BUSINESS ACQUISITIONS

On October 27, 2015, we entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Diamond. Diamond is a leading snack food company with five brands including Kettle Brand^® potato chips, KETTLE^® Chips, Pop Secret^® popcorn, Emerald^® snack nuts, and Diamond of California^® culinary nuts. Pursuant to the Merger Agreement, we agreed to acquire all of the issued and outstanding shares of common stock of Diamond in a cash and stock transaction, including our repayment of $651.0 million of Diamond’s indebtedness, accrued interest and related fees. The acquisition was subject to the approval of our stockholders of the issuance of our shares and the approval of the stockholders of Diamond of the adoption of the Merger Agreement.

On February 26, 2016, our stockholders approved the issuance of our shares and the stockholders of Diamond adopted the Merger Agreement. The acquisition closed on February 29, 2016 and, pursuant to the Merger Agreement, Diamond became our wholly-owned subsidiary.

At the effective time of the merger, each share of Diamond common stock that was issued and outstanding immediately prior to the effective time (other than (i) treasury shares held by Diamond, (ii) shares owned by Snyder’s-Lance or any of our subsidiaries and (iii) shares that are owned by stockholders who have perfected and not withdrawn a demand for appraisal rights pursuant to Delaware law) were cancelled and converted into the right to receive $12.50 in cash and 0.775 shares of Snyder’s-Lance common stock, par value $0.83-1/3 per share. Diamond shares have ceased trading on the NASDAQ stock exchange.

Additionally, at the effective time of the merger, all outstanding Diamond stock-based compensation awards, then comprised of restricted shares, restricted units, performance-based restricted units, and stock options, converted to replacement Snyder's-Lance awards or were settled with merger consideration as described within the Registration Statement on Form S-4 we filed with the SEC on January 20, 2016. The fair value of the replacement awards, whether vested or unvested, was included in the purchase price to the extent that pre-acquisition services have been rendered. The purchase price also included the fair value of accelerated vesting for awards that vested at the acquisition date due to change in control provisions. The remainder of the fair value of the unvested outstanding replacement awards will be recorded as compensation expense over the applicable future vesting period in the periods following the acquisition date.

The following is a summary of consideration transferred in the acquisition of Diamond:



	Conversion Calculation		Fair Value (in thousands)
Diamond common shares outstanding as of February 29, 2016	31,062,164
Multiplied by 0.775 as per the Merger Agreement	0.775
Total Snyder's-Lance common shares issued to Diamond stockholders	24,071,839
Multiplied by Snyder's-Lance closing stock price as of February 26, 2016	$	32.34
Total stock consideration for outstanding common shares			$	778,483
Cash consideration of $12.50 per Diamond common share outstanding as of February 29, 2016, including cash paid in lieu of fractional converted shares			388,318
Total cash and stock consideration to stockholders			$	1,166,801
Fair value of replacement cash awards and stock-based awards attributable to pre-acquisition service, including awards that accelerated vesting at acquisition date due to change in control provisions ⁽¹⁾			28,211
Repayment of Diamond’s outstanding debt due to change in control provisions ⁽²⁾			651,044
Liability for value of Dissenters' merger consideration ⁽³⁾			12,418
Total fair value of consideration transferred			$	1,858,474
Effective settlement of accounts payable owed by us to Diamond at acquisition date			(1,295		)
Total purchase consideration			$	1,857,179

⁽¹⁾ The fair value of the Snyder's-Lance replacement cash awards, settled common stock, restricted share awards, restricted unit awards and stock options was calculated as of February 29, 2016 using conversion terms outlined in the Merger Agreement. The closing stock price on February 26, 2016, the last trading day before closing, was used in the fair valuation of settled common stock, restricted share awards and restricted unit awards. The fair value of the stock options was estimated using the Black-Scholes valuation model utilizing the assumptions noted below:



Assumptions used for the valuation of replacement Snyder's-Lance stock options:
Stock price as of February 26, 2016	$32.34
Post-conversion exercise price	$11.75 - $80.24
Average expected volatility	31.18%
Expected dividend yield	1.98%
Weighted average risk-free interest rate	0.33%
Weighted average expected life	0.3 years
Black-Scholes weighted average value per option	$15.22

The expected volatility of the Snyder’s-Lance stock price was based on average historical volatility which was based on observations and a duration consistent with the expected life assumption. The weighted average expected life of the option was calculated using the simplified method by using the vesting term of the option and the option expiration date. The risk-free interest rate was based on U.S. treasury securities with maturities equal to the expected life of the option.

