Diamond Foods Reports Fourth Quarter and Full Year Fiscal 2012 Financial Results

Diamond Foods Reports Fourth Quarter and Full Year Fiscal 2012 Financial
Results

  * Net sales in the fourth quarter was $223.9 million and $981.4 million for
    the fiscal year
  * Gross margin in the fourth quarter was 18.9 percent and 18.3 percent for
    the fiscal year
  * GAAP net loss in the fourth quarter was $32.9 million and $86.3 million
    for the fiscal year
  * Adjusted EBITDA in the fourth quarter was $21.8 million and $79.4 million
    for the fiscal year

SAN FRANCISCO, Dec. 7, 2012 (GLOBE NEWSWIRE) -- Diamond Foods, Inc.
(Nasdaq:DMND) ("Diamond") today reported financial results for its fiscal 2012
fourth quarter and full year ended July 31, 2012.

In the fourth quarter 2012, GAAP net loss was $32.9 million and GAAP fully
diluted loss per share was $1.52. Diamond incurred $10.0 million for selling,
general and administrative ("SG&A") costs primarily related to audit committee
investigation, restatement, and related expenses. The Company also incurred a
$10.4 million charge related to a change in the fair value of the Oaktree
warrant liability and a $10.1 million charge related to asset impairment
associated with the closure of the Fishers, Indiana plant during the quarter.
Excluding these charges, non-GAAP net income declined 80 percent from the
prior year's quarter to $1.0 million and non-GAAP fully diluted earnings per
share declined 78 percent from the prior year's quarter to $0.05.

For the twelve months ended July 31, 2012, GAAP net loss was $86.3 million,
and GAAP fully diluted loss per share was $3.98. During the fiscal year,
Diamond incurred $30.6 million for certain SG&A costs primarily related to
audit committee investigation, restatement, and related charges. The Company
also incurred a $10.4 million charge related to a change in the fair value of
the Oaktree warrant liability and a $10.1 million charge related to asset
impairment at the Fishers, Indiana plant during the year. Excluding these
charges, non-GAAP net income declined 68 percent from the prior year period to
$12.7 million and non-GAAP fully diluted EPS declined 67 percent to $0.58.

"Diamond continues to make progress towards implementing our recently
announced cost savings and operational effectiveness initiatives," said
Diamond's Chief Executive Officer Brian J. Driscoll. "The 2012 financial
results do not reflect our recent change in strategic direction with a focus
on sustainable growth of our brands based on innovation and differentiation,
improving our cost structure and rebuilding our walnut supply. Diamond is
moving aggressively to execute against our objectives as we seek to better
position the Company for long-term success."

                               Financial Review

Net sales during the quarter decreased 5 percent to $224.0 million. Total
retail net sales grew 9 percent to $210.1 million and snack net sales grew 8
percent to $159.2 million in the quarter, driven by increases in Emerald
sales. Non-retail net sales totaled $13.9 million for the quarter compared to
$10.9 million in the third quarter of fiscal 2012 and $41.8 million in the
fourth quarter a year ago.

Full fiscal year net sales increased 2 percent to $981.4 million. Total retail
net sales grew 10 percent to $898.6 million and snack net sales grew 9 percent
to $605.8 million, driven by increases in Emerald sales.  Non-retail net sales
totaled $82.8 million for the full fiscal year compared to $149.9 million a
year ago.

Gross profit as a percentage of net sales was 18.9 percent for the fourth
quarter and 18.3 percent for the full year as compared to 20.8 percent and
22.4 percent in the prior year periods. 

SG&A expenses were $33.6 million during the quarter compared to $25.9 million
in the prior year period. For the full fiscal year, SG&A was $130.6 million,
or 13.3 percent of net sales compared to $97.5 million or 10.1 percent of net
sales in the prior year period. Included in the fourth quarter and the full
fiscal year 2012 SG&A expenses were $10.0 million and $30.6 million,
respectively, of SG&A expenses related primarily to audit committee
investigation, restatement, and related expenses. 

Advertising expense was $6.4 million during the fourth quarter compared to
$10.7 million in the prior year period. For the full fiscal year, advertising
expense was $37.9 million or 3.9 percent of net sales, a decrease of $7.1
million compared to the prior year.  

The Company reviewed assets at the Fishers, Indiana location that either are
not currently being utilized or will not be utilized for its remaining
life. As a result of this review, the Company recorded asset impairment
charges of $10.1 million in the fourth quarter. 

The Oaktree warrant is accounted for as a derivative liability that must be
marked to market every reporting period. Any gain or loss based on the change
in value of the warrant is recognized in earnings. The warrant value is
determined using a Black-Scholes option model. The Company recognized in the
fourth quarter a $10.4 million loss on the warrant largely due to the value of
the warrant liability increasing because of a change in the probability of the
special redemption. 

