Diamond Foods Reports Fourth Quarter and Fiscal Year 2013 Financial Results

Diamond Foods Reports Fourth Quarter and Fiscal Year 2013 Financial Results

SAN FRANCISCO, Sept. 30, 2013 (GLOBE NEWSWIRE) -- Diamond Foods, Inc.
(Nasdaq:DMND) ("Diamond") today reported financial results for its fiscal 2013
fourth quarter and year ended July 31, 2013.

Fourth Quarter Fiscal 2013 Highlights

  oNet sales decreased 10.8% to $199.8 million
  oSnacks sales increased 3.3% to $117.1 million and Nuts sales decreased
    25.2% to $82.7 million
  oGross margin was 26.6% compared to 18.9%
  oNet loss was $147.1 million and non-GAAP net income was $2.3 million*
  oAdjusted EBITDA increased 12.5% to $24.6 million

Fiscal 2013 Highlights

  oNet sales decreased 12.0% to $864.0 million
  oSnacks sales increased 3.0% to $438.0 million and Nuts sales decreased
    23.4% to $426.1 million
  oGross margin was 23.8% compared to 18.3%
  oNet loss was $163.2 million and non-GAAP net income was $9.7 million*
  oAdjusted EBITDA increased 28.2% to $101.7 million

(All comparisons above are to the fourth quarter and fiscal year 2012/*
non-GAAP financial measures are reconciled in the table below)

"Our cost savings and net price realization strategies helped us generate
improved results for the fourth quarter and fiscal year," said Brian Driscoll,
President and CEO. "We remain intently focused on these productivity
initiatives to help support our future brand innovation and to address
potential commodity headwinds in fiscal 2014. In addition, we believe the
proposed settlement of the securities class action lawsuit is an important
first step in our ability to normalize our capital structure."

Fourth Quarter Fiscal 2013

Net sales decreased 10.8% to $199.8 million compared to $224.0 million in the
prior year period and gross profit as a percent of net sales was 26.6%
compared to 18.9% last year.

Net loss was $147.1 million, a loss of $6.71 per share on a fully diluted
basis. During the quarter, Diamond incurred $96.1 million in expenses related
to the settlement of the securities class action lawsuit, a $36.0 million
non-cash impairment to Kettle U.S. other intangible assets, a $20.6 million
charge related to a change in the fair value of the Oaktree warrant liability
and $6.6 million for consulting and legal expenses. Excluding these charges,
non-GAAP net income for the fourth quarter was $2.3 million and non-GAAP fully
diluted earnings per share was $0.09. Adjusted EBITDA was $24.6 million
compared to $21.8 million in the prior year period, an increase of 12.5%.
EBITDA is a non-GAAP financial measure. Please refer to the tables in this
press release for a reconciliation of all non-GAAP financial measures.

Fiscal 2013

Net sales decreased 12.0% to $864.0 million compared to $981.4 million in the
prior fiscal year and gross profit as a percent of net sales was 23.8%
compared to 18.3% last year.

Net loss was $163.2 million and fully diluted loss per share was $7.48. During
the fiscal year, Diamond incurred $96.1 million in expenses to settle the
securities class action lawsuit and $35.4 million of adjustments to SG&A
expenses primarily including restatement and related legal costs. The Company
also incurred $37.6 million in non-cash impairment charges and an $11.3
million charge as a result of the change in the fair value of the Oaktree
warrant liability. Excluding these charges, non-GAAP net income was $9.7
million and non-GAAP fully diluted earnings per share was $0.40. Adjusted
EBITDA was $101.7 million compared to $79.4 million in the prior fiscal year,
an increase of 28.2%.

As of July 31, 2013, net debt outstanding was $585.1 million, including the
Oaktree debt at its carrying value. Cash and availability on Diamond's bank
revolving line of credit on July 31, 2013 was approximately $74.5 million.

In fiscal 2013, the Company remediated the material weaknesses first
identified in Form 10-K/A filed on November 14, 2012. The Company currently
has outstanding material weaknesses as to complex and non-routine transactions
and IT system access rights for journal entries. Additional information
regarding the Company's internal controls will be provided in its Annual
Report on Form 10-K for fiscal 2013.

Segment Review

The Company has two reportable segments: Snacks and Nuts. The Snacks segment
includes products sold under the Kettle U.S., Kettle U.K. and Pop Secret
brands. The Nuts segment includes products sold under the Diamond of
California and Emerald brands.

Snacks Segment: Net sales during the fourth quarter increased 3.3% to $117.1
million compared to prior year period. Gross profit during the fourth quarter
was $42.3 million, 36.1% of net sales, compared to $36.6 million, 32.3% of net
sales, in the prior year period.

Net sales for fiscal 2013 increased 3.0% to $438.0 million compared to the
prior fiscal year. Gross profit for fiscal 2013 was $152.1 million, 34.7% of
net sales, compared to $128.1 million, 30.1% of net sales, for the prior
fiscal year.