⁽²⁾ Repayment of Diamond’s outstanding debt was required as part of the consideration to be transferred due to change in control provisions which are triggered upon acquisition. The repayment amount was calculated as of February 29, 2016 by taking Diamond’s outstanding long-term debt and current portion of long-term debt of $633.2 million plus accrued interest of $9.0 million and a prepayment penalty of $8.8 million.

⁽³⁾Estimate of merger consideration unpaid and owed to certain Diamond stockholders that would otherwise have received $12.50 in cash and 0.775 shares of Snyder’s-Lance common stock for each share of Diamond common stock held (see 'Appraisal Proceedings' within Note 15).

The acquisition was accounted for as a business combination. Management has used its best estimate in the allocation of the purchase price to assets acquired and liabilities assumed based on the estimated preliminary fair value of such assets and liabilities. The following table summarizes the preliminary allocation of assets acquired and liabilities assumed as part of the acquisition:



	Preliminary Allocation		Measurement Period Adjustments			Preliminary Allocation
(in thousands)	As of April 2, 2016		Quarter Ended July 2, 2016			As of July 2, 2016
Cash and cash equivalents	$	28,945	$	—		$	28,945
Accounts receivable	77,445		412			77,857
Inventories	168,089		(10,667		)	157,422
Prepaid expenses and other current assets	12,111		1,666			13,777
Fixed assets	136,340		(7,644		)	128,696
Goodwill	868,443		3,381			871,824
Other intangible assets	902,500		12,100			914,600
Equity investments	8,607		4,337			12,944
Other long term assets	1,018		(45		)	973
Total assets acquired	2,203,498		3,540			2,207,038

Accounts payable, and other current liabilities, including payable to growers	134,715		894			135,609
Deferred income tax liability	191,425		1,110			192,535
Other long term liabilities	20,179		1,536			21,715
Total liabilities assumed	346,319		3,540			349,859

Net assets acquired⁽¹⁾	$	1,857,179	$	—		$	1,857,179

⁽¹⁾ Net assets acquired include the effective settlement of $1.3 million in accounts payable owed by us to Diamond at the time of the acquisition.

As of July 2, 2016, the purchase price allocation is considered preliminary. Of the estimated $914.6 million of acquired intangible assets, $390.6 million was preliminarily assigned to customer relationships and will be amortized over 20 years. The remaining value of acquired intangible assets of $524.0 million was preliminarily assigned to trademarks, which are not subject to amortization because they have indefinite lives. The increase in the carrying value of assets to fair value as a result of purchase price adjustments is not deductible for income tax purposes.

During the first quarter of 2016, we overstated cost of sales by $4.5 million related to the inventory step-up in purchase accounting. We recorded an out of period correction in the second quarter of 2016 for this amount. This adjustment is immaterial to both the first and second quarter of 2016 and has no impact on the first six months of 2016 or on the full year.

The majority of our estimates used in the purchase price allocation remain preliminary at this time. We anticipate that adjustments will be made to the fair values of identifiable assets acquired and liabilities assumed and that those adjustments may or may not be material to our consolidated financial statements.

Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill is attributable to the general reputation, assembled workforce, acquisition synergies and the expected future cash flows of Diamond's business.

We have recorded a net deferred tax liability of 192.5 million related to the acquisition of Diamond. We recorded deferred tax liabilities of $386.8 million relating primarily to basis differences in intangible assets acquired, which includes $62.4 million related to un-repatriated foreign earnings based on management’s preliminary assessment of the amount of earnings considered to be indefinitely reinvested. We recorded a deferred tax asset of $194.3 million, of which $148.9 million was recorded for federal and state net operating loss carryforwards, and a further $8.0 million for other federal and state tax credit carryforwards. A valuation allowance of $9.5 million has been recorded based on management’s preliminary assessment of the ability to utilize these deferred tax assets.

