Diamond Foods Reports Second Quarter Fiscal Year 2014 Financial Results

Diamond Foods Reports Second Quarter Fiscal Year 2014 Financial Results

SAN FRANCISCO, March 11, 2014 (GLOBE NEWSWIRE) -- Diamond Foods, Inc.
(Nasdaq:DMND) ("Diamond") today reported financial results for its fiscal 2014
second quarter and six months ended January 31, 2014.

Second Quarter Fiscal 2014 Highlights

  oNet sales were approximately flat year-over-year at $220.6 million
  oSnacks sales increased 10.8% to $116.8 million and Nuts sales decreased
    10.1% to $103.8 million
  oGross margin was 25.4% compared to 22.9%
  oNet loss was $15.1 million and non-GAAP net income was $2.6 million
  oAdjusted EBITDA increased 24.4% to $28.6 million

Year-to-Date Fiscal 2014 Highlights

  oNet sales decreased 5.0% to $455.2 million
  oSnacks sales increased 5.9% to $229.3 million and Nuts sales decreased
    14.0% to $225.9 million
  oGross margin was 25.0% compared to 22.8%
  oNet loss was $57.2 million and non-GAAP net income was $7.6 million
  oAdjusted EBITDA increased 6.9% to $57.7 million

(All comparisons above are to the second quarter and first six months of
fiscal year 2013. Non-GAAP financial measures are reconciled in the tables
below)

"Overall we are pleased with our second quarter performance. Our consolidated
gross margin improved 250 basis points reflecting strong sales growth and
gross margin expansion in our Snacks segment. These results, however, were
weighed down by lower sales and gross margin compression in the Nuts segment
due to higher tree nut costs," said Brian Driscoll, President and CEO. "While
we expect to face further headwinds in the Nuts segment in the second half of
fiscal 2014, our team remains focused on the execution of our multi-year
turnaround strategy and we are confident that we are taking the right steps to
position our business for long-term sustainable growth."

Second Quarter Fiscal 2014

Net sales were comparable to the prior year at $220.6 million and gross profit
as a percent of net sales was 25.4% compared to 22.9% last year.

Net loss was $15.1 million, or a loss of $0.68 per share on a fully diluted
basis. During the quarter, Diamond incurred an $8.7 million charge for the
mark to market adjustment related to shares issuable in connection with the
settlement of the securities class action lawsuit and a $7.0 million charge
related to a change in the fair value of the Oaktree warrant liability.
Excluding these charges, non-GAAP net income for the second quarter was $2.6
million and non-GAAP fully diluted earnings per share was $0.09. Adjusted
EBITDA was $28.6 million compared to $22.9 million in the prior year period.
Adjusted 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.

Year-to-Date Fiscal 2014

Net sales for the first six months of fiscal 2014 decreased 5.0% to $455.2
million compared to $479.3 million in the first half of last year, and gross
profit as a percent of net sales was 25.0% compared to 22.8% last year.

Net loss was $57.2 million, or a loss of $2.60 per share on a fully diluted
basis. Excluding certain charges, non-GAAP net income for the first six months
of fiscal 2014 was $7.6 million and non-GAAP fully diluted earnings per share
was $0.26. Adjusted EBITDA was $57.7 million, compared to $54.0 million last
year. Adjusted 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.

As of January 31, 2014, net debt outstanding was $551.8 million, including the
Oaktree debt at its carrying value. Cash and availability on Diamond's bank
revolving line of credit on January 31, 2014 was approximately $74.4 million.

Subsequent to the end of the second quarter, on February 19, 2014, the Company
refinanced its debt capital structure. The Company issued $230 million of
7.000% Senior Notes due 2019 and entered into a $415 million 4.5 year
syndicated securedTerm Loan Facility. The proceeds from these offerings, in
addition to the net proceeds from the exercise by Oaktree Capital Management,
L.P. ("Oaktree") of its warrants, were used to prepay outstanding indebtedness
under the Company's existing credit facility and to redeem its senior
unsecured notes due 2020 held by Oaktree, including a prepayment premium,
fees, expenses and original issue discount in connection with the refinancing.

The Company also closed a $125 million syndicated secured ABL Credit Facility.
The ABL has a 4.5 year term, during which the Company may make aggregate
drawings not to exceed the lesser of $125 million and an amount equal to the
borrowing base specified in the ABL Credit Facility. The ABL Credit Facility
may be used to finance working capital and the ongoing general corporate needs
of the Company.

In addition to significantly reducing the Company's interest expense, this
debt restructuring will also increase liquidity.

