Partnering for Growth Leading the Way - Contentful · PDF filePartnering for Growth Leading the Way 2017 ANNUAL REPORT. 2 ... We branded packaged almonds in retail outlets ... promise

2 017 A N N U A L R E P O R T

Partnering for Growth Leading the Way

2017ANNUALREPORT

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MISSIONMaximize the Returns of Each Grower who Entrusts Blue Diamond with their Almonds

VISION Delivering the Benefits of Almonds to the World

VALUESAct with IntegrityWork as Partners

Deliver Quality EverydayInnovate!

Play to Win

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PARTNERING FOR GROWTHBlue Diamond Growers understands that creating successful partnerships takes the work and dedication of employees, our grower-owners, customers, business partners and the industry. Together we have been able to realize our mission of maximizing the returns of each grower who entrusts Blue Diamond with their almonds. Partnership is the foundation for sustainably ensuring our cooperative and grower-owners will be in the almond business for generations to come.

LEADING THE WAYOur co-op leads the way in the global almond industry. We branded packaged almonds in retail outlets and opened access for California almonds in new countries. We created the Almond Innovation Center, the world’s first and only research center dedicated to almond product innovation. We doubled our capacity by opening a new plant in Turlock designed to manufacture more value-added global products using state-of-the-art technology. Today, Blue Diamond Growers is uniquely positioned to meet the growing needs of all our partners. Each day more than 1,500 team members are focused on keeping our cooperative the world’s leading almond marketer and processor.

B L U E D I A M O N D G R O W E R S

Left to Right: Kevin Fondse, Stephen Van Duyn, Joe Huston, Kent Stenderup, Dan Cummings, Robert Weimer, Charles Crivelli III, John Monroe, George Goshgarian, Dale Van Groningen, Don Yee

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FINANCIAL HIGHLIGHTS(IN THOUSANDS)

2017 BOARD OF DIRECTORS

Dan Cummings, ChairmanDistrict 1Chico, CA

John MonroeDistrict 2Arbuckle, CA

Dale Van Groningen, Vice ChairmanDistrict 3Ripon, CA

Kevin FondseDistrict 4Ripon/Escalon, CA

Steve Van DuynDistrict 5Modesto/Ripon, CA

Charles Crivelli IIIDistrict 6Turlock, CA

Robert J. WeimerDistrict 7Atwater, CA

George GoshgarianDistrict 8Fresno, CA

Kent StenderupDistrict 9Arvin, CA

Joe HustonDirector-at-LargeMonterey, CA

Don YeeDirector-at-LargeEl Dorado Hills, CA

August 25, 2017 August 26, 2016 August 28, 2015 August 29, 2014

Net Sales and Other Revenue $ 1,481,343 $ 1,672,820 $ 1,649,285 $ 1,492,969

Payments and Allocations to Members and Patrons 906,825 1,200,086 1,188,027 1,028,519

Interest, Net 4,818 6,533 7,047 6,719

Total Assets at Year End 607,231 557,064 515,464 478,061

Depreciated Value of Property, Plant, and Equipment 258,459 215,413 188,393 177,576

Long-Term Debt at Year End 115,900 81,300 96,700 112,100

Peak Short-Term Borrowings 220,500 460,068 390,350 260,870

Members’ and Patrons’ Equity at Year End 235,546 198,205 175,766 157,776

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TO OUR GROWER- OWNERS

sRecord-breaking Blue Diamond shipments — a 9% increase over prior year,

sOpening new manufacturing building and flour production line in Salida,

sDriving U.S. market-share growth in snack almonds and non-dairy milk,

sGrowing international consumer sales by 37%,

sEnhancing margins (cost savings) of $12 million, and

s7 consecutive years of industry-leading returns.

These highlights are just a snapshot of our work and effort over the past year. We met our key objectives for the year and built capabilities that will deliver longer-term results.

As we reflect on the past year, it is important to remember the resilience of California’s almond industry and this cooperative. Blue Diamond’s strong, dynamic leadership and innovative teams have distinguished us as the trusted brand in delivering the benefits of almonds to the world. Our achievements during the 2016 crop year demonstrate the continued growth of the business and our commitment to innovation:

Throughout the year you may have seen on television new Blue Diamond commercials. In 2017, we increased our investment in advertising and marketing and it paid off! The result was the production of the award-winning Almond Breeze commercial, The Best Almonds Make the Best Almondmilk, and a spot for snack almonds during the highly-rated GRAMMY Awards show. The enhanced and impactful advertising helped grow our brands and consumer sales in the United States by 13%.

