|
Basic earnings (loss) per share
|
|
|
0.31
|
|
|
|
(0.11
|
)
|
|
|
(0.01
|
)
|
|
|
0.09
|
|
|
|
0.28
|
|
Basic shares (in thousands)
|
|
|
21,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,503
|
|
Diluted earnings (loss) per share
|
|
|
0.30
|
|
|
|
(0.11
|
)
|
|
|
(0.01
|
)
|
|
|
0.09
|
|
|
|
0.27
|
|
Diluted shares (in thousands)
|
|
|
22,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,097
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3rd Quarter
(Condensed and unaudited)
|
|
|
|
|
|
|
|
|
|
Previously
Reported
|
|
|
Walnut
Corrections
|
|
|
Accounts
Payable and
Accrued
Expenses
Correction
|
|
|
Other
Corrections
|
|
|
Restated
|
|
For the three months ended April 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and other revenues
|
|
$
|
138,734
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
75
|
|
|
$
|
138,809
|
|
Gross profit
|
|
|
31,093
|
|
|
|
(4,709
|
)
|
|
|
|
|
|
|
75
|
|
|
|
26,459
|
|
Operating expenses (3)
|
|
|
32,991
|
|
|
|
|
|
|
|
|
|
|
|
263
|
|
|
|
33,254
|
|
Income from operations
|
|
|
(1,898
|
)
|
|
|
(4,709
|
)
|
|
|
|
|
|
|
(188
|
)
|
|
|
(6,795
|
)
|
Net income
|
|
|
(4,273
|
)
|
|
|
(3,385
|
)
|
|
|
|
|
|
|
(135
|
)
|
|
|
(7,793
|
)
|
Basic earnings per share
|
|
|
(0.22
|
)
|
|
|
(0.17
|
)
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.40
|
)
|
Basic shares (in thousands)
|
|
|
19,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,313
|
|
Diluted earnings per share
|
|
|
(0.22
|
)
|
|
|
(0.17
|
)
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.40
|
)
|
Diluted shares (in thousands)
|
|
|
19,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,313
|
|
In March 2010, Diamond completed its acquisition of Kettle Foods. For details regarding the Kettle Foods
acquisition please refer to Note 5 of the Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2nd Quarter
(Condensed and unaudited)
|
|
|
|
|
|
|
|
|
|
Previously
Reported
|
|
|
Walnut
Corrections
|
|
|
Accounts
Payable and
Accrued
Expenses
Correction
|
|
|
Other
Corrections
|
|
|
Restated
|
|
For the three months ended January 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and other revenues
|
|
$
|
184,169
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
117
|
|
|
$
|
184,286
|
|
Gross profit
|
|
|
40,578
|
|
|
|
(10,685
|
)
|
|
|
|
|
|
|
117
|
|
|
|
30,010
|
|
Operating expenses (3)
|
|
|
27,488
|
|
|
|
|
|
|
|
|
|
|
|
(246
|
)
|
|
|
27,242
|
|
Income from operations
|
|
|
13,090
|
|
|
|
(10,685
|
)
|
|
|
|
|
|
|
363
|
|
|
|
2,768
|
|
Net income
|
|
|
8,814
|
|
|
|
(6,627
|
)
|
|
|
|
|
|
|
226
|
|
|
|
2,413
|
|
Basic earnings per share
|
|
|
0.53
|
|
|
|
(0.39
|
)
|
|
|
|
|
|
|
0.01
|
|
|
|
0.15
|
|
Basic shares (in thousands)
|
|
|
16,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,280
|
|
Diluted earnings per share
|
|
|
0.52
|
|
|
|
(0.39
|
)
|
|
|
|
|
|
|
0.01
|
|
|
|
0.14
|
|
Diluted shares (in thousands)
|
|
|
16,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,764
|
|
|
|
|
|
|
|
|
1st Quarter
(Condensed and unaudited)
|
|
For the three months ended October 31, 2009
|
|
|
|
|
Net sales
|
|
$
|
180,641
|
|
Gross profit
|
|
|
45,491
|
|
Operating expenses (3)
|
|
|
19,789
|
|
Income from operations
|
|
|
25,702
|
|
Net income (loss)
|
|
|
14,930
|
|
Basic earnings (loss) per share
|
|
|
0.90
|
|
Basic shares (in thousands)
|
|
|
16,269
|
|
Diluted earnings (loss) per share
|
|
|
0.88
|
|
Diluted shares (in thousands)
|
|
|
16,685
|
|
(1)
|
A change in the cost of inventories sold during the previous quarters in the fiscal year results in a pre-tax increase or decrease in cost of sales.
