EX-99.1 2 d438235dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

 

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

Diamond Foods Reports Financial Results for

First Three Quarters of Fiscal 2012

Completes Fiscal 2010 and 2011 Restatement

SAN FRANCISCO, CA, November 14, 2012Diamond Foods, Inc. (NASDAQ: DMND) (“Diamond”) today reported financial results for the first three quarters of its fiscal 2012 and filed with the Securities and Exchange Commission (“SEC”) its restated consolidated financial statements for the fiscal years 2010 and 2011, and interim periods ended January 31, 2010, April 30, 2010, July 31, 2010, October 31, 2010, January 31, 2011, April 30, 2011 and July 31, 2011. The restatement resulted in reductions in income before taxes of $39.5 million in fiscal 2011 and $17.0 million in fiscal 2010 from amounts previously reported.

“Today Diamond made an important first step in becoming current with our financial reporting and we look forward to completing our other required filings,” said Diamond’s Chief Executive Officer Brian Driscoll, who joined the company on May 8, 2012. “Clearly, the results for the first three quarters of 2012 demonstrate that Diamond faced challenges. However, we have a strong brand portfolio to build upon and have launched a new strategic direction with a focus on investing in innovation and brand building, significantly improving our cost structure and rebuilding our walnut supply.”

Q1 – Q3 Fiscal Year 2012 Financial Review

 

 

For the three quarters ended April 30, 2012, net sales were $757.4 million, up 3.5 percent over the prior year restated period. The increase was primarily due to an 11.0 percent increase in culinary/retail in-shell sales and a 10.0 percent increase in snack sales, offset by a 36.2 percent decrease in total non-retail sales. The decline in non-retail sales was primarily due to a significant drop in walnut crop deliveries to Diamond in the fall of 2011.

 

 

Gross profit as a percentage of net sales was 18.1 percent in the first three quarters of fiscal 2012, down from 22.9 percent in the prior year restated period. The

 

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greatest impact on gross margin was a substantial decline in walnut crop deliveries to Diamond and an increase in average walnut cost per pound of over 50 percent. Rising prices of other commodities and higher operating costs primarily due to excess plant capacity also contributed to the downward pressure on gross margin.

 

   

Selling, general and administrative expense (SG&A) was $97.0 million in the first three quarters of fiscal 2012, a 35.6 percent increase compared to $71.6 million in the prior year restated period. The increase in SG&A expense was primarily related to the audit committee investigation, restatement and related expenses. When adjusted for certain costs associated with the audit committee investigation, restatement, and related matters, SG&A was $76.0 million compared to $71.6 million in the prior year restated period. The increase was due primarily to an increase in selling related expenses.

 

   

Advertising expense was $31.6 million in the first three quarters of fiscal 2012 compared to $34.4 million in the prior year restated period, a decline of 8.2 percent. The decrease in advertising expenses was primarily due to the cancellation of programs during the third quarter of fiscal 2012 in an effort to reduce costs.

 

   

Acquisition and integration expenses were $40.6 million in the first three quarters of fiscal 2102 primarily related to the terminated Pringles acquisition, compared to $7.5 million in the prior year restated period primarily related to Kettle integration.

 

   

Interest expense was $19.9 million in the three quarters of fiscal 2012 compared to $18.1 million in the prior year restated period, an increase of 9.9% due primarily to the forbearance fee of 0.25% paid to our lenders.

 

   

Income tax expense was $1.7 million in the first three quarters of fiscal 2012, compared to $12.3 million in the prior year restated period. The tax benefits of the company’s pre-tax loss of $51.7 million for the first three quarters of fiscal 2012 were offset by a $27.6 million charge to establish a valuation allowance against deferred tax assets. The valuation allowance charge was a result of recent net operating losses. Diamond also recognized a $5.6 million benefit in taxes in the first quarter of fiscal 2012 due to a favorable ruling with the U.K. tax authorities. Reversal of the valuation allowance in future periods is dependent on future taxable income and would result in income tax benefit in those periods.