Mark Jansen, President & CEO

Dan Cummings, Chairman of the Board

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In addition, Almond Breeze shined a spotlight on the Blue Diamond brand with the launch of several unique promotional programs showcasing our commitment to quality and innovation. The Orchard Experience 2017 and the Homegrown Goodness Tour sparked the attention of worldwide digital and print media.

We also delivered game-changing brand growth in international retail markets. Blue Diamond established the Almond Breeze brand in three new consumer markets — Thailand, South Korea, and South Africa. Establishing strong local manufacturing, sales and distribution partners is the lynchpin to this success. Internationally, Blue Diamond is selling not just almondmilk, but our promise of Quality in all the Ways that Matter.

Dan Cummings, Chairman of the Board

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We extended the versatility of almonds with the introduction of almond oil to the health and

beauty care market, establishing customers throughout the United States, Europe and Japan. Our almond oil will contribute

to the enhancement of formulation possibilities for manufacturers across

the globe and grow value-added sales of almonds.

In partnership,

Dan Cummings Chairman of the Board

Mark Jansen President & CEO

At the Salida facility we are meeting growth demands by increasing our almond flour production capacity. A new processing line helps meet the growing demands of our national and global customers purchasing almond flour as an ingredient for finished goods, as well as those who repackage for retail distribution. The design of Blue Diamond’s new flour production line is the first of its kind, with several advantages in efficiency, quality and cost-effectiveness.

Looking ahead, we are expecting the 2017 crop to surpass last year’s production. We will face new challenges as the crops get larger and are preparing to profitably support our members’ growing production by increasing capacity, upgrading production line technology, continuing expansion into international markets and introducing new products into existing channels.

Your Blue Diamond team is driving outstanding achievement through our five core values: Act with Integrity, Work as Partners, Deliver Quality Everyday, Innovate!, and Play to Win. Our members, employees, customers, and business partners have come to expect new and better ways of delivering the benefits of almonds to the world.

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BLUE DIAMOND VALUES DELIVERING THE HIGHEST QUALITY IN OUR WORK. With a determined focus on safety, quality, service, performance and people, the cooperative drove very strong results over the last year. In Sacramento, Salida, and Turlock we achieved record tonnage in receipts and deliveries that totaled more than 365 million pounds. We also remained focused on providing value to our grower-owners through quality and safety by increasing our training efforts to help team members better identify and prevent risks in their work areas. As a result, Salida reached two million hours without a lost time accident and we launched the Blue Diamond Growers Front-Line Leadership Training program.

DELIVER QUALIT Y EVERYDAY

IN 2017, WE SUPPORTED GROWTH AND PERFORMANCE WITHOUT COMPROMISING QUALITY. Blue Diamond received a Safe Quality Food rating of “excellent” and achieved an “exceptional” rating by the Safe Food Alliance. We also delivered $12 million in margin enhancement through a variety of capital and efficiency projects, including in Sacramento where upgrades to the Electronic Sorting Machine resulted in significant yield improvements. All three Blue Diamond facilities are ready to provide unmatched value to our customers and consumers by exceeding their expectations.

EXCEPTIONALRATED

SAFE FOOD

ALLIANCE

EXCELLENTRATED

SAFE QUALITY

FOOD

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BLUE DIAMOND VALUES LEARNING FROM OUR SUCCESSES AND OUR SETBACKS — AND WE COMPETE HARD — MAKING US A SUCCESSFUL MARKET COMPETITOR. The excellent partnerships we have established with key food producers worldwide proves we play to win. Through these partnerships, Blue Diamond has assured the cooperative continues to be the supplier of choice. As the leading shipper to export markets worldwide, we continue to be positioned in all key growth markets for the future.