Net interest expense was $14.0 million in the fourth quarter compared to $5.9
million in the prior year period.  The increase in interest was due to higher
interest rates associated with the amended bank credit facility and the
Oaktree debt, as well as the increase in total debt outstanding compared to
the prior year period.  Furthermore, net interest expense includes certain
third party costs related to the Oaktree transaction and the bank facility
amendment.  Net interest expense incurred in the full fiscal year was $34.0
million compared to $23.9 million in the prior year. 

On a non-GAAP basis in the fourth quarter, the Company recorded a tax benefit
of $1.7 million, based on a pre-tax non-GAAP loss of $0.6 million.  The tax
benefit reflects the year end actual tax rate applied compared to the
cumulative tax rate in the first three quarters of fiscal 2012, including the
effect of certain jurisdictional tax rate differences.  When reported for the
full fiscal year, an effective tax rate of negative 23.1 percent applies to
the non-GAAP taxable income, resulting in a net tax benefit.  On a GAAP basis,
the effective tax rate was almost zero percent for the fourth quarter and 2
percent for the full fiscal year. 

Capital expenditures were $4.4 million for the fourth quarter and $45.0
million for the fiscal year. The U.K. and Beloit, Wisconsin Kettle expansions
were completed in the fall of 2011 and spring of 2012, respectively.  

Adjusted EBITDA was $21.8 million in the fourth quarter and $79.4 million in
the full fiscal year 2012, which compares to $21.5 million and $109.7 million
in the prior year periods, respectively. Please refer to page 8 for a
reconciliation of non-GAAP information. 

Cash and availability on Diamond's bank revolving line of credit on November
30, 2012 was approximately $88 million. 

                               Conference Call

Diamond plans to hold a conference call upon filing of its Quarterly Report on
Form 10-Q for the quarter ended October 31, 2012, which the Company plans to
file as soon as practicable.

To receive email notification of future press releases from Diamond Foods,
please visit http://investor.diamondfoods.com and select "email alerts."

Financial Summary
                                                      
Net Sales by Product Line:                            
                           Three months ended        Twelve months ended
                           July 31,                  July 31,
(in thousands)             2012     2011     % Prior 2012     2011     % Prior
                                             Year                      Year
Snack                      $159,228 $147,637 8%      $605,821 $553,676 9%
Culinary/Domestic          50,840    45,277  12%      292,756  263,161 11%
In-shell                                                                
Total Retail                210,068  192,914  9%      898,577  816,837 10%
International Non-Retail    4,564   29,841   (85)%    51,208   119,017 (57)%
N. American
Ingredient/Food             9,357    11,961  (22)%    31,633   30,834   3%
Service/Other
                                                                        
Total Non-Retail            13,921   41,802  (67)%    82,841   149,851 (45)%
Total                      $223,989 $234,716 (5)%    $981,418 $966,688 2%

                                                            
Summarized Statement of Operations:                         
                                        Three months ended Twelve months ended
                                        July 31,           July 31,
(in thousands, except per share         2012      2011     2012       2011
amounts)
Net sales                               $223,989  $234,716 $981,418   $966,688
Cost of sales                            181,725   185,815  801,697    750,209
Gross profit                            42,264     48,901   179,721    216,479
Operating expenses:                                                    
Selling, general and administrative      33,580    25,936   130,599    97,506
Advertising                              6,379    10,673    37,933     45,035
Acquisition and integration related     693       12,802   41,334     20,350
expenses
Loss on warrant liability               10,360    --       10,360     --
Asset impairment                        10,132    --       10,132     --
Total operating expenses                 61,144   49,411    230,358    162,891
Income (loss) from operations            (18,880)  (510)    (50,637)   53,588
                                                                       
Interest expense, net                    14,043    5,868    33,976    23,918
Income (loss) before income taxes        (32,923)  (6,738)  (84,613)   29,670
Income taxes (benefit)                  13         (9,212) 1,723       3,103
Net income (loss)                       (32,936)  $2,834   (86,336)   $26,567
Earnings (loss) per share:                                             
Basic                                   ($1.52)   $0.13    ($3.98)    $1.21
Diluted                                 ($1.52)    $0.12   ($3.98)    $1.17
Shares used to compute earnings (loss)                                 
per share:
Basic                                   21,733    21,652   21,692      21,577
Diluted                                  21,733    22,569   21,692     22,233

                                    
Summarized Balance Sheet Data:      
                                    