Nuts Segment: Net sales during the fourth quarter decreased 25.2% to $82.7
million compared to the prior year period. Gross profit during the fourth
quarter was $10.7 million, 13.0% of net sales, compared to $5.7 million, 5.1%
of net sales, in the prior year period.

Net sales for fiscal 2013 decreased 23.4% to $426.1 million compared to the
prior fiscal year. Gross profit for fiscal 2013 was $53.4 million, 12.5% of
net sales, compared to $51.6 million, 9.3% of net sales, for the prior fiscal
year.

Outlook

In the first quarter, the Company expects to face significant sales and
contribution headwinds including costs associated with the Emerald re-launch
and lower walnut supply. Despite expected increases in tree nut costs, fiscal
2014 is expected to be a year of earnings improvement as additional benefits
from the execution of the multi-year turnaround strategy are realized.

Conference Call

The Company will host a conference call with members of the executive
management team to discuss these results with additional comments and details.
The conference call is scheduled to begin today at 4:30 p.m. ET. To
participate on the live call listeners in North America may dial (888)
455-2263 and international listeners may dial (719) 325-2464.

In addition, the call will be broadcast live over the Internet hosted at the
"Investor Relations" section of the Company's website at
http://www.diamondfoods.com and will be archived online through October 14,
2013. A telephonic playback will be available from 7:30 p.m. ET, September 30,
2013, through October 14, 2013. North America listeners may dial (877)
870-5176 and international listeners may dial (858) 384-5517; the passcode is
9269722.

About Diamond Foods

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. Diamond's products are distributed
in a wide range of stores where snacks and culinary nuts are sold. For more
information, visit the Company's corporate web site: www.diamondfoods.com.

Note Regarding Forward-looking Statements

This press release includes forward-looking statements, including statements
about our financial filings and results, future brand innovation, commodity
headwinds, prospects for obtaining required approvals for the proposed class
action lawsuit settlement, normalizing our capital structure, future sales,
margin and earnings and execution of our turnaround strategy. 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: failure to obtain necessary approvals for
the securities class action litigation settlement, 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.

Financial Summary

Summarized Statement of Operations:

                                Three months ended     Twelve months ended
                                July 31,               July 31,
(in thousands, except per share  2013        2012       2013        2012
amounts)
Net sales                        $ 199,801   $ 223,989  $ 864,012  $ 981,418
Cost of sales                    146,743     181,725   658,489     801,697
Gross profit                     53,058      42,264     205,523     179,721
Operating expenses:                                              
Selling, general and             129,152     33,580     233,373     130,599
administrative
Advertising                      12,166      6,379      41,528      37,933
Acquisition and integration      --          693        --          41,334
related expenses
(Gain) loss on warrant liability 20,562      10,360     11,326      10,360
Asset Impairment                 36,000      10,132     37,560      10,132
Total operating expenses         197,880     61,144     323,787     230,358
Income (loss) from operations    (144,822)   (18,800)   (118,264)   (50, 637)
Interest expense, net            15,240      14,043    57,925      33,976
Income (loss) before income      (160,062)   (32,923)   (176,189)   (84,613)
taxes
Income taxes(benefit)           (13,000)    13         (12,957)    1,723
Net (loss)                       $(147,062) $(32,936) $(163,232) $(86,336)
Earnings (loss) per share (EPS):                                 
Basic                            $ (6.71)    $ (1.52)   $ (7.48)    $ (3.98)
Diluted                          $ (6.71)    $ (1.52)   $ (7.48)    $ (3.98)
Shares used to compute EPS:                                      
Basic                            21,905      21,733     21,813      21,692
Diluted                          21,905      21,733     21,813      21,692

Segment Information:

              Three months ended  % Change    Twelve months ended % Change
              July, 31            From        July 31,            From
(in thousands) 2013      2012      2012 to     2013      2012      2012 to
                                   2013                            2013
Net sales                                                     
Snacks         $ 117,090 $ 113,371 3.3%        $ 437,955 $ 425,175 3.0%
Nuts           82,711    110,618   -25.2%      426,057   556,243   -23.4%
Total          199,801   223,989   -10.8%      864,012   981,418   -12.0%
Gross profit                                                  
Snacks         42,321    36,569    15.7%       152,133   128,122   18.7%
Nuts           10,737    5,695     88.5%       53,390    51,599    3.5%
Total          $53,058  $42,264  25.5%       $205,523 $ 179,721 14.4%

Summarized Balance Sheet Data:

                                          July 31,
(in thousands)                             2013        2012
Total current assets                       $ 231,105   $ 278,196
Restricted cash                            --          6,386
Property, plant and equipment, net         132,225     146,944
Goodwill                                   401,125     403,158
Other intangible assets, net               388,084     437,021
Other long-term assets                     19,776      26,537
Total assets                               $ 1,172,315 $ 1,299,349
                                                     