PL AY TO WIN

600 CUSTOMERS

IN BOTH INDIA AND CHINA OVER 300 MILLION POUNDS OF ALMONDS WERE SHIPPED WITH BLUE DIAMOND AS THE DOMINANT SUPPLIER. Shipments to our ingredient customers finished another solid year growing 7 percent from last year and 15 percent from 2015. We also continue to deliver world-class service. Last year, we worked to meet the needs of over 600 customers spanning every corner of the world and set a new volume record for value-added manufactured product shipments. Blue Diamond will work to maximize value-added growth as the almond supply increases.

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BLUE DIAMOND VALUES FINDING NEW AND BETTER WAYS TO DELIVER THE BENEFITS OF ALMONDS. We are on the cutting edge for innovation and our initiatives to enhance our brand advertising and develop new products for our customers mean we think big! The cooperative controlled the year as Blue Diamond snack almonds added more than one million new households and Almond Breeze almondmilk is in nearly one in five homes across the United States.

INNOVATE

The year showcased our products in a more competitive market and demonstrated our unwavering commitment to our grower-owners who entrust us with their almonds. We started a new holiday tradition with the introduction of Almond Breeze Egg Nog and attracted hot sauce enthusiasts with Sriracha flavored Nut-Thins. The Blue Diamond brand also created fun, memorable snacking moments for the whole family with the movie The Nut Job 2: Nutty by Nature. We also harnessed the power of music and flavor with the Blue Diamond Flavor Experiment that challenged real people to describe how a Blue Diamond almond tastes using musical instruments rather than words. In 2017, we were at the center of culture and growing our brand.

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In Thailand, Almond Breeze was the first almondmilk available in 7-Eleven stores and launched nationwide in over nine thousand outlets. We also strengthened our global business with the expansion of the Blue Diamond brand into South Africa’s coffeeshops and cafes with Barista Blend and led the development of the almondmilk category in South Korea. Through superior teamwork and collaboration Blue Diamond is continuing global expansion. We are driving game-changing category growth through our brand-building efforts.

BLUE DIAMOND VALUES HOW WE ENGAGE WITH OUR GROWER-OWNERS, CUSTOMERS, BUSINESS PARTNERS, COMMUNITIES, AND THE INDUSTRY TO ACHIEVE OUR SHARED GOALS. The combination of emerging and established markets demonstrate the power and partnership of the Blue Diamond brand around the world. Our partners in the global markets have enabled us to secure best-in-class local manufacturing, sales and distribution, and trade support. Delivering the promise of quality and almond leadership helps strengthen Blue Diamond’s global position and sets us up for success in countries poised to become some of the largest consumer markets in the world.

WORK AS PARTNERS

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ACT WITH INTEGRIT Y

Blue Diamond values that we do the right thing even when no one is watching. For more than a century, Blue Diamond’s grower-owners have been dedicated stewards of their land and trees to ensure future generations continue to deliver the benefits of almonds to the world. We believe that being a responsible cooperative means being part of our community in the widest sense. As a global business, Blue Diamond knows we will be measured not only by our success in the market, but also by our impact on environmental stewardship and community well-being.

SUPPORTING OUR ENVIRONMENTBlue Diamond’s sustainability accomplishments over the last year were primarily driven by innovation and the relentless pursuit of continuous improvement.

Natural gas consumption decreased by 8.5%

compared to the previous year.*

Electricity consumption decreased by 7%


Blanching water usage decreased by 5.7%


Various innovation and continuous improvement projects reduced waste by 5 million pounds, and saved 200,000

kwh/yr in electricity.

The new Salida manufacturing building achieved CalGreen Building Code Compliance Status through Planning and Design innovation, Water Efficiency and Conservation measures, Material Conservation and Resource Efficiency, and Environmental Quality improvements.

* Per pound of production

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SUPPORTING OUR COMMUNITIESBlue Diamond is committed to helping organizations in the communities in which we do business (Sacramento, Salida and Turlock, California). Support from our Community Giving Program helps advance ag education, improve the health and wellness of children and families, and develop communities.

We are proud to be partners with local food banks, the Salvation Army, Make-a-Wish Foundation and the American Red Cross. Our contributions and product donations help fund impactful programs and provide relief to shelters during times of disaster.

Our partner organizations also provide service opportunities to engage Blue Diamond team members who share a pride in working for a company that cares. From charity fitness events to mentoring students, bringing together employees and communities makes a positive impact for everyone involved.