 

   

The net loss for the first three quarters of fiscal 2012 was $53.4 million compared to net income of $23.7 million in the prior year restated period. The decrease was due primarily to the decline in gross profit, the significant increase in expenses related to the audit committee investigation, restatement, and Pringles integration planning, and the tax charge related to the valuation allowance against net deferred tax assets.

 

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Non-GAAP income before income taxes for the first three quarters of fiscal 2012, which excludes acquisition and integration, audit committee investigation, restatement, legal and other related expenses, was $11.0 million compared to $43.6 million in the prior year restated period. The decrease was due primarily to the decline in gross profit. Please refer to page 12 for a reconciliation of non-GAAP information.

 

   

GAAP EPS on a fully diluted basis for the first three quarters of fiscal 2012 was ($2.46) compared to $1.05 in the prior year restated period.

 

   

Non-GAAP EPS on a fully diluted basis for the first three quarters of fiscal 2012 was $0.53 compared to a restated non-GAAP EPS of $1.54 in the prior year restated period. Please refer to page 12 for a reconciliation of non-GAAP information.

 

   

Capital expenditures were $40.6 million in the first three quarters of fiscal 2012, compared to $15.2 million in the prior year restated period. The increase was primarily due to the Kettle plant expansions in Beloit, Wisconsin and Norwich, England and for automation of Emerald’s ‘Breakfast on the Go’ product line.

 

   

Adjusted EBITDA for the first three quarters of fiscal 2012 declined to $58.9 million from $89.6 million in the prior year primarily due to lower gross profit. Please refer to page 13 for a reconciliation of non-GAAP information.

 

   

As of July 31, 2012, cash and availability on Diamond’s bank revolving line of credit was in excess of $70 million.

Brand Performance

In the most recent 12-week Nielsen tracking period ended October 27, 2012, retail sales results reflect Diamond’s recent changes in brand strategy direction. For both Emerald and Kettle, Diamond has reduced trade spend to improve net price realization and leverage brand equity rather than use discounting as a means to drive sales. While Emerald snack nuts and Kettle Brand potato chips experienced retail sales declines and lost share as a result of planned reductions in promotional spending, non-promoted sales growth for both brands outpaced category growth resulting in share gains in a non-promoted environment. Emerald Breakfast on the go! and Pop Secret outgrew their respective categories and gained share. Diamond of California culinary sales declined primarily due to volume declines following price increases, which resulted in lost share in the category.

 

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Diamond’s U.S. Nielsen retail scanner performance along with category data for the 12-week period ended October 27, 2012 (U.S. Expanded All Outlets Combined) compared to the similar prior year period was as follows:

 

    

Brand YoY

Change

   

Category YoY

Change

   

Market Share

Change

 

Emerald snack nuts

     -5.5     +8.2     -90 basis points   

Emerald Breakfast on the go!

     +28.7     -0.4      +30 basis points   

Pop Secret

     +11.7     +0.7     +220 basis points   

Kettle U.S.

     -8.0     +5.5     -40 basis points   

Diamond of California

     -2.8     +10.1     - 340 basis points   

Source: Nielsen Expanded All Outlets Combined sales for 12-week period ended October 27, 2012. All comparisons in this table are to the same measured period in the prior year.

Business Outlook

Full-year fiscal 2012 financial results have not yet been finalized, but the following are estimates for full year results:

 

   

Net sales: $975 to $980 million

 

   

Snack sales: $600 to $605 million

 

   

Culinary sales: $290 to $295 million

 

   

Gross margin: 18.0% to 18.5%

 

   

Adjusted EBITDA: $78 to $81 million

Note: Adjusted EBITDA above excludes Pringles integration related costs, Fishers, Indiana plant closure charges, audit committee and restatement related accounting and legal expenses and other costs.

Restatement

Diamond today also filed its restated consolidated financial statements for fiscal years 2011 and 2010 and interim periods ended January 31, 2010, April 30, 2010, July 31, 2010, October 31, 2010, January 31, 2011, April 30, 2011 and July 31, 2011 with the SEC.