Diamond routinely revises its estimate for expected walnut costs to
|
78
|
reflect changes in market conditions and other factors. In the quarter ended July 31, 2011, there was a pre-tax increase in cost of sales of approximately $1.6 million, due to the increase
in estimated cost of inventories sold during the previous quarters of fiscal 2011. There were no such changes in estimates in the quarters ended January 31, 2011 and April 30, 2011.
|
(2)
|
Includes acquisition and integration related expenses of $12.9 million, $5.9 million, $1.0 million and $0.6 million for the quarters ended July 31,
2011, April 30, 2011, January 31, 2011 and October 31, 2010, respectively.
|
(3)
|
Includes acquisition and integration related expenses of $10.2 million and $1.1 million for the quarters ended April 30, 2010 and July 31, 2010, respectively.
|
On
February 8, 2012, the Audit Committee of Diamonds Board of Directors substantially completed its investigation of the Companys accounting for certain crop payments to walnut growers. The Audit Committee concluded that Diamonds
consolidated financial statements for fiscal 2010 and fiscal 2011 would need to be restated and identified material weaknesses in the Companys internal control over financial reporting.
On April 5, 2011, Diamond entered into a definitive agreement with P&G to merge P&Gs Pringles business into the
Company. On February 15, 2012, Diamond and P&G mutually agreed to terminate this transaction. No break-up fee or other fees were paid to P&G in connection with the termination, which included a mutual release. Acquisition
related expenses associated with the proposed transaction of $7.0 million, the majority of which were primarily capitalized in fiscal 2011 and subsequently expensed in fiscal 2012, and primarily included contract termination costs related to
facilities, a lease for an office in London and software that were no longer needed due to the termination of the merger.
On
March 21, 2012, Diamond reached an agreement with its lenders to forbear from seeking any remedies under Secured Credit Facility with respect to specified existing and anticipated non-compliance with the credit agreement and to amend its credit
agreement. Under the amended credit agreement, Diamond had continued access to its existing revolving credit facility through a forbearance period (initially through June 18, 2012) subject to Diamonds compliance with the terms and
conditions of the amended credit agreement. During the forbearance period, the interest rate on borrowings increased. The amended credit agreement required Diamond to suspend dividend payments to stockholders. In addition, Diamond paid a
forbearance fee of 0.25% to its lenders. The forbearance period concluded on May 29, 2012, when Diamond closed agreements to recapitalize its balance sheet with an investment by Oaktree Capital Management, L.P. (Oaktree).
The Oaktree investment initially consists of $225 million of newly-issued senior notes and warrants to purchase approximately
4.4 million shares of Diamond common stock. The senior notes will mature in 2020 and will bear interest at 12% per year that may be paid-in-kind at Diamonds option for the first two years. Oaktrees warrants will be
exercisable at $10 per share, and would constitute a fully diluted ownership level of approximately 16.4% of the Company. The Oaktree agreements provide that if Diamond secures a specified minimum supply of walnuts from the 2012 crop and achieves
profitability targets for its nut businesses for the six-month period ending January 31, 2013, all of the warrants will be cancelled and Oaktree may exchange $75 million of the senior notes for convertible preferred stock of Diamond (the
Special Redemption). The convertible preferred stock would have an initial conversion price of $20.75, which represents a 3.5% discount to the closing price of Diamond common stock on April 25, 2012, the date that the Company
entered into its commitment with Oaktree. The convertible preferred stock would pay a 10% dividend that would be paid in-kind for the first two years. Diamond does not currently anticipate that the Special Redemption will occur.