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 second quarter increased 10.8% to $116.8
million compared to prior year period. Gross profit during the second quarter
was $42.5 million, 36.4% of net sales, compared to $34.8 million, 33.0% of net
sales, in the prior year period.

Net sales during the first six months of fiscal 2014 were $229.3 million, a
5.9% increase compared to the first half of last year. Gross profit during the
first six months of fiscal 2014 was $82.0 million, 35.7% of net sales,
compared to $73.1 million, 33.8% of sales, in the prior year period.

Nuts Segment: Net sales during the second quarter decreased 10.1% to $103.8
million compared to the prior year period. Gross profit during the second
quarter was $13.4 million, 12.9% of net sales, compared to $15.7 million,
13.6% of net sales, in the prior year period.

Net sales during the first six months of fiscal 2014 decreased 14.0% to $225.9
million compared to the prior year period. Gross profit during the first six
months of fiscal 2014 was $31.9 million, 14.1% of net sales, compared to $36.0
million, 13.7% of net sales, in the prior year period.

Outlook

Despite continued headwinds associated with tree nut commodity costs in the
second half of fiscal 2014 that will adversely impact the Nuts segment, the
Company expects to realize an increase in Adjusted EBITDA year-over-year.

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 (877)
440-5803 and international listeners may dial (719) 325-4806.

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 March 25,
2014. A telephonic playback will be available from 7:30 p.m. ET, March 11,
2014, through March 25, 2014. North America listeners may dial (877) 870-5176
and international listeners may dial (858) 384-5517; the passcode is 3392096.

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:
http://www.diamondfoods.com.

Note Regarding Forward-looking Statements

This press release includes forward-looking statements, including statements
about commodity headwinds, financial performance for FY 2014 including
Adjusted EBITDA and gross margin projections.These forward-looking statements
are based on our assumptions, expectations and projections about future events
only as of the date of this press release. 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: unexpected delays or increased costs in implementing
our business strategies; changes in consumer preferences for snack and nut
products; risks relating to our leverage, including the cost of our debt and
its effect on our ability to respond to changes in our business, markets and
industry;the dilutive impact ofequity issuances; risks relating to
litigation and regulatory proceedings; uncertainties relating to our 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 January Six Months Ended January
                           31,                        31,
                          2014           2013        2014          2013
Net sales                  $220,577       $220,844    $455,245      $479,306
Cost of sales              164,649       170,275    341,384      370,191
Gross profit               55,928        50,569     113,861      109,115
Operating expenses:        --                        --            
Selling, General and       33,822        32,266     90,378       70,447
administrative
Advertising                13,129        12,294     23,787       21,339
(Gain) loss on warrant     6,962         (18,625)   23,938       (11,109)
liability
Total operating expenses   53,913        25,935     138,103      80,677
Income (loss) from         2,015         24,634     (24,242)     28,438
operations
Interest expense, net      16,104        14,231     30,952       28,143
Income (loss) before       (14,089)      10,403     (55,194)     295
income taxes
Income taxes               971           262        2,019        883
Net Income (loss)          $(15,060)    $10,141   $(57,213)   $(588)
                                                                
Loss per share:                                                  
Basic                      $(0.68)      $0.46     $(2.60)     $(0.03)
Diluted                    $(0.68)      $(0.37)   $(2.60)     $(0.50)
Shares used to compute                                           
earnings (loss) per share:
Basic                      22,052         21,781      22,019        21,703
Diluted                    22,052         23,215      22,019        23,508



Segment Information:
                                                          
            Three Months Ended              Six Months Ended  
            January 31,       % Change from January 31,      % Change from
            2014      2013     2013 to 2014  2014     2013     2013 to 2014
Net sales                                                  
Snacks       $116,756  $105,421 11%           $229,346 $216,664 6%
Nuts         103,821   115,423  -10%          225,899  262,642  -14%
Total        $220,577  $220,844 0%            $455,245 $479,306 -5%
                                                          
Gross profit                                               
Snacks       $42,538   $34,836  22%           $81,961  $73,129  12%
Nuts         13,390    15,733   -15%          31,900   35,986   -11%
Total        $55,928   $50,569  11%           $113,861 $109,115 4%



Summarized Balance Sheet Data:
                                          
                                          January 31,
                                          2014        2013
ASSETS                                                
Total current assets                       280,055    276,040
Restricted cash                            --        --
Property, plant and equipment, net         130,112    138,073
Deferred income taxes                      --        --
Goodwill                                   408,089    404,791
Other intangible assets, net               393,099    434,401
Other long-term assets                     17,402     21,670
Total assets                               $1,228,757 $1,274,975
                                                     