“The company regrets the extended time investors had to wait for financial reports during the restatement process,” said Brian Driscoll, Diamond’s President and CEO. “The company has emerged from this process with strengthened financial discipline and rigorous commitment to enhancing internal controls and remediating material weaknesses.”

 

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The Audit Committee and the company have determined that certain grower payments of $20.8 million and $61.5 million previously accounted for in fiscal 2011 and 2012, were not accounted for in the correct periods. Corrections were made to account for these payments in the appropriate periods of fiscal 2010 and 2011. The restatement also included corrections related to accounts payable and accrued expenses which were accounted for in incorrect periods; these adjustments decreased net income $3.5 million in 2011 and $0.1 million in 2010.

 

   

The restatement resulted in a reduction in fiscal 2011 income before income taxes of $39.5 million ($69.1 million previously reported compared to $29.7 million restated), and $17.0 million in fiscal 2010 ($40.2 million previously reported compared to $23.2 million restated). Please refer to page 14 for summarized GAAP Statement of Operations.

 

   

Diluted EPS for restated fiscal 2011 was $1.17 compared to $2.22 per share as previously reported and $0.82 for restated fiscal 2010 as compared to $1.36 per share as previously reported.

 

   

Non-GAAP diluted EPS for restated fiscal 2011 was $1.76 compared to $2.61 per share as previously reported and $1.29 for restated fiscal 2010 as compared to $1.91 per share as previously reported. Please refer to page 16 for non-GAAP information.

 

   

Gross margin for restated fiscal 2011 was 22.4 percent compared to 26.0 percent as previously reported and 21.2 percent for restated fiscal 2010 as compared to 23.7 percent as previously reported. The decrease primarily was due to the correction of the walnut costs, which increased cost of goods sold in fiscal 2010 and 2011.

 

   

Adjusted EBITDA for restated fiscal 2011 was $111.5 million compared to $146.2 million as previously reported and $68.2 million for restated fiscal 2010 compared to $84.9 million as previously reported.

 

   

In connection with the Audit Committee investigation, management identified material weaknesses in internal control over financial reporting in three areas: control environment, walnut grower accounting, and accounts payable and accrued expenses. Numerous remediation steps have been implemented or are in progress to correct these weaknesses, including: enhanced oversight and controls, leadership changes, revised walnut cost estimation policy, enhanced documentation, oversight and monitoring of accounting policies related to walnut payments, and improved financial and operational reporting throughout the organization. For a list of remediation steps, please refer to the 10-K/A or supplemental presentation, both of which are available on the Diamond Foods website.

 

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Conference Call and Webcast

Diamond will host an investor conference call and webcast today, November 14, 2012, at 2:00 p.m. Pacific Standard Time, to discuss these results and the restatement. To participate in the call via telephone dial (877) 681-3373 from the U.S./Canada or (719) 325-2171 elsewhere and enter the participant pass code of 279-604. To listen to the call over the internet, visit Diamond’s website at www.diamondfoods.com and select “Investor Relations.”

Archived audio replays of the call will be available on the Company’s website and via telephone. The latter will begin approximately two hours after the call’s conclusion and remain available through 5:00 p.m. Pacific Standard Time November 21, 2012. It can be accessed by dialing (888) 203-1112 from the U.S./Canada or (719) 457-0820 elsewhere. Both phone numbers require the participant pass code 884-2287.

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

 

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Net Sales by Product Line

 

     Fiscal 2012 (Unaudited)                

(in thousands)

   Q1      Q2      Q3      Three Quarters
Ended
April 30, 2012
     % Change in
Year  over Year
Three Quarter
Period
 

Snack

   $ 157,122       $ 141,818       $ 147,653       $ 446,593         + 10.0

Culinary/Retail in-shell

     98,112         94,677         49,127         241,916         + 11.0
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Retail

     255,234         236,495         196,780        688,509         + 10.4
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

International Non-Retail

     21,444         21,025         4,174         46,643         - 47.7

NA Ingredient/Food Service/Other

     10,715         4,831         6,731         22,277         + 18.0
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Non-Retail