In 2017, Blue Diamond supported local and global communities through:

Provided assistance to disaster relief efforts with $67,000 in product donations.

Donation of monetary contributions to over 25 organizations for a total

amount of $125,000.

Delivering more than $520,000 in product

donations to food banks.


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The Management of Blue Diamond Growers and its subsidiaries have the responsibility for preparing the consolidated financial statements and for their integrity and objectivity. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The financial statements include amounts that are based on management’s best estimates and judgments. Management also has the responsibility for the accurate preparation of the other information in the annual report and its consistency with the consolidated financial statements.

Blue Diamond Growers’ financial statements have been audited by Crowe Horwath, LLP (Crowe Horwath), independent certified public accountants, which were engaged by the Audit Committee of the Board of Directors. Management has made available to Crowe Horwath all of the Company’s financial records and related data, as well as the minutes of the board of director’s meetings and the annual membership meeting. Furthermore, management believes that all the representations made to Crowe Horwath during its audit were valid and appropriate.

Management of Blue Diamond Growers has established and maintains a system of internal control that provides reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition, and the prevention and detection of fraudulent financial reporting. The system of internal control provides for appropriate division of responsibility based on policies and procedures that are communicated to employees with significant roles in the financial reporting process and which are updated as necessary. Management continually monitors the system of internal control for compliance. The Company maintains an internal auditing program that independently reviews the effectiveness of the internal controls and recommends possible improvements

thereto. In addition, as part of its audit of the Company’s financial statements, Crowe Horwath gained an understanding of selected internal accounting controls to establish a basis for determining the nature, timing and extent of audit tests to be applied. Management has considered the internal auditor’s and Crowe Horwath’s recommendations concerning the Company’s system of internal control and has taken actions that we believe are cost and risk effective in the circumstances to respond appropriately to those recommendations. Management believes that the Company’s system of internal control is adequate to accomplish the objectives discussed herein.

Management also recognizes its responsibility for fostering a strong ethical climate so that the Company’s affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in the Company’s Code of Ethics, which is published to all employees. The Code of Ethics addresses, among other things, the necessity of ensuring open communications within the company; potential conflicts of interest; compliance with all domestic and foreign laws, including those relating to financial disclosure; and the confidentiality of proprietary information. The Company maintains a systematic program to assess compliance with these policies.

Mark D. Jansen President and Chief Executive Officer

Dean LaVallee Chief Financial Officer

BLUE DIAMOND GROWERS AND SUBSIDIARIESManagement Report on Consolidated Financial Statement

We present summary consolidated financial statements for the Company on pages 17–18 of this report. Complete audited financial statements and footnotes are available to any member upon request to the Blue Diamond Growers’ Grower Accounting Department (916) 446-8385.

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The accompanying summary financial statements, which comprise the summary consolidated balance sheets as of August 25, 2017 and August 26, 2016 and the summary consolidated statements of operations and comprehensive net proceeds for the years then ended, are derived from the audited consolidated financial statements of Blue Diamond Growers and subsidiaries as of and for the years ended August 25, 2017 and August 26, 2016. We expressed an unmodified audit opinion on those audited consolidated financial statements in our report dated October 27, 2017. The audited consolidated financial statements, and the summary consolidated financial statements derived therefrom, do not reflect the effects of events, if any, that occurred subsequent to the date of our report on the audited consolidated financial statements.

The summary consolidated financial statements do not contain any of the disclosures required by accounting standards generally accepted in the United States of America. Reading the summary consolidated financial statements, therefore, is not a substitute for reading the audited consolidated financial statements of Blue Diamond Growers and subsidiaries.

Management’s Responsibility Management is responsible for the preparation of the summary consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.

Auditor’s Responsibility Our responsibility is to express an opinion about whether the summary consolidated financial statements are consistent, in all material respects, with the audited consolidated financial statements based on our procedures, which were conducted in accordance with auditing standards generally accepted in the United States of America. The procedures consisted principally of comparing the summary consolidated financial statements with the related information in the audited consolidated financial statements from which the summary consolidated financial statements have been derived, and evaluating whether the summary consolidated financial statements are prepared in accordance with the basis described above. We did not perform any audit procedures regarding the audited consolidated financial statements after the date of our report on those financial statements.

