##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended April 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-51439
 DIAMOND FOODS, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
(State of Incorporation)
    
    20-2556965
(IRS Employer Identification No.)600 Montgomery Street, 17th Floor 
San Francisco, California
(Address of Principal Executive Offices)
    
    94111-2702
(Zip Code)
 415-912-3180
(Telephone No.)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



TABLE OF CONTENTS
 PagePart I. FINANCIAL INFORMATION
    
    
    4Item 1. Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19Part II.OTHER INFORMATION
    
    
    20Item 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3. Defaults Upon Senior Securities
    
    
    27Item 4. Reserved
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    28SIGNATURE
    
    
    29EX-31.01EX-31.02EX-32.01
  2




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##### Table of Contents



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
   3




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 DIAMOND FOODS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share information)
(Unaudited)
 April 30,
    
    
    July 31,
    
    
    April 30,2010
    
    
    2009
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,416
    
    
    $
    24,802
    
    
    $
    1,508Trade receivables, net
    
    
    71,983
    
    
    
    33,492
    
    
    
    41,703Inventories
    
    
    157,498
    
    
    
    85,027
    
    
    
    120,238Deferred income taxes
    
    
    14,346
    
    
    
    13,109
    
    
    
    7,374Prepaid income taxes
    
    
    4,670
    
    
    
    735
    
    
    
    5,683Prepaid expenses and other current assets
    
    
    6,158
    
    
    
    2,859
    
    
    
    2,660Total current assets
    
    
    260,071
    
    
    
    160,024
    
    
    
    179,166Property, plant and equipment, net
    
    
    117,030
    
    
    
    51,115
    
    
    
    50,034Deferred income taxes
    
    
    6,741
    
    
    
    6,230
    
    
    
    2,731Goodwill
    
    
    382,420
    
    
    
    76,076
    
    
    
    77,916Other intangible assets, net
    
    
    476,068
    
    
    
    97,883
    
    
    
    99,607Other long-term assets
    
    
    9,022
    
    
    
    3,564
    
    
    
    4,170Total assets
    
    $
    1,251,352
    
    
    $
    394,892
    
    
    $
    413,624LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Revolving line of credit
    
    $
    
    
    
    $
    
    
    
    $
    8,000Current portion of long-term debt
    
    
    40,000
    
    
    
    15,000
    
    
    
    13,750Accounts payable and accrued liabilities
    
    
    118,864
    
    
    
    64,453
    
    
    
    64,130Payable to growers
    
    
    35,927
    
    
    
    29,149
    
    
    
    46,789Total current liabilities
    
    
    194,791
    
    
    
    108,602
    
    
    
    132,669Long-term obligations
    
    
    518,500
    
    
    
    100,085
    
    
    
    103,875Deferred income taxes
    
    
    152,694
    
    
    
    1,221
    
    
    
    Other liabilities
    
    
    12,543
    
    
    
    11,643
    
    
    
    7,719Stockholders equity:Preferred stock, $0.001 par value; Authorized: 5,000,000 shares; no shares
issued or outstanding
    
    
    
    
    
    
    
    
    
    
    Common stock, $0.001 par value; Authorized: 100,000,000 shares;
22,039,476, 16,753,796 and 16,678,158 shares issued and 21,809,870, 16,552,019 and
16,482,508 shares outstanding at April 30, 2010, July 31, 2009 and April 30, 2009,
respectively
    
    
    22
    
    
    
    17
    
    
    
    17Treasury stock, at cost: 229,606, 201,777 and 195,650 shares at April 30,
2010, July 31, 2009 and April 30, 2009, respectively
    
    
    (5,050
    )
    
    
    (4,256
    )
    
    
    (4,090
    )Additional paid-in capital
    
    
    305,668
    
    
    
    122,817
    
    
    
    119,943Accumulated other comprehensive income (loss)
    
    
    (869
    )
    
    
    (1,296
    )
    