                                   July 31,
(in thousands)                     2012      2011
Cash and cash equivalents          $ 3,291   $ 3,112
Trade receivables, net              85,041    98,275
Inventories                         165,708   153,534
Current assets                      278,196   299,999
Property, plant and equipment, net  146,944   134,275
Other intangible assets, net        437,021   450,855
Goodwill                            403,158   409,735
Total assets                       1,299,349 1,322,907
Current liabilities                216,609    247,553
Total debt                          605,047   531,701
Shareholder's equity                324,794   420,495

 
Non-GAAP Financial Information
 
Reconciliation of income (loss) before income taxes to non-GAAP EPS:
                                                            
                                       Three months ended  Twelve months ended
                                       July 31,            July 31,
(in thousands, except per share        2012        2011    2012       2011
amounts)
GAAP income (loss) before income taxes $(32,923)  $(6,378) $ (84,613) $ 29,670
                                                                       
Adjustments to remove the effect of:                                   
                                                                       
Asset impairments                      10,132     --       10,132     --
                                                                       
Loss on warrant liability              10,360     --       10,360     --
Certain selling, general and           10,043     --       30,632     --
administrative expenses (1)
                                                                       
Forbearance fee                        438        --       1,444      --
Retention stock-based compensation     613        --       1,059      --
                                                                       
Costs associated with acquisitions and 694        12,802    41,334    20,350
integrations
Non-GAAP income (loss) before income   (643)      6,424    10,348     50,020
taxes
                                                                       
GAAP income taxes (benefit)            13         (9,212)  1,723      3,103
Tax effect of Non-GAAP adjustments     (1,691)    10,441   (4,111)    7,018
                                                                       
Non-GAAP income taxes (benefit)        (1,678)     1,229   (2,388)    10,121
                                                                       
Non-GAAP net income                    1,035      $ 5,195  12,736     $ 39,899
                                                                       
Non-GAAP EPS-diluted                   $0.05      $ 0.23   $0.58      $ 1.76
Shares used in computing Non-GAAP      22,116     22,956   22,078     22,634
EPS-diluted
(1) Related primarily to audit committee investigation, restatement, and
related expenses.

 
Reconciliation of US GAAP net income (loss) to Adjusted EBITDA:
                                                            
                                        Three months ended Twelve months ended
                                        July 31,           July 31,
(in thousands)                          2012      2011     2012       2011
Net income (loss)                       (32,936)  $2,834   (86,336)   $26,567
Income taxes (benefit)                   13       (9,212)  1,723      3,103
Income (loss) before income taxes       (32,923)  (6,378)   (84,613)  29,670
Interest expense, net                   14,043    5,868    33,976     23,918
Income (loss) from operations           (18,880)  (510)    (50,637)   53,588
                                                                       
Asset impairments                       10,132    --       10,132     --
Loss on warrant liability               10,360    --       10,360     --
Certain selling, general and            10,043    --       30,632     --
administrative expenses (1)
Stock-based compensation                2,064     2,072    9,206      7,687
Costs associated with acquisitions and  693       12,802   41,334     20,350
integrations
Depreciation and amortization           7,423     7,128    28,347     28,116
Adjusted EBITDA                         $21,835   $21,492  $79,374    $109,741
(1) Related primarily to audit committee investigation, restatement, and
related expenses.

                  About Diamond's non-GAAP Financial Measures

This release contains non-GAAP financial measures of Diamond's performance
("non-GAAP measures") for different periods. Non-GAAP financial measures
should not be considered as a substitute for financial measures prepared in
accordance with GAAP. Diamond's non-GAAP financial measures do not reflect a
comprehensive system of accounting, and differ both from GAAP financial
measures and from non-GAAP financial measures used by other companies. Diamond
urges investors to review its reconciliation of non-GAAP financial measures to
GAAP financial measures, and its financial statements to evaluate its
business.

Diamond believes that its non-GAAP financial measures provide meaningful
information regarding operating results because they do not include amounts
that Diamond excludes when monitoring operating results and assessing
performance of the business. Diamond believes that its non-GAAP financial
measures also facilitate comparison of results for current periods and
business outlook for future periods. Diamond's non-GAAP financial measures
include adjustments for the following items:

  * In the fourth quarter of fiscal 2012, $10.1 million in expenses were
    incurred due to Fishers, Indiana plant asset impairment, $10.4 million due
    to a loss on Oaktree warrant liability, $10.0 million due to SG&A expenses
    related primarily to audit committee investigation, restatement, and
    related expenses, $0.4 million in forbearance fee, $2.1 million in
    stock-based compensation, of which, $0.6 million is retention stock-based
    compensation, and $0.7 million primarily due to the proposed acquisition
    of Pringles.
     