     32,159         25,856         10,905        68,920         - 36.2
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Net Sales

   $ 287,393       $ 262,351       $ 207,685      $ 757,429         + 3.5
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fiscal 2011 (Restated)         

(in thousands)

   Q1      Q2      Q3      Three Quarters
Ended
April 30, 2011
 

Snack

   $ 137,056       $ 134,183       $ 134,799       $ 406,039   

Culinary/Retail in-shell

     90,190         80,711         46,983         217,884   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Retail

     227,246         214,894         181,782         623,923   
  

 

 

    

 

 

    

 

 

    

 

 

 

International Non-Retail

     21,015         36,793         31,368         89,176   

NA Ingredient/Food Service/Other

     3,800         5,157         9,916         18,873   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Non-Retail

     24,815         41,950         41,284         108,049   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Net Sales

   $ 252,061       $ 256,844       $ 223,066      $ 731,972   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Summarized GAAP Statement of Operations:

 

(in thousands, except per share amounts)

   Three Quarters
Ended
April 30, 2011

(Restated)
    Three Quarters
Ended
April 30, 2012
    %
Change
 

Net sales

   $ 731,972      $ 757,429        3.5

Cost of sales

     564,394        619,972        9.8
  

 

 

   

 

 

   

 

 

 

Gross profit

     167,578        137,457        (18.0 %) 
  

 

 

   

 

 

   

 

 

 

Gross margin

     22.9     18.1     (4.8 %) 

Operating expenses:

      

Selling general and administrative

     71,570        97,019        35.6

Advertising

     34,362        31,554        (8.2 %) 

Acquisition and integration related expenses

     7,548        40,641        438
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     113,480        169,214        49.1
  

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     54,098        (31,757     (159 %) 

Interest expense, net

     18,050        19,933        10.4
  

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     36,048        (51,690     (243 %) 

Income tax expense (benefit)

     12,315        1,710        (86.1 %) 
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 23,733      ($ 53,400     (325 %) 
  

 

 

   

 

 

   

 

 

 

Earnings (loss) per share:

      

Basic

   $ 1.08      ($ 2.46  

Diluted

   $ 1.05      ($ 2.46  

Shares used to compute earnings per share:

      

Basic

     21,563        21,676     

Diluted

     22,119        21,676     

 

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Summarized GAAP Statement of Operations:

 

     Fiscal 2012 (Unaudited)  

(in thousands, except per share amounts)

   Q1     Q2     Q3     Three Quarters
Ended
April 30, 2012
 

Net sales

   $ 287,393      $ 262,351      $ 207,685      $ 757,429   

Cost of sales

     226,086        220,429        173,457        619,972   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     61,307        41,922        34,228        137,457   

Operating expenses:

        

Selling general and administrative

     29,455        34,304        33,260        97,019   

Advertising

     12,716        11,638        7,200        31,554   

Acquisition and integration related expenses

     17,214        12,091        11,336        40,641   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     59,385        58,033        51,796        169,214   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     1,922        (16,111     (17,568     (31,757

Interest expense, net

     5,761        6,471        7,701        19,933   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (3,839     (22,582     (25,269     (51,690

Income tax expense (benefit) **

     (14,640     (2,398     18,748        1,710   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 10,801      ($ 20,184   ($ 44,017   ($ 53,400
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share:

        

Basic

   $ 0.49      ($ 0.93   ($ 2.02   ($ 2.46

Diluted

   $ 0.47      ($ 0.93   ($ 2.02   ($ 2.46

Shares used to compute earnings per share:

        

Basic

     21,668        21,724        21,752        21,676   

Diluted

     22,567        21,724        21,752        21,676   

** Q1 tax benefit is comprised of: discrete tax benefit of $5.5 million resulting, primarily, from the conclusion of a tax ruling with the United Kingdom tax authorities, acquisition and integration related expenses resulting in a tax benefit of $6.1 million, and the forecasted annual tax rate applied to profit before tax and acquisition and integration related expenses, resulting in a tax benefit of $3.0 million.

