D I S C U S S I O N M A T E R I A L S

Diamond Foods (DMND):

Andrew Boone

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Diamond Foods recent events

Six month price history

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Recent Events

Sept 2008 - Pop Secret acquisition closes

Deal valued at $190mm

March 2010 - Kettle Foods acquisition closes

Deal valued at $615mm

April 2011 – Pringles acquisition announced

Deal valued at $1.5bn

Nov 2011 – Diamond announces a delayed

closing date for Pringles acquisition over

accounting irregularities

Nov 2011 - Joseph Silveira, a Diamond board

member, commits suicide

Dec 2011 – SEC launches probe into Diamond’s

accounting

Feb 2012 – Audit committee states filings will

be restated

Source: Reuters

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What is Diamond without the acquisition?

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Diamond Brands Operating segments

Segments for Diamond foods are :

Snack

Culinary & Retail In-Shell

International Non-Retail

Other

All of the growth is in in the Snack

segment

Revenue In Millions 2009 2010 2011

Snack 188.9 321.4 553.2

Growth 70.1% 72.1%

Culinary & Retail

In-Shell 276.2 249.0 262.9

Growth -9.8% 5.6%

International Non-

Retail 68.9 69.2 119.0

Growth 0.4% 72.0%

Other 36.9 40.6 30.8

Growth 10.0% -24.1%

Total 570.9 680.2 965.9

Growth 19.1% 42.0% Source: Company filings

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Without viable financials, how does one value Diamond?

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Pop Secret was acquired for $190mm –more valuable now as Pop Secret has grown market share to 26.1% (Total U.S. Nielsen FDMX 52 Weeks Ending 8/6/11)

Kettle Chips was acquired for $625mm in cash – Kettle Chips allowed DMND to double shelf space in aisle. I saw Kettle Chips in trip to SE Asia in Dec. – Global distribution benefits full DMND Product suite

Current enterprise value of $1,065mm implies a value of $250mm for the core “nut” business. This is the lower range of market capitalization prior to Pop Secret acquisition 3+ years ago! (See next page)

Source: Factset accessed 2/15/12

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4 Diamond Foods Market Cap from 2006 to Pop Secret Acquisition, Sept. 2008, is above minimum SOTP value of $250

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$200mm

$250mm

$300mm

$350mm

$400mm

$450mm

$500mm

Source: Yahoo Finance

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5 Other considerations: Incredibly high short interest that will have to unwind

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Short Interest and closing price from 2/15/2011 to 2/15/2012

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

20%

25%

30%

35%

40%

45%

50%

55%

60%

Short Interest Closing Price

Source: Factset

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6 Short-term liquidity issues are a concern but Diamond has ~$120mm remaining in its revolver to be tapped

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Source: Company filings

In August 2011, Diamond increased their revolver from $235mm to $285mm (LIBOR + 2.25%

to 3.50% depending on leverage ratio) – This provides a cash cushion

Long-Term Debt Includes:

$161.0mm Revolver ($285.0mm available)

$350.0mm Term Loan Facility – requires a $10.0mm quarterly principal payment

$20.4mmm Guaranteed Loan (Due 2020)

In Thousands 31-Jul-11 31-Jul-10 31-Jul-09 31-Jul-08

Cash 3,112 5,642 24,802 74,279

Working Capital 90,279 72,168 51,422 121,516

Current Long-Term Debt 41,700 40,000 15,000 0

Long Term Obligations 490,001 516,100 100,085 20,204

Total 531,701 556,100 115,085 20,204

Secured Credit Facility 161,000

Term Loan Facility 350,000

Guaranteed Loan 20,400

Total 531,400

Historical balance sheet items (most recent financial statements from July 31, 2011)

Details of long-term debt as of July 31, 2011

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7 Short-term liquidity issues are a concern but Diamond has ~$120mm remaining in its revolver to be tapped

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Source: Company filings

In August 2011, Diamond increased their revolver from $235mm to $285mm (LIBOR + 2.25%

to 3.50% depending on leverage ratio) – This provides a cash cushion

Long-Term Debt Includes:

$161.0mm Revolver ($285.0mm available)

$350.0mm Term Loan Facility – requires a $10.0mm quarterly principal payment

$20.4mmm Guaranteed Loan (Due 2020)

In Thousands 31-Jul-11 31-Jul-10 31-Jul-09 31-Jul-08

Cash 3,112 5,642 24,802 74,279

Working Capital 90,279 72,168 51,422 121,516

Current Long-Term Debt 41,700 40,000 15,000 0

Long Term Obligations 490,001 516,100 100,085 20,204

Total 531,701 556,100 115,085 20,204

Secured Credit Facility 161,000

Term Loan Facility 350,000

Guaranteed Loan 20,400

Total 531,400

Historical balance sheet items (most recent financial statements from July 31, 2011)

Details of long-term debt as of July 31, 2011

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8 A price for Diamond is hard to reach without reliable financial statements but the current price offers a good entry point

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Diamond has ample cash due to their increased revolver to meet

short term liquidity requirements

Diamond has a strong suite of products that were reached at arm

length transaction within the last 5 years that imply a strong

intrinsic value

Diamond’s Pringles deal for $1.5bn was renegotiated with P&G

for $2.7bn

High short interest will provide a floor as traders unwind short

positions

There is no break up fee for the Pringles merger falling apart

Fear creates good long term entry points – play stock volatility to

ensure a good entry point

Summary