79
The Secured Credit Facility initially included a covenant that restricts the amount of
indebtedness (including capital leases and purchase money obligations for fixed or capital assets) to no more than $25 million. On January 30, 2012, Diamond entered into a five-year equipment lease for its Norfolk, UK plant (the Kettle UK
Lease) that has been treated as a capital lease for accounting purposes. The accounting treatment for the Kettle US Lease and the Kettle UK Lease caused the Company to be in default of the Secured Credit Facility covenant limiting other
indebtedness. These defaults were waived, with respect to the Kettle UK Lease on July 27, 2012, and with respect to the Kettle US Lease on August 23, 2012. Additionally, the Secured Credit Facility and the Oaktree agreement were each
amended to allow Diamond to incur up to $31 million of capital leases and purchase money obligations for fixed or capital assets, which amount will be reduced from and after December 31, 2013 (a) to $25 million under the Secured Credit
Facility and (b) to $27.5 million under the Oaktree agreement.
On December 20, 2010, Kettle Foods obtained, and
Diamond guaranteed, Guaranteed Loan in the principal amount of $21.2 million, of which $20.4 million was outstanding as of July 31, 2011. Principal and interest payments are due monthly throughout the term of the loan. The Guaranteed Loan is
being used to purchase equipment for our Beloit, Wisconsin plant expansion. Borrowed funds were placed in an interest-bearing escrow account. Withdrawals from the escrow account were restricted to reimburse, dollar-for-dollar, approved expenditures
directly related to equipment purchases. As the cash is being used to purchase non-current assets, such restricted cash is classified as non-current on the balance sheet. The Guaranteed Loan also provides for customary affirmative and negative
covenants, which are similar to the covenants under the Secured Credit Facility. Initially, there was a limit to the debt to EBITDA ratio to no more than 4.35 to 1.00, and the fixed charge coverage ratio to no less than 1.05 to 1.00. As a result of
the errors identified causing the restatement of the consolidated financial statements, we were in default with certain financial and reporting covenants, which non-compliance was waived as of July 31, 2012. In addition, the financial covenants
within the Guaranteed Loan were reset to match those in the Third Amendment.
On May 22, 2012, Diamond entered into the
Third Amendment, which provided for a lower level of total bank debt, initially at $475 million, along with substantial covenant relief until October 31, 2013. At that time, these covenants will become applicable at revised levels set forth in
the Third Amendment (initially 4.70 to 1.00 for the senior leverage ratio, declining over four quarters to 3.25 to 1.00 in the quarter ending July 31, 2014 and thereafter, and 2.00 to 1.00 for the fixed charge coverage ratio). The Third
Amendment includes a new covenant requiring that Diamond have at least $20 million of cash, cash equivalents and revolving credit availability beginning February 1, 2013. In addition, the Third Amendment required a $100 million pre-payment of
the term loan facility, while reducing the remaining scheduled principal payments from $10 million to $0.9 million. The Third Amendment also amends the definition of Applicable Rate under the Secured Credit Agreement (which sets the
margin over the London Interbank Offered Rate (LIBOR) and the Base Rate at which loans under the Secured Credit Agreement bear interest). Initially, Eurodollar rate loans will bear interest at 5.50% plus the LIBOR for the applicable loan
period, and Base Rate loans will bear interest at 4.50% plus the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the Prime Rate, (iii) Eurodollar Rates plus 1.00%. The LIBOR rate is subject to a LIBOR floor, initially 1.25%
(the LIBOR Floor). The margins over LIBOR and the Base Rate, and the LIBOR Floor, and the Base Rate will decline if and when Diamond achieves reductions in its ratio of senior debt to EBITDA. The Third Amendment also eliminates the
requirement that proceeds of future equity issuances be applied to repay outstanding loans, and waives certain covenants that the Company was non-compliant with in connection with Diamonds restatement of its consolidated financial statements.
On October 25, 2012, Diamond announced a plan to consolidate its manufacturing operations and will close its leased
facility in Fishers, Indiana. Certain manufacturing equipment at Fishers will be relocated to our facility in Stockton, California. Additionally, the Company will record an impairment charge of approximately $4 million associated with Fishers
equipment that will not be utilized.
80