  * In the fourth quarter of fiscal 2011, $12.8 million in expenses were
    incurred primarily due to the proposed acquisition of Pringles, and $2.1
    million in stock-based compensation.
     
  * In the full year fiscal 2012, $10.1 million in expenses were incurred due
    to Fishers, Indiana plant asset impairment, $10.4 million due to a loss on
    Oaktree warrant liability, $30.6 million due to SG&A expenses related
    primarily to audit committee investigation, restatement, related expenses,
    $1.4 million in forbearance fee, $9.2 million in stock-based compensation,
    of which, $1.1 million is retention stock-based compensation, and $41.3
    million primarily due to the integration of Kettle and the proposed
    acquisition of Pringles.
     
  * In the full year fiscal 2011, $20.4 million in expenses were incurred
    primarily due to the integration of Kettle and the proposed acquisition of
    Pringles, and $7.6 million in stock-based compensation.
     
  * Adjusted EBITDA is used by management as a measure of operating
    performance. Adjusted EBITDA is defined as net income before interest
    expense, income taxes, stock-based compensation, depreciation,
    amortization, and other non-operating expenses, including the
    aforementioned asset impairment expense, Oaktree warrant liability
    expenses, SG&A expenses primarily related to audit committee
    investigation, restatement and related expenses, and Kettle integration
    and Pringles acquisition expenses. We believe that Adjusted EBITDA is
    useful as an indicator of ongoing operating performance. As a result, some
    management reports feature Adjusted EBITDA, in conjunction with
    traditional GAAP measures, as part of our overall assessment of company
    performance. 

Diamond's management uses non-GAAP financial measures in internal reports used
to monitor and make decisions about its business, such as monthly financial
reports prepared for management. The principal limitation of the non-GAAP
measures is that they exclude significant expenses and other amounts required
under GAAP. They also reflect the exercise of management's judgments about
which adjustments are appropriately made. To mitigate this limitation, Diamond
presents the non-GAAP measures in connection with GAAP results, and recommends
that investors do not give undue weight to them. Diamond believes that
non-GAAP measures provide useful information to investors by allowing them to
view Diamond's business through the eyes of management, facilitating
comparison of results across historical and future periods, and providing a
focus on the underlying operating performance of the business.

                  Note regarding forward-looking statements

This press release includes forward-looking statements, including statements
about our financial filings and recent change in strategic focus, as well as
suggestions about future financial and operating performance and results that
may be implicit in summaries of recent results. These forward-looking
statements are based on our assumptions, expectations and projections about
future events only as of the date of this press release, and we make such
forward-looking statements pursuant to the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Many of our forward-looking
statements include discussions of trends and anticipated developments under
the "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" sections of the periodic reports that we
file with the SEC. We use the words "anticipate," "believe," "estimate,"
"expect," "intend," "plan," "seek," "may" and other similar expressions to
identify forward-looking statements that discuss our future expectations,
contain projections of our results of operations or financial condition or
state other "forward-looking" information. You also should carefully consider
other cautionary statements elsewhere in this press release and in other
documents we file from time to time with the SEC. We do not undertake any
obligation to update forward-looking statements to reflect events or
circumstances occurring after the date of this press release. Actual results
may differ materially from what we currently expect because of many risks and
uncertainties, such as:  uncertainty about the ability to file future periodic
reports on a timely basis, and any resulting delisting of Diamond's common
stock on the Nasdaq Stock Market; risks relating to our leverage and its
effect on our ability to respond to changes in our business, markets and
industry; increase in the cost of our debt; ability to raise additional
capital and possible dilutive impact of raising such capital; risks relating
to litigation and regulatory proceedings; uncertainties relating to relations
with growers; availability and cost of walnuts and other raw materials;
increasing competition and possible loss of key customers; and general
economic and capital markets conditions. 

                                About Diamond

Diamond Foods is an innovative packaged food company focused on building and
energizing brands including Kettle® chips, Emerald® snack nuts, Pop Secret®
popcorn, and Diamond of California® nuts. The Company's products are
distributed in a wide range of stores where snacks and culinary nuts are
sold. 

Corporate Web Site: www.diamondfoods.com

The Diamond Foods, Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=6112 
 

CONTACT: Investors:
         Diamond Foods
         Linda Segre
         SVP, Corporate Strategy
         (415) 230-7952
         lsegre@diamondfoods.com
        
         Media:
         Sard Verbinnen & Co for Diamond Foods
         Paul Kranhold/Lucy Neugart
         (415) 618-8750
         pkranhold@sardverb.com
         lneugart@sardverb.com

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