Transaction and integration related expenses associated with the acquisition of Diamond were approximately $10.6 million and $59.9 million for the second quarter and first six months of 2016, respectively, and are included in a separate line in the Condensed Consolidated Statements of Income. For the second quarter of 2016, these expenses included $2.9 million of severance and retention benefits and $2.8 million of accelerated stock-based compensation, which was recognized due primarily to change in control provisions and severance agreements with Diamond personnel. For the first six months of 2016, these expenses included $15.9 million of severance and retention benefits and $16.1 million of accelerated stock-based compensation. The remaining costs for both the second quarter and first six months of 2016 were primarily investment banking fees as well as other professional fees and legal costs associated with completion of the acquisition and subsequent integration of Diamond.

Additionally, we deferred $11.0 million of debt issuance costs associated with the new $1.13 billion term loans used to fund the acquisition, and these costs are being amortized over the term of the loans. Approximately $5.0 million of these debt issuance costs were paid in the fourth quarter of 2015, with the remaining $6.0 million paid in the first quarter of 2016. See Note 10 for additional information regarding the new term loans.

Diamond's results were included in our Condensed Consolidated Statements of Income from February 29, 2016. External net revenue from Diamond of $183.8 million and $247.0 million was included for the second quarter and first six months of 2016, respectively. As a result of progress we have made integrating Diamond, it is impracticable to disclose separately Diamond's contributions to income before income taxes for the second quarter and first six months of 2016.

The following unaudited pro forma consolidated financial information has been prepared as if the acquisition of Diamond had taken place at the beginning of 2015. These unaudited pro forma results include estimates and assumptions regarding increased amortization of intangible assets related to the acquisition, reduced interest expense related to lower interest rates associated with the new combined debt and the related income tax effects. Pro forma results are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the date indicated, or that may result in the future for various reasons, including the potential impact of revenue and cost synergies on the business.



	Quarter Ended				Six Months Ended
(in thousands, except per share data)	July 2, 2016		July 4, 2015		July 2, 2016		July 4, 2015
Net revenue	$	609,500	$	609,335	$	1,201,879	$	1,234,554
Net income/(loss) attributable to Snyder's-Lance, Inc.	19,681		$	25,050	$	43,392	$	(7,085	)

The unaudited pro forma consolidated financial information for the second quarter of 2015 included increased amortization expense of $2.8 million, as a result of acquired intangible assets. For the first six months of 2016 and 2015 additional amortization expense was $2.1 million and $5.9 million, respectively. In addition, the unaudited pro forma consolidated financial information for the second quarter of 2015 included $3.1 million of reduced interest expense related to debt. For the first six months of 2016 and 2015 reduced interest expense was $1.3 million and $6.4 million, respectively. This reduction is due to the lower interest rates associated with our new combined debt, as more fully described in Note 10.

We also included a reduction in cost of goods sold of $15.9 million in the unaudited pro forma consolidated financial information for the first six months of 2016, related to the elimination of a portion of the inventory step-up recorded during the quarter in connection with the Diamond acquisition. We included additional cost of goods sold in the unaudited pro forma financial information for the first six months of 2015 of $15.6 million, consisting of an additional $20.7 million of cost of goods sold in the first quarter of 2015 and a reduction of $5.1 million in the second quarter of 2015. The net incremental expense represents the financial impact of the total inventory step-up recorded in connection with the Diamond acquisition.

For the first quarter and first six months of 2016, we included a reduction in non-recurring transaction-related expenses of $50.2 million which were directly related to the Diamond acquisition. These transaction-related expenses, and additional transaction-related expenses incurred prior to the end of 2015, were included as additional expenses of $60.4 million in the unaudited pro forma consolidated financial information for the first quarter of 2015.