Opinion In our opinion, the summary consolidated financial statements of Blue Diamond Growers and subsidiaries as of and for the years ended August 25, 2017 and August 26, 2016 referred to above are consistent, in all material respects, with the audited consolidated financial statements from which they have been derived, on the basis described above.

Crowe Horwath LLP Sacramento, California October 27, 2017

INDEPENDENT AUDITOR'S REPORTThe Audit Committee & the Board of Directors of Blue Diamond Growers

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BLUE DIAMOND GROWERS AND SUBSIDIARIESSummary Consolidated Balance SheetsAs of August 25, 2017 and August 26, 2016 (in thousands)

ASSETS: 2017 2016

Current Assets:Cash and cash equivalents $ 84,003 $ 44,455Accounts receivable, net of allowance for doubtful accounts of $65 in 2017 and $70 in 2016 141,513 155,891Grower advances in excess of proceeds realized 13,948 25,147Product inventories 72,821 84,258Supplies and other current assets 9,053 7,249

Total current assets 321,338 317,000Property, plant, and equipment, at cost less accumulated depreciation 258,459 215,413Investment in CoBank 6,142 5,764Other assets and deferred charges, net 21,292 18,887 $ 607,231 $ 557,064

LIABILITIES AND MEMBERS’ AND PATRONS’ EQUITY:

Current Liabilities:Current maturities of long-term debt $ 15,400 $ 15,400Unsecured investment certificates 66,136 75,397Accounts payable and accrued expenses 76,889 72,090Amounts due members and patrons 6,297 22,376

Total current liabilities 164,722 185,263Long-term debt 115,900 81,300Pension liability 54,514 67,837Other liabilities 36,549 24,459

Total liabilities 371,685 358,859Members’ and Patrons’ Equity:

Allocated members’ and patrons’ equity 120,724 118,969Unallocated:

Retained earnings 153,090 137,548Accumulated other comprehensive loss (38,268) (58,312)

Total members’ and patrons’ equity 235,546 198,205Commitments and contingencies - - $ 607,231 $ 557,064

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BLUE DIAMOND GROWERS AND SUBSIDIARIESSummary Consolidated Statements of Operations and Comprehensive Net ProceedsYears ended August 25, 2017 and August 26, 2016 (in thousands)

2017 2016

NET SALES AND OTHER REVENUE: $ 1,481,343 $ 1,672,820

COSTS AND EXPENSES:Cost of products sold 341,193 294,755Selling, general, and administrative 208,648 153,775Interest, net 4,818 6,533Income taxes 4,317 2,104

Total costs and expenses 558,976 457,167Net proceeds 922,367 1,215,653

OTHER COMPREHENSIVE ( LOSS) INCOME:Foreign currency translation (loss) (4) (9)Cash flow hedge (interest rate swap) 2,601 (2,210)Pension and postretirement benefit plans 17,447 (6,451)

Other comprehensive income (loss) 20,044 (8,670)Comprehensive net proceeds $ 942,411 $ 1,206,983

DISTRIBUTION OF NET PROCEEDS:Payments and allocations to members and patrons including retains of $25,301 and $34,600 for 2017 and 2016, respectively $ 906,825 $ 1,200,086Increase to retained earnings 15,542 15,567 $ 922,367 $ 1,215,653

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PRIMARY FACILITIESSacramento Processing Plant Business Headquarters 1802 C Street Sacramento, CA 95811 916.442.0771

Salida Processing Plant 4800 Sisk Road Salida, CA 95356 209.545.1602

Turlock Processing Plant 1300 N. Washington Road Turlock, CA 95380

Blue Diamond Nut and Gift Shops are located in Sacramento, Salida and Chico

Sacramento Salida

Turlock

CORPORATE OFFICERSMark Jansen President and CEO

Dean LaVallee Senior Vice President, CFO and Corporate Secretary


1802 C Street • Sacramento, CA 95811916.442.0771

©2017 Blue Diamond Growers

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Partnering for Growth Leading the Way - Contentful · PDF filePartnering for Growth Leading the Way 2017 ANNUAL REPORT. 2 ... We branded packaged almonds in retail outlets ... promise