    
    890Retained earnings
    
    
    73,053
    
    
    
    56,059
    
    
    
    52,601Total stockholders equity
    
    
    372,824
    
    
    
    173,341
    
    
    
    169,361Total liabilities and stockholders equity
    
    $
    1,251,352
    
    
    $
    394,892
    
    
    $
    413,624
  4




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##### Table of Contents



DIAMOND FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share information)
(Unaudited)
 Three Months
    
    
    Nine MonthsEnded April 30,
    
    
    Ended April 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net sales
    
    $
    138,734
    
    
    $
    111,010
    
    
    $
    503,544
    
    
    $
    457,124Cost of sales
    
    
    107,641
    
    
    
    83,366
    
    
    
    386,382
    
    
    
    354,445Gross profit
    
    
    31,093
    
    
    
    27,644
    
    
    
    117,162
    
    
    
    102,679Operating expenses:Selling, general and administrative
    
    
    15,186
    
    
    
    12,545
    
    
    
    44,021
    
    
    
    44,231Advertising
    
    
    7,582
    
    
    
    9,045
    
    
    
    26,024
    
    
    
    21,105Acquisition related expenses
    
    
    10,223
    
    
    
    
    
    
    
    10,223
    
    
    
    Total operating expenses
    
    
    32,991
    
    
    
    21,590
    
    
    
    80,268
    
    
    
    65,336Income (loss) from operations
    
    
    (1,898
    )
    
    
    6,054
    
    
    
    36,894
    
    
    
    37,343Interest expense, net
    
    
    1,908
    
    
    
    1,294
    
    
    
    4,072
    
    
    
    4,900Other expense, net
    
    
    1,849
    
    
    
    
    
    
    
    1,849
    
    
    
    898Income (loss) before income taxes
    
    
    (5,655
    )
    
    
    4,760
    
    
    
    30,973
    
    
    
    31,545Income taxes (benefit)
    
    
    (1,382
    )
    
    
    2,060
    
    
    
    11,502
    
    
    
    12,005Net income (loss)
    
    $
    (4,273
    )
    
    $
    2,700
    
    
    $
    19,471
    
    
    $
    19,540Earnings (loss) per share:Basic
    
    $
    (0.22
    )
    
    $
    0.16
    
    
    $
    1.11
    
    
    $
    1.19Diluted
    
    $
    (0.22
    )
    
    $
    0.16
    
    
    $
    1.07
    
    
    $
    1.17Shares used to compute earnings per share:Basic
    
    
    19,313
    
    
    
    16,022
    
    
    
    17,272
    
    
    
    16,020Diluted
    
    
    19,313
    
    
    
    16,345
    
    
    
    17,793
    
    
    
    16,374Dividends declared
    
    $
    0.045
    
    
    $
    0.045
    
    
    $
    0.135
    
    
    $
    0.135
  5




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DIAMOND FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Nine Months Ended April 30,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    19,471
    
    
    $
    19,540Adjustments to reconcile net income to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    9,585
    
    
    
    7,509Stock-based compensation
    
    
    2,135
    
    
    
    2,998Excess tax benefit from stock option transactions
    
    
    (367
    )
    
    
    (695
    )Deferred income taxes
    
    
    4,475
    
    
    
    3,084Loss on extinguishment of debt
    
    
    531
    
    
    
    Changes in assets and liabilities (excluding business acquired):Trade receivables
    
    
    (9,303
    )
    
    
    4,553Inventories
    
    
    (59,612
    )
    
    
    (24,895
    )Accounts payable and accrued liabilities
    
    
    17,067
    
    
    
    18,586Payable to growers
    
    
    6,778
    
    
    
    (10,153
    )Prepaid expenses
    
    
    (1,615
    )
    
    
    (3,696
    )Other, net
    
    
    1,211
    
    
    
    440Net cash provided by (used in) operating activities
    
    
    (9,644
    )
    
