##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended January 31, 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
    
    
    19Item 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3. Defaults Upon Senior Securities
    
    
    28Item 4. Submission of Matters to a Vote of Security Holders
    
    
    28Item 5. Other Information
    
    
    29Item 6. Exhibits
    
    
    29SIGNATURE
    
    
    30EX-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)
 January 31,
    
    
    July 31,
    
    
    January 31,2010
    
    
    2009
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,962
    
    
    $
    24,802
    
    
    $
    2,194Trade receivables, net
    
    
    54,652
    
    
    
    33,492
    
    
    
    47,981Inventories
    
    
    149,053
    
    
    
    85,027
    
    
    
    158,846Deferred income taxes
    
    
    12,908
    
    
    
    13,109
    
    
    
    7,387Prepaid income taxes
    
    
    1,661
    
    
    
    735
    
    
    
    Prepaid expenses and other current assets
    
    
    2,819
    
    
    
    2,859
    
    
    
    3,179Total current assets
    
    
    233,055
    
    
    
    160,024
    
    
    
    219,587Property, plant and equipment, net
    
    
    50,916
    
    
    
    51,115
    
    
    
    50,146Deferred income taxes
    
    
    6,269
    
    
    
    6,230
    
    
    
    4,213Goodwill
    
    
    75,243
    
    
    
    76,076
    
    
    
    77,916Other intangible assets, net
    
    
    96,951
    
    
    
    97,883
    
    
    
    100,101Other long-term assets
    
    
    3,700
    
    
    
    3,564
    
    
    
    4,246Total assets
    
    $
    466,134
    
    
    $
    394,892
    
    
    $
    456,209LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Revolving line of credit
    
    $
    
    
    
    $
    
    
    
    $
    15,000Current portion of long-term debt
    
    
    15,872
    
    
    
    15,000
    
    
    
    12,500Accounts payable and accrued liabilities
    
    
    79,171
    
    
    
    64,453
    
    
    
    61,456Payable to growers
    
    
    76,976
    
    
    
    29,149
    
    
    
    88,017Total current liabilities
    
    
    172,019
    
    
    
    108,602
    
    
    
    176,973Long-term obligations
    
    
    81,650
    
    
    
    100,085
    
    
    
    107,655Deferred income taxes
    
    
    3,060
    
    
    
    1,221
    
    
    
    Other liabilities
    
    
    12,240
    
    
    
    11,643
    
    
    
    7,701Stockholders 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; 16,857,118, 16,753,796
and 16,575,473 shares issued and 16,629,076, 16,552,019 and 16,384,668 shares
outstanding at January 31, 2010, July 31, 2009 and January 31, 2009, respectively
    
    
    17
    
    
    
    17
    
    
    
    17Treasury stock, at cost: 228,042, 201,777 and 190,805 shares held at January 31, 2010,
July 31, 2009 and January 31, 2009, respectively
    
    
    (4,986
    )
    
    
    (4,256
    )
    
    
    (3,966
    )Additional paid-in capital
    
    
    124,894
    
    
    
    122,817
    
    
    
    116,248Accumulated other comprehensive income (loss)
    
    
    (1,067
    )
    
    
    (1,296
    )
    
    
    940Retained earnings
    
    
    78,307
    
    
    
    56,059
    
    
    
    50,641Total stockholders equity
    
    
    197,165
    
    
    
    173,341
    
    
    
    163,880Total liabilities and stockholders equity
    
    $
    466,134
    
    
    $
    394,892
    
    
    $
    456,209
  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
    
    Six MonthsEnded January 31,
    
    Ended January 31,2010
    
    2009
    
    2010
    
    2009Net sales
    
    $
    184,169
    
    
    $
    150,588
    
    
    $
    364,810
    
    
    $
    346,114Cost of sales
    
    
    143,591
    
    
    
    116,622
    
    
    
    278,741
    
    
    
    271,079Gross profit
    
    
    40,578
    
    
    
    33,966
    
    
    
    86,069
    
    
    
    75,035Operating expenses:Selling, general and administrative
    
    
    15,338
    
    
    
    15,914
    
    
    
    28,835
    
    
    
    31,686Advertising
    
    
    12,150
    
    
    
    6,210
    
    
    
    18,442
    
    
    
    12,060Total operating expenses
    
    
    27,488
    
    
    
    22,124
    
    
    
    47,277
    
    
    
    43,746Income from operations
    
    
    13,090
    
    
    
    11,842
    
    
    
    38,792
    
    
    
    31,289Interest expense, net
    
    
    916
    
    
    
    2,157
    
    
    
    2,164
    
    
    