Total current liabilities                  $ 290,645   $ 216,609
Long-term obligations                      585,077     599,598
Deferred income taxes                      106,767     127,024
Other liabilities                          23,106      31,324
Total stockholders' equity                 166,720     324,794
Total liabilities and stockholders' equity $ 1,172,315 $ 1,299,349

                        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  2013           2012          2013          2012
per share amounts)
GAAP income (loss)     $ (160,062)    $ (32,923)    $ (176,189)   $ (84,613)
before income taxes
(Gain) Loss on warrant 20,562         10,360        11,326        10,360
liability
Asset impairments      36,000         10,132        37,560        10,132
Reduction of liability
due to lease           --             --            (1,319)       --
assignment
Adjustment to exclude  --             438           --            1,444
forbearance fee
Adjustment to remove
costs associated with  --             694           --            41,334
acquisitions and
integrations
Retention stock-based                613                        1,059
compensation
Adjustments to SG&A    102,767        10,043       132,869       
expenses ^(1)                                                     30,632
Non-GAAP income before (733)          (643)         4,247         10,348
income taxes
GAAP income taxes      (13,000)       13           (12,957)      1,723
(benefit)
Tax effect of Non-GAAP 10,012         (1,691)       7,463         (4,111)
adjustments
Non-GAAP income taxes  (2,988)        (1,678)       (5,494)       (2,388)
(benefit)
Non-GAAP net income    $ 2,255        $ 1,035      $ 9,741       $ 12,736
(loss)
Non-GAAP EPS-diluted   $ 0.09         $ 0.05      $ 0.40        $ 0.58
Shares used in
computing Non-GAAP     24,486        22,116       24,096        22,078
EPS-diluted

(1) Adjustments to SG&A expenses for fourth quarter of fiscal 2013 are related
to the $96.1 million settlement of the private securities class action
lawsuit, consulting and legal fees, and Fishers plant closure
costs.Adjustments to SG&A expenses for the fourth quarter of fiscal 2012 are
related 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.Adjustments to SG&A
expenses for the full year fiscal 2013 are related to the $96.1 million
settlement of the private securities class action lawsuit, audit committee
investigation, restatement-related expenses, legal investigation expenses,
consulting fees, accrued contract termination expenses, retention and
severance accruals, and Fishers plant closure costs.These expenses are
partially offset by the clawback of bonuses paid to a former CEO and the
reversal of certain previously recorded stock compensation expenses associated
with former executives.Adjustments to SG&A expenses for full year fiscal 2012
are related 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. 

Reconciliation of Net Income (Loss) to Adjusted EBITDA: 

                       Three months ended          Twelve months ended
                       July 31,                    July 31,
(in thousands)          2013           2012         2013          2012
Net income (loss)       $ (147,062)    $ (32,936)   $ (163,232)   $ (86,336)
Income taxes (benefit)  (13,000)       13           (12,957)      1,723
Income (loss) before    (160,062)      (32,923)     (176,189)     (84,613)
income taxes
Interest expense, net   15,240         14,043       57,925        33,976
Income (loss) from      (144,822)      (18,880)                 (50,637)
operations                                          (118,264)
Costs associated with
acquisitions and        --             693          --            41,334
integrations
Reduction of liability  --             --           (1,319)       --
due to lease assignment
Asset impairments       36,000         10,132       37,560        10,132
(Gain) Loss on warrant  20,562         10,360       11,326        10,360
liability
Adjustments to SG&A     102,767        10,043       134,664       30,632
expenses ^(1)
Stock-based
compensation expense    1,742          2,064       4,229         9,206
^(2)
Depreciation and        8,315          7,423        33,525        28,347
amortization
Adjusted EBITDA         $ 24,564       $ 21,835     $ 101,721     $ 79,374

(1)Fiscal 2013 SG&A expenses includes the $96.1 million to settle the private
securities class action lawsuit which was recorded in Q4:13.The settlement
included a cash amount of $11.0 million and a stock settlement valued at $85.1
million at the close of market on August 20, 2013 as set forth in the
settlement preliminary approval motion. Other adjustments to SG&A are provided
in footnote 1 to the Reconciliation of Income (Loss) Before Income Taxes to
Non-GAAP EPS. 
(2) Stock-based compensation for fiscal 2013 included a $2.5 million reversal
of certain previously recorded stock compensation expenses associated with
former executives.

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.

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 expenses related to the
proposed settlement of the private securities class action case , 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.

CONTACT: Investors:
         ICR
         Katie Turner
         Rohan Patkar
         415-230-7952
        
         Media:
         ICR
         Anton Nicholas
         Jessica Liddell
         415-445-7431

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