    
    17,271CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sale of assets and other
    
    
    545
    
    
    
    126Purchase of property, plant and equipment
    
    
    (6,933
    )
    
    
    (4,651
    )Acquisition of Pop Secret
    
    
    833
    
    
    
    (190,224
    )Acquisition of Kettle Foods, net of cash acquired
    
    
    (616,222
    )
    
    
    Net cash used in investing activities
    
    
    (621,777
    )
    
    
    (194,749
    )CASH FLOWS FROM FINANCING ACTIVITIES:Revolving line of credit borrowings, net
    
    
    
    
    
    
    8,000Revolving line of credit borrowings under the Secured Credit Facility
    
    
    176,000
    
    
    
    Repayment of revolving line of credit under the Secured Credit Facility
    
    
    (17,500
    )
    
    
    Proceeds from issuance of long-term debt
    
    
    400,000
    
    
    
    125,000Debt issuance costs
    
    
    (8,852
    )
    
    
    (1,973
    )Payment of long-term debt
    
    
    (115,089
    )
    
    
    (27,613
    )Gross proceeds from equity offering
    
    
    191,475
    
    
    
    Equity offering costs
    
    
    (11,711
    )
    
    
    Dividends paid
    
    
    (2,477
    )
    
    
    (2,215
    )Excess tax benefit from stock option transactions
    
    
    367
    
    
    
    695Other, net
    
    
    (205
    )
    
    
    2,813Net cash provided by financing activities
    
    
    612,008
    
    
    
    104,707Effect of exchange rate changes on cash
    
    
    27
    
    
    
    Net decrease in cash and cash equivalents
    
    
    (19,386
    )
    
    
    (72,771
    )Cash and cash equivalents:Beginning of period
    
    
    24,802
    
    
    
    74,279End of period
    
    $
    5,416
    
    
    $
    1,508Supplemental disclosure of cash flow information:Cash paid during the period for:Interest
    
    $
    3,952
    
    
    $
    4,957Income taxes
    
    
    9,513
    
    
    
    16,551Non-cash investing activity:Accrued capital expenditures
    
    
    298
    
    
    
    220
  6




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##### Table of Contents



DIAMOND FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine month periods ended April 30, 2010 and 2009
(In thousands, except share and per share information)
 (1) Organization and Basis of Presentation
 ® ® ®
    (2) Fair Value Measurements
    7




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Fair Value Measurements and Disclosures
   Level 1
 Level 2
 Level 3
 Assets and Liabilities Measured at Fair Value on a Recurring Basis
   (3) Equity Offering and Stock Plan Information
  Compensation  Stock Compensation
 8




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##### Table of Contents



Earnings Per Share.
 Stock Option Awards:
 Three Months
    
    Nine MonthsEnded April 30,
    
    Ended April 30,2010
    
    2009
    
    2010
    
    2009Average expected life, in years
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    6Expected volatility
    
    
    46.00
    %
    
    
    36.00
    %
    
    
    46.00
    %
    
    
    36.00
    %Risk-free interest rate
    
    
    2.83
    %
    
    
    2.85
    %
    
    
    3.28
    %
    
    
    3.13
    %Dividend rate
    
    
    0.44
    %
    
    
    0.72
    %
    
    
    0.53
    %
    
    
    0.71
    %
  Weighted averageWeighted average
    
    remaining
    
    AggregateNumber of Shares
    
    exercise price per
    
    contractual life
    
    intrinsic value(in thousands)
    
    share
    
    (in years)
    
    (in thousands)Outstanding at July 31, 2009
    
    
    1,332
    
    
    $
    18.54Granted
    
    
    23
    
    
    
    38.16Exercised
    
    
    (32
    )
    
    
    18.70Cancelled
    
    
    (1
    )
    
    
    17.67Outstanding at April 30, 2010
    
    
    1,322
    
    
    
    18.87
    
    
    