    3,606Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    898Income before income taxes
    
    
    12,174
    
    
    
    9,685
    
    
    
    36,628
    
    
    
    26,785Income taxes
    
    
    3,360
    
    
    
    3,541
    
    
    
    12,884
    
    
    
    9,945Net income
    
    $
    8,814
    
    
    $
    6,144
    
    
    $
    23,744
    
    
    $
    16,840Earnings per share:Basic
    
    $
    0.53
    
    
    $
    0.38
    
    
    $
    1.43
    
    
    $
    1.03Diluted
    
    $
    0.52
    
    
    $
    0.37
    
    
    $
    1.39
    
    
    $
    1.01Shares used to compute earnings per share:Basic
    
    
    16,280
    
    
    
    15,950
    
    
    
    16,280
    
    
    
    15,966Diluted
    
    
    16,764
    
    
    
    16,260
    
    
    
    16,735
    
    
    
    16,327Dividends declared
    
    $
    0.045
    
    
    $
    0.045
    
    
    $
    0.090
    
    
    $
    0.090
  5




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##### Table of Contents



DIAMOND FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months Ended January 31,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    23,744
    
    
    $
    16,840Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    5,432
    
    
    
    4,834Stock-based compensation
    
    
    1,401
    
    
    
    2,167Excess tax benefit from ESPP and stock option transactions
    
    
    (302
    )
    
    
    (359
    )Deferred income taxes
    
    
    2,039
    
    
    
    1,589Changes in assets and liabilities (excluding business acquired):Trade receivables
    
    
    (21,160
    )
    
    
    (1,725
    )Inventories
    
    
    (64,026
    )
    
    
    (63,503
    )Accounts payable and accrued liabilities
    
    
    15,979
    
    
    
    15,709Payable to growers
    
    
    47,827
    
    
    
    31,075Other, net
    
    
    (420
    )
    
    
    1,897Net cash provided by operating activities
    
    
    10,514
    
    
    
    8,524CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sale of assets
    
    
    159
    
    
    
    63Purchase of property, plant and equipment
    
    
    (4,343
    )
    
    
    (2,684
    )Acquisition of Pop Secret
    
    
    (62
    )
    
    
    (190,224
    )Net cash used in investing activities
    
    
    (4,246
    )
    
    
    (192,845
    )CASH FLOWS FROM FINANCING ACTIVITIES:Revolving line of credit borrowings, net
    
    
    
    
    
    
    15,000Proceeds from issuance of long-term debt
    
    
    
    
    
    
    125,000Payment of long-term debt
    
    
    (17,558
    )
    
    
    (25,085
    )Debt issuance costs
    
    
    
    
    
    
    (1,973
    )Dividends paid
    
    
    (1,496
    )
    
    
    (1,474
    )Excess tax benefit from ESPP and stock option transactions
    
    
    302
    
    
    
    359Other, net
    
    
    (356
    )
    
    
    409Net cash provided by (used in) financing activities
    
    
    (19,108
    )
    
    
    112,236Net decrease in cash and cash equivalents
    
    
    (12,840
    )
    
    
    (72,085
    )Cash and cash equivalents:Beginning of period
    
    
    24,802
    
    
    
    74,279End of period
    
    $
    11,962
    
    
    $
    2,194Supplemental disclosure of cash flow information:Cash paid during the period for:Interest
    
    $
    1,523
    
    
    $
    3,810Income taxes
    
    
    7,963
    
    
    
    8,181Non-cash investing activity:Accrued capital expenditures
    
    
    160
    
    
    
    138Liabilities related to Pop Secret acquisition
    
    
    
    
    
    
    3,500
  6




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DIAMOND FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended January 31, 2010 and 2009
(In thousands, except share and per share information, unaudited)
 (1) Organization and Basis of Presentation
     (2) Recent Accounting Pronouncements
 Fair Value Measurements and Disclosures (Topic 820) Improving
Disclosures about Fair Value Measurements.
 Compensation Retirement Benefits.
 (3) Fair Value Measurements
  7




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##### Table of Contents



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




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##### Table of Contents



Earnings Per Share.
 Stock Option Awards:
 Three Months
    
    Six MonthsEnded January 31,
    
    Ended January 31,2010
    
    2009
    
    2010
    
    2009Average expected life, in years
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    6Expected volatility
    