LIABILITIES AND STOCKHOLDERS' EQUITY                  
Total current liabilities                  418,885    242,228
Long-term obligations                      549,390    552,555
Deferred income taxes                      107,317    127,883
Other liabilities                          21,862     23,732
Total stockholders' equity                 131,303    328,577
Total liabilities and stockholders' equity $1,228,757 $1,274,975



Non-GAAP Financial Information
                                                                         
Reconciliation of Income (Loss) Before Income Taxes to Non-GAAP EPS:
                                                                  
               Three Months Ended              Six Months Ended       
               January 31,                      January 31,             
               2014            2013            2014         2013      
GAAP income                                       $
(loss) before   $ (14,089)      $10,403         (55,194)     $295      
income taxes
(Gain) Loss on
warrant         6,962          (18,625)       23,938      (11,109) 
liability
Reduction of
liability due   --            --            --         (1,319)  
to lease
assignment
Loss on
Securities      8,678          --            32,174      --      
settlement
liability
SEC settlement  --            --            5,000       --      
Shareholder
derivative suit --            --            (1,600)     --      
gain
Legal Expenses  641            990            2,327       2,974    
                                                                  
Adjustments to  310            5,663     (1)  310         15,820   (1)
SG&A
Non-GAAP income
(loss) before   2,502          (1,569)        6,955       6,661    
income taxes
GAAP income     971            262            2,019       883      
taxes
Tax effect of
Non-GAAP        (1,056)        (2,973)        (2,690)     (513)    
adjustments
Non-GAAP income (85)           (2,711)        (671)       370      
taxes (benefit)
Non-GAAP net    2,587          1,142          7,626       6,291    
income
                                                                  
Non-GAAP                                                           
EPS-diluted
                                                                  
Shares used in
computing       29,922     (2)  23,523          29,209   (3) 23,882    
Non-GAAP
                                                                  
EPS-diluted     $0.09           $0.05           $0.26        $0.26     
                                                                  
(1) Related primarily to audit committee investigation, restatement-related
expenses, consulting fees, retention, and severance.
(2) The shares used in computing Non-GAAP EPS include the 4,450,000 shares
that were issued to settle the securities class action lawsuit.The
calculation also includes 2,654,974 shares related to Oaktree Capital
Management, L.P.'s exercise of their warrant on February 19, 2013.This share
amount was calculated utilizing the treasury stock method.The actual shares
issued to Oaktree were 4,420,859. The actual effect of the exercise of the
Oaktree warrant will be accounted for in Q3:14.
(3) The shares used in computing Non-GAAP EPS include the weighted average of
the 4,450,000 shares that were issued to settle the securities class action
lawsuit.It was assumed that the shares were issued on August 21st to obtain a
weighted average share amount of 3,990,489 utilized in this calculation.The
calculation also includes 2,531,474 shares related to Oaktree Capital
Management, L.P.'s exercise of their warrant on February 19, 2013.This share
amount was calculated utilizing the treasury stock method. The actual shares
issued to Oaktree were 4,420,859.The actual effect of the exercise of the
Oaktree warrant will be accounted for in Q3:14.



Reconciliation of Net Income (Loss) to Adjusted EBITDA:
                                                               
                        Three Months Ended          Six Months Ended
                        January 31,                  January 31,
                        2014         2013            2014         2013
GAAP net income (loss)   $ (15,060)  $ 10,141       $ (57,213)  $(588)
Income taxes            971         262            2,019       883
Income (loss) before     (14,089)    10,403         (55,194)    295
income taxes
Interest expense, net    16,104      14,231         30,952      28,143
Income (loss) from       2,015       24,634         (24,242)    28,438
operations
Reduction of liability   --          --            --         (1,319)
due to lease assignment
(Gain) Loss on warrant   6,962       (18,625)       23,938      (11,109)
liability
(Gain) Loss on
Securities settlement    8,678       --            32,174      --
liability
SEC settlement           --         --            5,000       --
Shareholder derivative   --         --            (1,600)     --
suit gain
Legal Expenses           641         990            2,327       2,974
                                                               
Adjustments to SG&A      310         7,906     (1)  310         17,706
expenses
                                                               
Stock-based compensation 1,987       (128)          3,464       1,122
expense
                                                               
Depreciation and         7,958       8,171          16,293      16,138
amortization
Adjusted EBITDA          $28,551      $22,948         $57,664      $53,950
                                                               
(1) Related primarily to audit committee investigation, restatement-related
expenses, consulting fees, retention, and severance.

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, Oaktree
warrant liability gains/losses, SG&A expenses primarily related to audit
committee investigation, and restatement and related 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
         415-230-7952
        
         Media:

         ICR
         Anton Nicholas/Jessica Liddell
         415-445-7431

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