    6.3
    
    
    $
    31,513Exercisable at April 30, 2010
    
    
    1,149
    
    
    
    17.90
    
    
    
    5.9
    
    
    
    28,510
   WeightedNumber of
    
    average grantShares
    
    date fair value(in thousands)
    
    per shareNonvested at July 31, 2009
    
    
    225
    
    
    $
    8.62Granted
    
    
    23
    
    
    
    17.18Vested
    
    
    (75
    )
    
    
    7.06Cancelled
    
    
    
    
    
    
    Nonvested at April 30, 2010
    
    
    173
    
    
    
    10.39
 9




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##### Table of Contents



Restricted Stock Awards:
 WeightedNumber of
    
    average grantShares
    
    date fair value(in thousands)
    
    per shareOutstanding at July 31, 2009
    
    
    336
    
    
    $
    21.78Granted
    
    
    97
    
    
    
    29.02Vested
    
    
    (76
    )
    
    
    20.92Cancelled
    
    
    (18
    )
    
    
    21.19Outstanding at April 30, 2010
    
    
    339
    
    
    
    24.09
   (4) Earnings Per Share
   Three Months
    
    
    Nine MonthsEnded April 30,
    
    
    Ended April 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:Net income (loss)
    
    $
    (4,273
    )
    
    $
    2,700
    
    
    $
    19,471
    
    
    $
    19,540Less: income allocated to participating securities
    
    
    
    
    
    
    (62
    )
    
    
    (371
    )
    
    
    (418
    )Income (loss) attributable to common shareholders  basic
    
    
    (4,273
    )
    
    
    2,638
    
    
    
    19,100
    
    
    
    19,122Add: undistributed income attributable to participating securities
    
    
    
    
    
    
    46
    
    
    
    326
    
    
    
    365Less: undistributed income reallocated to participating securities
    
    
    
    
    
    
    (45
    )
    
    
    (316
    )
    
    
    (357
    )Income (loss) attributable to common shareholders  diluted
    
    $
    (4,273
    )
    
    $
    2,639
    
    
    $
    19,110
    
    
    $
    19,130Denominator:Weighted average shares outstanding  basic
    
    
    19,313
    
    
    
    16,022
    
    
    
    17,272
    
    
    
    16,020Dilutive shares  stock options
    
    
    
    
    
    
    323
    
    
    
    521
    
    
    
    354Weighted average shares outstanding  diluted
    
    
    19,313
    
    
    
    16,345
    
    
    
    17,793
    
    
    
    16,374Income (loss) per share attributable to common shareholders (1):Basic
    
    $
    (0.22
    )
    
    $
    0.16
    
    
    $
    1.11
    
    
    $
    1.19Diluted
    
    $
    (0.22
    )
    
    $
    0.16
    
    
    $
    1.07
    
    
    $
    1.17
 
 (1)
    
    Computations may reflect rounding adjustments. 10




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(5) Acquisition of Kettle Foods
  Business Combinations
  Accounts receivable
    
    $
    29,188Inventory
    
    
    12,859Prepaid expenses and other assets
    
    
    1,832Property, plant and equipment
    
    
    66,289Brand intangibles
    
    
    260,000Customer relationships
    
    
    120,000Goodwill
    
    
    307,177Assumed liabilities
    
    
    (33,795
    )Deferred tax liabilities
    
    
    (147,328
    )Purchase price
    
    $
    616,222
   11




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##### Table of Contents



Pro Forma  Financial Information
  Nine Months Ended April 30,2010
    
    2009Net sales
    
    $
    677,961
    
    
    $
    645,340Net income
    
    $
    32,358
    
    
    $
    21,474Diluted earnings per share
    
    $
    1.45
    
    
    $
    0.98
   (6) Balance Sheet Items
  April 30,
    
    
    July 31,
    
    
    April 30,2010
    
    
    2009
    
    
    2009Raw materials and supplies
    
    $
    78,748
    
    
    $
    25,678
    
    
    $
    57,821Work in process
    
    
    20,499
    
    
    
