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This excerpt taken from the DMND 10-K filed Oct 12, 2007. 2006
Compared to 2005
Net sales were $477.2 million and $462.5 million for
the years ended July 31, 2006 and 2005. The increase in net
sales was primarily due to higher prices and to sales from the
acquired Harmony business, partially offset by lower volume.
Volume decreased from 225.7 million pounds sold in 2005 to
193.8 million pounds sold in 2006. The increase in prices
reflected higher commodity costs for raw materials, which we
were able to pass on, in part, to consumers. This higher pricing
was principally for walnuts, pecans and almonds in the North
American Retail channel, and walnuts in the North American
Ingredient/Food Service and International channels.
Table of Contents
Net sales by channel (in thousands):
The increase in North American Retail sales reflects the
expansion of our snack products, sales of which were
$40.7 million in 2006 (including $6.7 million sales of
Harmony products) compared to $21.6 million in 2005, price
increases on various products, and increased volume for culinary
products, particularly in the mass merchandisers and club
channels. International and ingredient/food service sales
decreased as a result of less product available to sell due to
lower ending inventory at July 31, 2005. The decline in
volume was partially offset by higher pricing.
Sales of walnuts and other nuts as a percentage of net sales
were as follows:
Gross margin. Gross margin was 13.7% for the
year ended July 31, 2006 and included a one-time charge to
cost of sales as described above. On a non-GAAP basis gross
margin for the years ended July 31, 2006 and 2005 were
14.3% and 10.6%, respectively and gross margin per pound shipped
increased 63.0% to $0.352 in 2006 from $0.216 in the same period
of 2005.
Selling, general and administrative. Selling,
general and administrative expenses were $37.0 million and
$33.2 million for the years ended July 31, 2006 and
2005. Selling, general and administrative expenses for the year
ended July 31, 2006 included stock-based compensation
charges of $4.0 million. There was no such charge in 2005.
Selling, general and administrative expenses as a percentage of
net sales were 7.8% and 7.2% for 2006 and 2005.
Advertising. Advertising expense was $18.0 and
$22.2 million for the years ended July 31, 2006 and
2005. The change related principally to the timing of certain
advertising programs and to initial Emerald advertising
associated with its national launch in 2005.
Interest. Net interest expense was
$0.3 million and $4.4 million for the years ended
July 31, 2006 and 2005. This decrease reflected lower
borrowings due to repayment of indebtedness and utilization of
cash from the July 2005 initial public offering to fund working
capital requirements.
Income taxes. Income tax benefit was $1.0 and
$8.4 million for the years ended July 31, 2006 and
2005. The 2006 income tax benefit includes approximately
$3.8 million (net of federal income tax impact) of
California Enterprise Zone tax credits for years prior to 2006.
Without such benefit, the effective tax rate would have been
42%. As an agricultural cooperative association in 2005, income
taxes were not provided on patronage net proceeds. Income taxes
were provided based on the pre-tax income of our non-patronage
business. The benefit in the year ended July 31, 2005 arose
from the loss before income taxes of the non-patronage business
and from establishing certain net deferred tax assets related to
the former patronage business as a result of the conversion.
Effective August 1, 2005, all of our business activities
are taxable under provisions of the Internal Revenue Code and
certain state tax laws.
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