    
    46.00
    %
    
    
    36.00
    %
    
    
    46.00
    %
    
    
    36.00
    %Risk-free interest rate
    
    
    3.56
    %
    
    
    2.78
    %
    
    
    3.50
    %
    
    
    3.28
    %Dividend rate
    
    
    0.55
    %
    
    
    0.73
    %
    
    
    0.57
    %
    
    
    0.70
    %
  Weighted averageWeighted average
    
    remaining
    
    Aggregate intrinsicNumber of Shares
    
    exercise price per
    
    contractual life
    
    value (in(in thousands)
    
    share
    
    (in years)
    
    thousands)Outstanding at July 31, 2009
    
    
    1,332
    
    
    $
    18.54Granted
    
    
    10
    
    
    
    33.00Exercised
    
    
    (21
    )
    
    
    17.89Cancelled
    
    
    (1
    )
    
    
    17.67Outstanding at January 31, 2010
    
    
    1,320
    
    
    
    18.66
    
    
    
    6.5
    
    
    $
    22,783Exercisable at January 31, 2010
    
    
    1,125
    
    
    
    17.84
    
    
    
    6.1
    
    
    
    20,330
  9




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##### Table of Contents



Weighted averageNumber of Shares
    
    grant date fair(in thousands)
    
    value per shareNonvested at July 31, 2009
    
    
    225
    
    
    $
    8.62Granted
    
    
    10
    
    
    
    15.18Vested
    
    
    (40
    )
    
    
    7.14Nonvested at January 31, 2010
    
    
    195
    
    
    
    9.22
  Restricted Stock Awards:
 WeightedNumber of
    
    average grantShares
    
    date fair value(in thousands)
    
    per shareOutstanding at July 31, 2009
    
    
    336
    
    
    $
    21.78Granted
    
    
    94
    
    
    
    28.62Vested
    
    
    (73
    )
    
    
    21.06Cancelled
    
    
    (12
    )
    
    
    20.71Outstanding at January 31, 2010
    
    
    345
    
    
    
    23.84
   (5) Earnings Per Share
  10




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##### Table of Contents



Three Months
    
    
    Six MonthsEnded January 31,
    
    
    Ended January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:Net income
    
    $
    8,814
    
    
    $
    6,144
    
    
    $
    23,744
    
    
    $
    16,840Less: income allocated to participating securities
    
    
    (184
    )
    
    
    (160
    )
    
    
    (487
    )
    
    
    (392
    )Income attributable to common shareholders  basic
    
    
    8,630
    
    
    
    5,984
    
    
    
    23,257
    
    
    
    16,448Add: undistributed income attributable to participating securities
    
    
    169
    
    
    
    141
    
    
    
    456
    
    
    
    355Less: undistributed income reallocated to participating securities
    
    
    (164
    )
    
    
    (138
    )
    
    
    (444
    )
    
    
    (347
    )Income attributable to common shareholders  diluted
    
    $
    8,635
    
    
    $
    5,987
    
    
    $
    23,269
    
    
    $
    16,456Denominator:Weighted average shares outstanding  basic
    
    
    16,280
    
    
    
    15,950
    
    
    
    16,280
    
    
    
    15,966Dilutive shares  stock options
    
    
    484
    
    
    
    310
    
    
    
    455
    
    
    
    361Weighted average shares outstanding  diluted
    
    
    16,764
    
    
    
    16,260
    
    
    
    16,735
    
    
    
    16,327Income per share attributable to common shareholders (1):Basic
    
    $
    0.53
    
    
    $
    0.38
    
    
    $
    1.43
    
    
    $
    1.03Diluted
    
    $
    0.52
    
    
    $
    0.37
    
    
    $
    1.39
    
    
    $
    1.01
 
 (1)
    
    Certain computations may reflect rounding adjustments.  (6) Acquisition of Pop Secret
  Business Combinations
  Inventory
    
    $
    6,817Property, plant and equipment
    
    
    17,023Brand intangibles
    
    
    62,500Customer relationships
    
    
    34,900Goodwill
    
    
    69,811Acquisition liabilities
    
    
    (765
    )Purchase price
    
    $
    190,286
 11




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##### Table of Contents



(7) Balance Sheet Items
  January 31,
    
    
    July 31,
    
    
    January 31,2010
    
    
    2009
    
    
    2009Raw materials and supplies
    
    $
    86,864
    
    
    $
    25,678
    
    
    $
    96,731Work in process
    
    
    17,452
    
    
    
    13,217
    
    
    
    21,897Finished goods
    
    
    44,737
    
    
    
    46,132
    
    
    
    40,218Total
    
    $
    149,053
    
    
    $
    85,027
    
    
    $
    158,846
   January 31,
    
    
    July 31,
    
    
    January 31,2010
    
    
    2009
    
    
    2009Accounts payable
    
    $
    45,874
    
    
    $
    32,222
    
    
    $
    28,179Accrued promotion
    
    
    18,727
    
    
    