    13,217
    
    
    
    23,406Finished goods
    
    
    58,251
    
    
    
    46,132
    
    
    
    39,011Total
    
    $
    157,498
    
    
    $
    85,027
    
    
    $
    120,238
  12




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##### Table of Contents



April 30,
    
    
    July 31,
    
    
    April 30,2010
    
    
    2009
    
    
    2009Accounts payable
    
    $
    81,965
    
    
    $
    32,222
    
    
    $
    36,281Accrued promotion
    
    
    17,384
    
    
    
    19,511
    
    
    
    17,900Accrued salaries and benefits
    
    
    13,379
    
    
    
    11,034
    
    
    
    8,823Other
    
    
    6,136
    
    
    
    1,686
    
    
    
    1,126Total
    
    $
    118,864
    
    
    $
    64,453
    
    
    $
    64,130
 (7) Intangible Assets and Goodwill
  Balance as of July 31, 2009
    
    $
    76,076Pop Secret purchase price allocation changes
    
    
    (833
    )Acquisition of Kettle Foods
    
    
    307,177Balance as of April 30, 2010
    
    $
    382,420
  April 30
    
    
    July 31,
    
    
    April 302010
    
    
    2009
    
    
    2009Brand intangibles (not subject to amortization)
    
    $
    322,500
    
    
    $
    62,500
    
    
    $
    62,500Intangible assets subject to amortization:Customer contracts and related relationships
    
    
    157,300
    
    
    
    37,300
    
    
    
    37,300Trademarks and trade names
    
    
    
    
    
    
    
    
    
    
    1,600Total intangible assets subject to amortization
    
    
    157,300
    
    
    
    37,300
    
    
    
    38,900Total other intangible assets, gross
    
    
    479,800
    
    
    
    99,800
    
    
    
    101,400Less accumulated amortization on intangible assets:Customer contracts and related relationships
    
    
    (3,732
    )
    
    
    (1,917
    )
    
    
    (1,450
    )Trademarks and trade names
    
    
    
    
    
    
    
    
    
    
    (343
    )Total amortization
    
    
    (3,732
    )
    
    
    (1,917
    )
    
    
    (1,793
    )Total other intangible assets, net
    
    $
    476,068
    
    
    $
    97,883
    
    
    $
    99,607
   (8) Credit Facilities and Long-Term Obligations
   13




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(9) Retirement Plans
    Pension Benefits
    
    
    Other BenefitsThree Months ended
    
    
    Nine Months ended
    
    
    Three Months ended
    
    
    Nine Months endedApril 30,
    
    
    April 30,
    
    
    April 30,
    
    
    April 30,2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Service cost
    
    $
    223
    
    
    $
    60
    
    
    $
    546
    
    
    $
    356
    
    
    $
    16
    
    
    $
    25
    
    
    $
    47
    
    
    $
    77Interest cost
    
    
    300
    
    
    
    256
    
    
    
    898
    
    
    
    796
    
    
    
    33
    
    
    
    71
    
    
    
    100
    
    
    
    213Expected return on plan assets
    
    
    (238
    )
    
    
    (264
    )
    
    
    (714
    )
    
    
    (794
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    7
    
    
    
    6
    
    
    
    20
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of net loss / (gain)
    
    
    133
    
    
    
    2
    
    
    
    388
    
    
    
    28
    
    
    
    (206
    )
    
    
    (134
    )
    
    
    (618
    )
    
    
    (404
    )Curtailment cost
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost / (income)
    
    $
    428
    
    
    $
    60
    
    
    $
    1,141
    
    
    $
    406
    
    
    $
    (157
    )
    
    $
    (38
    )
    
    $
    (471
    )
    
    $
    (114
    )
  (10) Contingencies
   14




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
 ® ® ®
  Results of Operations
   Three Months ended
    