Q2 tax benefit is the result of acquisition and integration related expenses and the forecasted annual tax rate applied to profit before tax and acquisition and integration related expenses.

Q3 tax expense is, primary, the effect of a valuation allowance applied against deferred tax assets (principally, net operating losses in the current fiscal year and carryforward State tax credits).

 

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Summarized GAAP Statement of Operations:

 

     Fiscal 2011 (Restated)  

(in thousands, except per share amounts)

   Q1      Q2      Q3      Three Quarters
Ended

April  30, 2011
 

Net sales

   $ 252,061       $ 256,844       $ 223,066       $ 731,972   

Cost of sales

     195,953         197,866         170,576         564,394   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     56,108         58,978         52,490         167,578   

Operating expenses:

           

Selling general and administrative

     23,289         24,052         24,229         71,570   

Advertising

     12,469         10,170         11,723         34,362   

Acquisition and integration related expenses

     579         1,023         5,946         7,548   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     36,337         35,245         41,898         113,480   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) from operations

     19,771         23,733         10,592         54,098   

Interest expense, net

     6,117         5,992         5,941         18,050   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) before income taxes

     13,654         17,741         4,651         36,048   

Income taxes (benefit)

     4,372         6,643         1,300         12,315   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

   $ 9,282       $ 11,098       $ 3,351       $ 23,733   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings (loss) per share:

           

Basic

   $ 0.42       $ 0.51       $ 0.15       $ 1.08   

Diluted

   $ 0.42       $ 0.49       $ 0.15       $ 1.05   

Shares used to compute earnings per share:

           

Basic

     21,489         21,565         21,604         21,563   

Diluted

     21,933         22,212         22,332         22,119   

 

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Summarized Balance Sheet Data:

 

     Fiscal 2012 (Unaudited)         

(in thousands)

   Q1      Q2      Q3         

Cash and cash equivalents

   $ 4,474       $ 1,333       $ 7,592      

Trade receivables, net

     141,760         93,782         89,528      

Inventories

     254,860         220,611         200,937      

Total current assets

     463,161         383,697         350,864      

Property, plant and equipment, net

     146,417         157,303         159,985      

Other intangible assets, net

     446,267         441,669         443,276      

Goodwill

     406,850         403,903         408,075      

Current liabilities, excluding debt

     330,372         288,531         249,090      

Total debt

     576,778         558,449         598,815      

Stockholders’ equity

     425,321         402,130         366,504      
     Fiscal 2011 (Restated)  

(in thousands)

   Q1      Q2      Q3      Q4  

Cash and cash equivalents

   $ 8,012       $ 2,276       $ 1,541       $ 3,112   

Trade receivables, net

     122,660         80,648         105,324         98,275   

Inventories

     239,007         234,048         204,714         153,534   

Total current assets

     402,366         349,963         349,626         299,999   

Property, plant and equipment, net

     118,243         117,022         126,907         134,275   

Other intangible assets, net

     453,830         451,745         455,119         450,855   

Goodwill

     406,255         406,186         412,211         409,735   

Current liabilities, excluding debt

     284,322         242,012         212,861         205,853   

Total debt

     555,000         548,900         572,369         531,701   

Stockholders’ equity

     392,128         404,378         421,825         420,495   

 

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Non-GAAP Financial Information:

 

     Fiscal 2012 (Unaudited)  

(in thousands, except for per share amounts)

   Q1     Q2     Q3     Three  Quarters
Ended
April 30, 2012
 

GAAP (loss) before income taxes

   ($ 3,839   ($ 22,582   ($ 25,269   ($ 51,690

Adjustment to exclude acquisition and integration related expenses

     17,214        12,091        11,336        40,641   

Adjustment to exclude certain SG&A costs

     2,016        10,710        8,309        21,035   

Adjustment to exclude forbearance fee

     —          —          1,006        1,006   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP income (loss) before income taxes

     15,391        219        (4,618     10,992   

GAAP income taxes (benefit)