    19,511
    
    
    
    21,594Accrued salaries and benefits
    
    
    8,238
    
    
    
    11,034
    
    
    
    7,441Income taxes payable
    
    
    4,225
    
    
    
    
    
    
    
    2,469Other
    
    
    2,107
    
    
    
    1,686
    
    
    
    1,773Total
    
    $
    79,171
    
    
    $
    64,453
    
    
    $
    61,456
 (8) Intangible Assets and Goodwill
  Balance as of July 31, 2009
    
    $
    76,076Purchase price allocation changes
    
    
    (833
    )Balance as of January 31, 2010
    
    $
    75,243
 12




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##### Table of Contents



January 31,
    
    
    July 31,
    
    
    January 31,2010
    
    
    2009
    
    
    2009Brand intangibles (not subject to amortization)
    
    $
    62,500
    
    
    $
    62,500
    
    
    $
    62,500Intangible assets subject to amortization:Customer contracts and related relationships
    
    
    37,300
    
    
    
    37,300
    
    
    
    37,300Trademarks and trade names
    
    
    
    
    
    
    
    
    
    
    1,600Total intangible assets subject to amortization
    
    
    37,300
    
    
    
    37,300
    
    
    
    38,900Total other intangible assets, gross
    
    
    99,800
    
    
    
    99,800
    
    
    
    101,400Less accumulated amortization on intangible assets:Customer contracts and related relationships
    
    
    (2,849
    )
    
    
    (1,917
    )
    
    
    (985
    )Trademarks and trade names
    
    
    
    
    
    
    
    
    
    
    (314
    )Total amortization
    
    
    (2,849
    )
    
    
    (1,917
    )
    
    
    (1,299
    )Total other intangible assets, net
    
    $
    96,951
    
    
    $
    97,883
    
    
    $
    100,101
   (9) Credit Facilities and Long-Term Obligations
   (10) Retirement Plans
  13




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##### Table of Contents



Pension Benefits
    
    
    Other BenefitsThree Months Ended
    
    
    Six Months Ended
    
    
    Three Months Ended
    
    
    Six Months EndedJanuary, 31
    
    
    January, 31
    
    
    January, 31
    
    
    January, 312010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Service cost
    
    $
    162
    
    
    $
    148
    
    
    $
    323
    
    
    $
    296
    
    
    $
    15
    
    
    $
    26
    
    
    $
    31
    
    
    $
    52Interest cost
    
    
    299
    
    
    
    270
    
    
    
    598
    
    
    
    540
    
    
    
    34
    
    
    
    71
    
    
    
    67
    
    
    
    142Expected return on plan assets
    
    
    (238
    )
    
    
    (265
    )
    
    
    (476
    )
    
    
    (530
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    7
    
    
    
    7
    
    
    
    13
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of net loss / (gain)
    
    
    127
    
    
    
    13
    
    
    
    255
    
    
    
    26
    
    
    
    (206
    )
    
    
    (135
    )
    
    
    (412
    )
    
    
    (270
    )Net periodic benefit cost / (income)
    
    $
    357
    
    
    $
    173
    
    
    $
    713
    
    
    $
    346
    
    
    $
    (157
    )
    
    $
    (38
    )
    
    $
    (314
    )
    
    $
    (76
    )
  (11) Contingencies
   (12) Subsequent Events
    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
    
    
    
    
    
    Six Months EndedJanuary 31,
    
    % Change from
    
    January 31,
    
    % Change from2010
    
    2009
    
    2009 to 2010
    
    2010
    
    2009
    
    2009 to 2010North American Retail (1)
    
    $
    132,248
    
    
    $
    130,802
    
    
    
    1.1
    %
    
    $
    276,404
    
    
    $
    281,283
    
    
    
    -1.7
    %International
    
    
    36,039
    
    
    
    12,854
    
    
    
    180.4
    %
    
    
    59,158
    
    
    $
    44,197
    
    
    
    33.9
    %North American Ingredient/Food Service
    
    
    14,879
    
    
    
    6,246
    
    
    
    138.2
    %
    
    
    27,642
    
    
    $
    19,206
    
    
    
    43.9
    %Other
    
    
    1,003
    
    
    
    686
    
    
    
    46.2
    %
    
    
    1,606
    
    
    $
    1,428
    
    
    
    12.5
    %Total
    
    $
    184,169
    
    
    $
    150,588
    
    
    
    22.3
    %
    
    $
    364,810
    
    
    $
    346,114
    
    
    
    5.4
    %
 
 (1)
    
    North American Retail represents sales of our culinary, snack and in-shell nuts in North
America.  15