    
    
    
    
    
    Nine Months endedApril 30,
    
    
    % Change from
    
    
    April 30,
    
    
    % Change from2010
    
    
    2009
    
    
    2009 to 2010
    
    
    2010
    
    
    2009
    
    
    2009 to 2010Retail (1)
    
    $
    126,086
    
    
    $
    90,975
    
    
    
    38.6
    %
    
    $
    402,490
    
    
    $
    372,258
    
    
    
    8.1
    %International Non-Retail
    
    
    6,287
    
    
    
    13,014
    
    
    
    -51.7
    %
    
    
    65,445
    
    
    
    57,211
    
    
    
    14.4
    %North American Ingredient/Food Service
    
    
    5,933
    
    
    
    6,526
    
    
    
    -9.1
    %
    
    
    33,575
    
    
    
    25,732
    
    
    
    30.5
    %Other
    
    
    428
    
    
    
    495
    
    
    
    -13.5
    %
    
    
    2,034
    
    
    
    1,923
    
    
    
    5.8
    %Total
    
    $
    138,734
    
    
    $
    111,010
    
    
    
    25.0
    %
    
    $
    503,544
    
    
    $
    457,124
    
    
    
    10.2
    %
 
 (1)
    
    Retail represents sales of our culinary, snack and in-shell nuts.  15




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##### Table of Contents



Gross profit.
 Selling, general and administrative.
 Advertising.
 Acquisition related expenses.
 Interest expense, net.
 Other expense, net
 Income taxes.
 16




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##### Table of Contents



Liquidity and Capital Resources
         Contractual Obligations and Commitments
  Payments Due by PeriodLess than
    
    
    1-3
    
    
    3-5
    
    
    More thanTotal
    
    
    1 Year (e)
    
    
    Years
    
    
    Years
    
    
    5 YearsRevolving line of credit
    
    $
    158.5
    
    
    $
    
    
    
    $
    
    
    
    $
    158.5
    
    
    $
    Long-term obligations
    
    
    400.0
    
    
    
    10.0
    
    
    
    80.0
    
    
    
    310.0
    
    
    
    Interest on long-term obligations (a)
    
    
    58.5
    
    
    
    4.9
    
    
    
    26.7
    
    
    
    26.9
    
    
    
    Operating leases
    
    
    11.7
    
    
    
    0.7
    
    
    
    4.5
    
    
    
    4.9
    
    
    
    1.6Purchase commitments (b)
    
    
    7.6
    
    
    
    7.6
    
    
    
    
    
    
    
    
    
    
    
    Pension liability
    
    
    20.5
    
    
    
    0.1
    
    
    
    1.0
    
    
    
    8.0
    
    
    
    11.4Long-term deferred tax liabilities (c)
    
    
    152.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152.7Other long-term liabilities (d)
    
    
    2.3
    
    
    
    0.1
    
    
    
    0.4
    
    
    
    1.3
    
    
    
    0.5Total
    
    $
    811.8
    
    
    $
    23.4
    
    
    $
    112.6
    
    
    $
    509.6
    
    
    $
    166.2
 17




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##### Table of Contents



(a)
    
    Amounts represent the expected cash interest payments on our long-term debt. Interest on our
variable rate debt was forecasted using a LIBOR forward curve analysis as of April 30, 2010.(b)
    
    Commitments to purchase inventory and equipment. Excludes purchase commitments under Walnut
Purchase Agreements due to uncertainty of pricing and quantity.(c)
    
    Primarily relates to intangible assets of Kettle Foods.(d)
    
    Excludes $0.6 million in deferred rent liabilities and $0.1 million of other non-current
liabilities.(e)
    
    Represents obligations and commitments for the remaining three months of fiscal year 2010. Effects of Inflation
  Critical Accounting Policies
  Revenue Recognition.
 Inventories.
  Valuation of Long-lived and Intangible Assets and Goodwill. Property, Plant, and Equipment Intangibles  Goodwill and Other,
   18