     (14,640     (2,398     18,748        1,710   

Adjustment for tax effect of Non-GAAP adjustments

     13,686        2,384        (18,462     (2,392
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP income taxes (benefit)

     (954     (14     286        (682
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income (loss)

   $ 16,345      $ 233      ($ 4,904   $ 11,674   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP EPS-diluted

   $ 0.71      $ 0.01      ($ 0.22   $ 0.53   

Shares used in computing Non-GAAP EPS-diluted *

     22,932        22,056        22,108        22,026   
     Fiscal 2011 (Restated)  

(in thousands, except for per share amounts)

   Q1     Q2     Q3     Three Quarters
Ended
April 30, 2011
 

GAAP income before income taxes

   $ 13,654      $ 17,741      $ 4,651      $ 36,046   

Adjustment to exclude acquisition and integration related expenses

     579        1,023        5,946        7,548   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP income before income taxes

     14,233        18,764        10,597        43,594   

GAAP income taxes

     4,372        6,643        1,300        12,315   

Adjustment for tax effect of Non-GAAP adjustments

     (1,651     (3,055     1,284        (3,422
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP income taxes

     2,721        3,588        2,584        8,893   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income

   $ 11,512      $ 15,176      $ 8,013      $ 34,701   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP EPS-diluted

   $ 0.52      $ 0.67      $ 0.35      $ 1.54   

Shares used in computing Non-GAAP EPS-diluted *

     22,343        22,622        22,726        22,513   

 

* Includes shares associated with participating securities

 

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Reconciliation of GAAP Net Income to Adjusted EBITDA:

 

     Fiscal 2012 (Unaudited)  

(in thousands)

   Q1     Q2     Q3     Three Quarters
Ended
April 30, 2012
 

Net income (loss)

   $ 10,801      ($ 20,184   ($ 44,017   ($ 53,400

Income taxes (benefit)

     (14,640     (2,398     18,748        1,710   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (3,839     (22,582     (25,269     (51,690

Interest expense, net

     5,761        6,471        7,701        19,933   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations (EBIT)

     1,922        (16,111     (17,568     (31,757

Acquisition and integration related expenses

     17,214        12,091        11,336        40,641   

Certain SG&A costs

     2,016        10,710        7,863        20,589   

Stock-based compensation expense

     1,902        2,949        2,291        7,142   

Depreciation and amortization

     7,180        7,353        7,702        22,235   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 30,234      $ 16,992      $ 11,624      $ 58,850   
  

 

 

   

 

 

   

 

 

   

 

 

 
     Fiscal 2011 (Restated)  

(in thousands)

   Q1     Q2     Q3     Three Quarters
Ended
April 30, 2011
 

Net income

   $ 9,282      $ 11,098      $ 3,351      $ 23,731   

Income taxes

     4,372        6,643        1,300        12,315   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     13,654        17,741        4,651        36,046   

Interest expense, net

     6,117        5,992        5,941        18,050   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations (EBIT)

     19,771        23,733        10,592        54,096   

Acquisition and integration related expenses

     579        1,023        5,946        7,548   

Stock-based compensation expense

     1,772        2,104        1,739        5,615   

Depreciation and amortization

     7,472        7,506        7,321        22,299   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 29,594      $ 34,366      $ 25,598      $ 89,558   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Restated Fiscal 2010 and 2011 Financials

Net Sales by Product Line:

 

     Twelve months ended     Twelve months ended  
    

July 31,

(Restated)

   

July 31,

(Previously reported)

 

(in thousands)

   2011      2010      %
Prior
Year
    2011      2010      %
Prior
Year
 

Snack

   $ 553,676       $ 323,620         71   $ 553,165       $ 321,422         72

Culinary/Retail in-shell

     263,161         248,960         6     262,906         248,994         6
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total Retail

     816,837         572,580         43     816,071         570,416         43
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

International Non-Retail

     119,017         69,206         72     119,017         69,206         72

NA Ingredient/Food Service/Other

     30,834         40,540         -24     30,834         40,540         -24
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total Non-Retail