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##### Table of Contents



Three Months Ended
    
    Six Months EndedJanuary 31,
    
    January 31,2010
    
    2009
    
    2010
    
    2009Walnuts
    
    
    51.4
    %
    
    
    41.9
    %
    
    
    48.7
    %
    
    
    50.5
    %Other nuts and popcorn products
    
    
    48.6
    %
    
    
    58.1
    %
    
    
    51.3
    %
    
    
    49.5
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Gross profit.
 Selling, General and Administrative.
 Advertising.
 Interest expense, net.
 Income taxes.
 16




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##### Table of Contents



Liquidity and Capital Resources
       Effects of Inflation
  Critical Accounting Policies
  Revenue Recognition.
 Inventories.
  17




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Valuation of Long-lived and Intangible Assets and Goodwill. Property, Plant, and Equipment Intangibles  Goodwill and Other,
      Employee Benefits.
 Income Taxes. Income Taxe
 18




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##### Table of Contents



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
    
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   19




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##### Table of Contents



Item 1A. Risk Factors
  Risks Related to Our Business
 We could be required to conduct product recalls. Concerns with the safety and quality of food
products could harm our sales or cause consumers to avoid our products.
  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.
  20




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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, could increase our expenses and reduce our profitability.
  Our raw materials are subject to fluctuations in availability and price.
     21




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If we are unable to compete effectively in the markets in which we operate, our results of
operations would be negatively affected.
  Sales to our top customer represented approximately 21% of our net sales in fiscal 2009. The
loss of any major customer could adversely impact our business.
  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.
  22




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##### Table of Contents



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.
  
    
    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.
 23




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##### Table of Contents



Risks Related to the Kettle Foods Acquisition
 If we fail to complete the acquisition of Kettle Foods, we will not recognize some of the
benefits we describe in the prospectus supplement.
   We face risks associated with our share purchase agreement in connection with the Kettle Foods
acquisition.
  A write-off of all or a part of our goodwill and brand intangibles would hurt our operating
results and reduce our net worth.
  As a private company, Kettle Foods may not have 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.
  24




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##### Table of Contents



If we do not complete the Kettle Foods acquisition the market price of our common stock may
decline as a result of the dilution associated with this offering.
  The transaction costs associated with the Kettle Foods acquisition will be substantial,
whether or not it is completed.
  Risks Related to Indebtedness
 We will be highly leveraged upon the closing of the Kettle Foods acquisition. The substantial
leverage 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.
   
    
    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 new 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;
 25




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##### Table of Contents




    
    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;
    
    consolidate, merge, sell or otherwise dispose of all or substantially all of our
assets; and
    
    enter into certain transactions with our affiliates.
  26




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##### Table of Contents



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.
  Anti-takeover provisions could make it more difficult for a third party to acquire us.
  27




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##### Table of Contents



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 November 1 - November 30, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Repurchases from December 1 - December 31, 2009
    
    
    546
    
    
    $
    30.37
    
    
    
    
    
    
    $
    Repurchases from January 1 - January 31, 2010
    
    
    1,089
    
    
    $
    35.59
    
    
    
    
    
    
    $
    Total
    
    
    1,635
    
    
    $
    33.85
    
    
    
    
    
    
    $
    
 
 (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. Submission of Matters to a Vote of Security Holders
  1.
    
    To elect three Class II directors, each to serve until our 2013 annual meeting of
stockholders and until his successor has been elected and qualified or until his earlier
resignation, death or removal.
  28




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##### Table of Contents



VotesFor
    
    Withheld
    
    Abstentions
    
    Broker Non-VotesRobert M. Lea
    
    
    10,803,171
    
    
    
    1,883,587
    
    
    
    
    
    
    
    1,255,199Dennis Mussell
    
    
    12,182,482
    
    
    
    504,276
    
    
    
    
    
    
    
    1,255,199Glen C. Warren, Jr.
    
    
    11,254,812
    
    
    
    1,431,946
    
    
    
    
    
    
    
    1,255,199
 2.
    
    To ratify the appointment of Deloitte & Touche LLP as our independent registered public
accounting firm for the fiscal year ending July 31, 2010.
  VotesFor
    
    Against
    
    Withheld
    
    Abstentions
    
    Broker Non-Votes13,541,761
    
    380,965
    
    
    
    19,231
    
    
  
 Item 5. Other Information
  
 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
 29




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##### Table of Contents



SIGNATURES
  DIAMOND FOODS, INC.Date: February 25, 2010
    By:
    /s/ Steven M. NeilSteven M. NeilChief Financial and Administrative Officer
and duly authorized officer 30