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##### Table of Contents



Employee Benefits.
 Income Taxes. Income Taxes
 Accounting for Stock-Based Compensation. Compensation  Stock Compensation
 Recent Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
  19




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  Risks Related to Our Business
 We may be required to conduct product recalls and concerns with the safety and quality of food
products could harm our sales or cause consumers to avoid our products.
  20




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##### Table of Contents



Government regulations could increase our costs of production and our costs of legal and
regulatory compliance.
  A disruption at any of our production facilities would significantly decrease production,
which could increase our cost of sales and reduce our net sales and income from operations.
  The acquisition of other product lines or businesses could pose risks to our profitability.
  Changes in the food industry, including changing dietary trends and consumer preferences,
could reduce demand for our products.
  Increased costs associated with product processing and transportation, such as water,
electricity, natural gas and fuel costs, could increase our expenses and reduce our profitability.
  21




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##### Table of Contents



Our raw materials are subject to fluctuations in availability and price.
     If we are unable to compete effectively in the markets in which we operate, our results of
operations would be negatively affected.
  The loss of any major customer could adversely impact our business.
  22




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##### Table of Contents



Because we experience seasonal fluctuations in our sales, our quarterly results will fluctuate
and our annual performance will depend largely on results from our first two quarters.
  We depend on our key personnel and if we lose the services of any of these individuals, or
fail to attract and retain additional key personnel, we may not be able to implement our business
strategy or operate our business effectively.
 .
 Bioterrorism legislation could disrupt our supply of imported nuts.
  The current global economic downturn may materially and adversely affect our business,
financial condition and results of operations.
  Our business could be negatively impacted if we fail to maintain satisfactory labor relations.
  Our business, financial condition and results of operations could be adversely affected by the
political and economic conditions of the countries in which we conduct business and other factors
related to our international operations.
  23




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##### Table of Contents




    
    negative economic developments in economies around the world and the instability of
governments, including the threat of war, terrorist attacks, epidemic or civil unrest;
    
    adverse changes in laws and governmental policies, especially those affecting trade and
investment;
    
    pandemics, such as the flu, which may adversely affect our workforce as well as our local
suppliers and customers;
    
    earthquakes, tsunamis, floods or other major disasters which may limit the supply of nuts
or other products that we purchase abroad;
    
    import or export licensing requirements imposed by governments;
    
    foreign currency exchange and transfer restrictions;
    
    differing labor standards;
    
    differing levels of protection of intellectual property;
    
    the threat that our operations or property could be subject to nationalization and
expropriation;
    
    varying practices of the regulatory, tax, judicial and administrative bodies in the
jurisdictions where we operate; and
    
    potentially burdensome taxation and changes in foreign tax laws.
  As a private company, Kettle Foods may not have had in place an adequate system of internal
control over financial reporting that we will need to manage that business effectively as part of a
public company.
  Risks Related to Indebtedness
 As a result of our acquisition of Kettle Foods, we are highly leveraged, which could adversely
affect our ability to raise additional capital to fund our operations and limit our ability to
react to changes in the economy or our industry.
  24




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##### Table of Contents




    
    increasing our vulnerability to adverse economic, industry or competitive developments;
    
    requiring a substantial portion of cash flow from operations to be dedicated to the
payment of principal and interest on the indebtedness, therefore reducing our ability to use
cash flow to fund operations, capital expenditures and future business opportunities;
    
    exposing us to the risk of increased interest rates because our secured credit facility
is at variable rates of interest;
    
    making it more difficult to satisfy obligations with respect to our indebtedness, and any
failure to comply with the obligations of any of our debt instruments, including restrictive
covenants and borrowing conditions, could result in an event of default under the agreements
governing the indebtedness;
    