     149,851         109,746         37     149,851         109,746         37
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 966,688       $ 682,326         42   $ 965,922       $ 680,162         42
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Summarized GAAP Statement of Operations:

 

     Twelve months ended      Twelve months ended  
    

July 31,

(Restated)

    

July 31,

(Previously reported)

 

(in thousands, except per share amounts)

   2011      2010      2011      2010  

Net sales

   $ 966,688       $ 682,326       $ 965,922       $ 680,162   

Cost of sales

     750,209         537,484         714,775         519,161   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     216,479         144,842         251,147         161,001   

Operating expenses:

           

Selling, general and administrative

     97,506         64,551         96,960         64,301   

Advertising

     45,035         33,726         44,415         32,962   

Acquisition and integration related expenses

     20,350         11,328         16,792         11,508   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     162,891         109,605         158,167         108,771   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from operations

     53,588         35,237         92,980         52,230   

Interest expense, net

     23,918         10,180         23,840         10,180   

Other expense, net

     —           1,849         —           1,849   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     29,670         23,208         69,140         40,201   

Income taxes

     3,103         7,532         18,929         13,990   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 26,567       $ 15,676       $ 50,211       $ 26,211   
  

 

 

    

 

 

    

 

 

    

 

 

 

EPS (earnings per share):

           

Basic

   $ 1.21       $ 0.84       $ 2.28       $ 1.40   

Diluted

   $ 1.17       $ 0.82       $ 2.22       $ 1.36   

Shares used to compute EPS:

           

Basic

     21,577         18,313         21,577         18,313   

Diluted

     22,233         18,843         22,242         18,843   

 

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Summarized Balance Sheet Data:

 

     Twelve months ended
July 31,

(Restated)
     Twelve months ended
July 31,
(Previously reported)
 

(in thousands)

   2011      2010      2011      2010  

Cash and cash equivalents

   $ 3,112       $ 5,642       $ 3,112       $ 5,642   

Trade receivables, net

     98,275         65,698         98,218         65,553   

Inventories

     153,534         145,832         145,575         143,405   

Current assets

     299,999         248,364         276,039         240,089   

Property, plant and equipment, net

     134,275         118,235         127,407         117,816   

Other intangible assets, net

     450,855         453,107         450,855         449,018   

Goodwill

     409,735         403,264         407,587         396,788   

Current liabilities, excluding debt

     205,853         145,756         144,060         127,921   

Total debt

     531,701         556,100         531,701         556,100   

Stockholders’ equity

     420,495         376,543         454,795         379,943   

 

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Non-GAAP Financial Information

We have provided the following non-GAAP financial information for the 12 months ended July 31, 2011 and 2010.

Reconciliation of income (loss) before income taxes to non-GAAP EPS:

 

     Twelve months ended
(Restated)
     Twelve months ended
(Previously reported)
 
     July 31,      July 31,  

(in thousands, except per share amounts)

   2011      2010      2011      2010  

GAAP income before income taxes

   $ 29,670       $ 23,208       $ 69,140       $ 40,201   

Adjustments to exclude loss on extinguishment of debt and fees for tax projects

     —           2,324         —           2,324   

Adjustments to remove costs associated with Kettle and Pringles integration

     20,350         11,640         16,792         11,820   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP income before income taxes

     50,020         37,172         85,932         54,345   
  

 

 

    

 

 

    

 

 

    

 

 

 

GAAP income taxes (A)

     3,103         7,532         18,929         13,990   

Adjustment for tax effect of Non-GAAP adjustments (B-A)

     7,018         4,820         7,968         3,574   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP income taxes (B)

     10,121         12,352         26,897         17,564   

Non-GAAP net income

   $ 39,899       $ 24,820       $ 59,035       $ 36,781   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP EPS-diluted

   $ 1.76       $ 1.29       $ 2.61       $ 1.91   

Shares used in computing Non-GAAP EPS-diluted *

     22,634         19,215         22,642         19,215   

 

* Includes shares associated with participating securities

 