    restricting us from making strategic acquisitions or causing us to make non-strategic
divestitures;
    
    limiting our ability to obtain additional financing for working capital, capital
expenditures, product development, debt service requirements, acquisitions and general
corporate or other purposes; and
    
    limiting our flexibility in planning for, or reacting to, changes in our business or
market conditions and placing us at a competitive disadvantage compared to competitors who
are less highly leveraged and who therefore, may be able to take advantage of opportunities
that our leverage prevents us from pursuing.
  Despite our high initial indebtedness level, we may be able to incur significant additional
amounts of debt, which could further exacerbate the risks associated with our substantial
indebtedness.
  The debt agreements contain restrictions that limit our flexibility in operating our business.
  
    
    pay dividends;
    
    make certain investments or other capital expenditures;
    
    sell assets;
    
    create liens;
    
    acquire other companies and businesses;
    
    borrow additional funds under new revolving credit facilities;
 25




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##### Table of Contents




    
    consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
and
    
    enter into certain transactions with our affiliates.
  Risks Related to Our Common Stock
 The market price of our common stock is highly volatile and may result in investors selling
shares of our common stock at a loss.
  
    
    our operating performance and the performance of other similar companies;
    
    changes in our revenues or earnings estimates or recommendations by any securities
analysts who may decide to follow our stock or our industry;
    
    publication of research reports about us or our industry by any securities analysts who
may decide to follow our stock or our industry;
    
    speculation in the press or investment community;
    
    terrorist acts; and
    
    general market conditions, including economic factors unrelated to our performance.
  Our ability to raise capital in the future may be limited, and our failure to raise capital
when needed could prevent us from executing our growth strategy.
  
    
    market acceptance of our products;
    
    the need to adapt to changing technologies and technical requirements;
    
    the existence of opportunities for expansion; and
    
    access to and availability of sufficient management, technical, marketing and financial
personnel.
  26




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##### Table of Contents



Anti-takeover provisions could make it more difficult for a third party to acquire us.
    
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total number of
    
    
    Approximate DollarTotal number
    
    
    Average price
    
    
    shares repurchased as
    
    
    value of sharesof shares
    
    
    paid per
    
    
    part of publicly
    
    
    that may yet be purchasedPeriod
    
    repurchased (1)
    
    
    share
    
    
    announced plans
    
    
    under the plansRepurchases from February 1 - February 28, 2010
    
    
    133
    
    
    $
    37.49
    
    
    
    
    
    
    $
    Repurchases from March 1 - March 31, 2010
    
    
    1,364
    
    
    $
    42.30
    
    
    
    
    
    
    $
    Repurchases from April 1 - April 30, 2010
    
    
    13
    
    
    $
    44.71
    
    
    
    
    
    
    $
    Total
    
    
    1,510
    
    
    $
    41.89
    
    
    
    
    
    
    $
    
 
 (1)
    
    All of the shares in the table above were originally granted to employees as restricted stock
pursuant to our 2005 Equity Incentive Plan (EIP). Pursuant to the EIP, all of the shares
reflected above were relinquished by employees in exchange for Diamonds agreement to pay
federal and state withholding obligations resulting from the vesting of the restricted stock.
The repurchases reflected above were not made pursuant to a publicly announced plan. 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Reserved
 
 Item 5. Other Information
  27




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Item 6. Exhibits
  Filed with this
    
    Incorporated by referenceNumber
    
    Exhibit Title
    
    10-Q
    
    Form
    
    File No.
    
    Date Filed31.01
    
    Certification of Chief Executive Officer pursuant to
Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
    X31.02
    
    Certification of Chief Financial Officer pursuant to
Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
    X32.01
    
    Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
    
    X
 28




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##### Table of Contents



SIGNATURES
  DIAMOND FOODS, INC.Date: May 27, 2010
    By:
    /s/ Steven M. NeilSteven M. NeilChief Financial and Administrative Officer
and duly authorized officer 29