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Reconciliation of GAAP net income to Adjusted EBITDA:

 

     Twelve months ended
(Restated)
     Twelve months ended
(Previously reported)
 
     July 31,      July 31,  

(in thousands)

   2011      2010      2011      2010  

Net income

   $ 26,567       $ 15,676       $ 50,211       $ 26,211   

Income taxes

     3,103         7,532         18,929         13,990   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     29,670         23,208         69,140         40,201   

Other expense, net

     —           1,849         —           1,849   

Interest expense, net

     23,918         10,180         23,840         10,180   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from operations

     53,588         35,237         92,980         52,230   

Acquisition and integration related expenses included in operating expenses

     20,350         11,640         16,792         11,820   

Stock-based compensation expense

     7,687         3,738         6,974         3,231   

Selling, general and administrative

     —           475         —           475   

Depreciation and amortization

     29,865         17,154         29,465         17,154   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 111,490       $ 68,244       $ 146,211       $ 84,910   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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About Diamond’s non-GAAP Financial Measures

This release contains non-GAAP financial measures of Diamond’s performance (“non-GAAP financial 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 third quarter of fiscal 2012, $11.3 million in fees were incurred as a result of the proposed merger of Pringles, $5.7 million in fees were incurred related to the audit committee investigation, resulting restatement, and related items, $2.6 million in expenses were incurred related to certain SG&A costs, and $1.0 million in expenses were incurred related to the forbearance fee.

 

   

In the second quarter of fiscal 2012, $12.1 million in fees were incurred as a result of the proposed merger of Pringles and $10.7 million in fees were incurred related to the audit committee investigation.

 

   

In the first quarter of fiscal 2012, $17.2 million in fees were incurred as a result of the proposed merger of Pringles, $1.8 million was accrued for settlement of walnut labeling claims, and $0.2 million in fees were incurred related to the audit committee investigation.

 

   

In the fourth quarter of fiscal 2011, $12.9 million in expenses were incurred as a result of the integration of Kettle Foods and the proposed merger of Pringles.

 

   

In the third quarter of fiscal 2011, $5.9 million in expenses were incurred as a result of the integration of Kettle Foods and the proposed merger of Pringles.

 

   

In the second quarter of fiscal 2011, $1.0 million in expenses were incurred as a result of the integration of Kettle Foods.

 

   

In the first quarter of fiscal 2011, $0.6 million in expenses were incurred as a result of the integration of Kettle Foods.

 

   

In the fourth quarter of fiscal 2010, $1.1 million in expenses were incurred as a result of the acquisition of Kettle Foods.

 

   

In the third quarter of fiscal 2010, $12.3 million in expenses were incurred as a result of the acquisition of Kettle Foods. Other expense included $1.8 million in early extinguishment charges from our prior credit facility, and $10.2 million in transaction expenses, primarily legal and accounting fees, bridge financing costs and advisory fees. Additionally, Cost of Goods Sold included $0.3 million in inventory step-up charges.

 

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In the second quarter of fiscal 2010, $0.5 million in fees were incurred primarily to achieve $1 million in various prior period R&D and other tax credits, including costs to file amended tax returns.

 

   

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 expenses, including the aforementioned acquisition and integration costs. 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 financial measures is that they exclude significant expenses and gains 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 financial measures in connection with GAAP results, and recommends that investors do not give undue weight to them. Diamond believes that non-GAAP financial measures provide useful information to investors by allowing them to view the 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 future financial and operating performance and results, business strategy, strength of our brand portfolio, our filing of delayed SEC filings, our position in the walnut industry, potential for optimizing our cost structure and streamlining our supply chain, ability to grow, expand margins and deliver shareholder value, fiscal 2012 financial results, enhancing internal controls and remediating material weaknesses. 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 need to file additional periodic reports and financial information in connection with our restatement disclosures; 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; risks related to our current inability to timely file required periodic reports under the Securities Exchange Act of 1934, as amended, and any resulting delisting of Diamond’s common stock

 

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on the Nasdaq Global Select Market; 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® culinary and snack 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

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