##### 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, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the transition period fromto
 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.)1050 South Diamond Street 
Stockton, California
(Address of Principal Executive Offices)
    
    95205-7087
(Zip Code)209-467-6000
(Telephone No.)
 þ o
  o þ o
 o þ




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##### Table of Contents



TABLE OF CONTENTS
 PagePart I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20Part II.OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    22Item 1A. Risk Factors
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3. Defaults Upon Senior Securities
    
    
    22Item 4. Submission of Matters to a Vote of Security Holders
    
    
    22Item 5. Other Information
    
    
    23Item 6. Exhibits
    
    
    23SIGNATUREEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
 2




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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 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    25,021
    
    
    $
    35,614Trade receivables, less allowance for doubtful accounts of $708
and $598 at January 31, 2007 and July 31, 2006, respectively
    
    
    35,500
    
    
    
    49,536Inventories
    
    
    166,255
    
    
    
    99,177Deferred income taxes
    
    
    3,356
    
    
    
    4,578Property held for sale
    
    
    
    
    
    
    1,728Prepaid expenses and other current assets
    
    
    7,186
    
    
    
    7,329Total current assets
    
    
    237,318
    
    
    
    197,962Property, plant and equipment, net
    
    
    34,614
    
    
    
    34,291Investment in CoBank
    
    
    2,191
    
    
    
    2,191Deferred income taxes
    
    
    4,812
    
    
    
    4,812Goodwill
    
    
    5,559
    
    
    
    5,077Other intangible assets, net
    
    
    3,824
    
    
    
    3,941Other assets
    
    
    4,430
    
    
    
    4,758Total assets
    
    $
    292,748
    
    
    $
    253,032LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    29,710
    
    
    $
    28,371Payable to growers
    
    
    106,038
    
    
    
    81,902Total current liabilities
    
    
    135,748
    
    
    
    110,273Long-term obligations
    
    
    20,000
    
    
    
    20,000Other liabilities
    
    
    12,101
    
    
    
    11,933Commitments and contingenciesStockholders 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; 15,806,025 and 15,737,194 shares issued and
15,794,508 and 15,737,194 shares outstanding at January 31, 2007 and
July 31, 2006, respectively
    
    
    16
    
    
    
    16Treasury stock, at cost: 11,517 shares at January 31, 2007
    
    
    (201
    )
    
    
    Additional paid-in capital
    
    
    97,475
    
    
    
    93,962Accumulated other comprehensive loss
    
    
    
    
    
    
    (36
    )Retained earnings
    
    
    27,609
    
    
    
    16,884Total stockholders equity
    
    
    124,899
    
    
    
    110,826Total liabilities and stockholders equity
    
    $
    292,748
    
    
    $
    253,032
  4




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DIAMOND FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data)
(Unaudited)
 Three Months
    
    
    Six MonthsEnded January 31,
    
    
    Ended January 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales and other revenues
    
    $
    143,622
    
    
    $
    124,157
    
    
    $
    313,134
    
    
    $
    302,217Cost of sales
    
    
    123,281
    
    
    
    105,587
    
    
    
    264,853
    
    
    
    258,066Cost of sales  NRV amount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,770Total cost of sales
    
    
    123,281
    
    
    
    105,587
    
    
    
    264,853
    
    
    
    260,836Gross margin
    
    
    20,341
    
    
    
    18,570
    
    
    
    48,281
    
    
    
    41,381Operating expenses:Selling, general and administrative
(including $1,353 and $2,612
of stock based compensation for the three and six months
ended January 31, 2007 and $1,109 and $1,891 for for the
three and six months ended January 31, 2006)
    
    
    11,512
    
    
    
    8,998
    
    
    
    23,045
    
    
    
    18,188Advertising
    
    
    5,117
    
    
    
    4,293
    
    
    
    8,354
    
    
    
    10,887Restructuring and other costs, net
    
    
    (190
    )
    
    
    
    
    
    
    (854
    )
    
    
    Gain on curtailment of defined benefit plan
    
    
    
    
    
    
    
    
    
    
    (3,039
    )
    
    
    Total operating expenses
    
    
    16,439
    
    
    
    13,291
    
    
    
    27,506
    
    
    
    29,075Income from operations
    
    
    3,902
    
    
    
    5,279
    
    
    
    20,775
    
    
    
    12,306Interest expense, net
    
    
    290
    
    
    
    248
    
    
    
    571
    
    
    
    272Other
    
    
    112
    
    
    
    3
    
    
    
    82
    
    
    
    216Income before income tax expense
    
    
    3,500
    
    
    
    5,028
    
    
    
    20,122
    
    
    
    11,818Income tax expense
    
    
    1,470
    
    
    
    1,951
    
    
    
    8,451
    
    
    
    4,667Net income
    
    $
    2,030
    
    
    $
    3,077
    
    
    $
    11,671
    
    
    $
    7,151Earnings per share:Basic
    
    $
    0.13
    
    
    $
    0.20
    
    
    $
    0.74
    
    
    $
    0.46Diluted
    
    $
    0.13
    
    
    $
    0.20
    
    
    $
    0.74
    
    
    $
    0.46Shares used to compute earnings per share:Basic
    
    
    15,772
    
    
    
    15,587
    
    
    
    15,755
    
    
    
    15,572Diluted
    
    
    15,772
    
    
    
    15,587
    
    
    
    15,755
    
    
    
    15,611
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DIAMOND FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months Ended January 31,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    11,671
    
    
    $
    7,151Adjustments to reconcile net income
to net cash (used in) provided by operating activities:Depreciation and amortization
    
    
    3,724
    
    
    
    2,340Deferred income taxes
    
    
    1,222
    
    
    
    4,332Gain on curtailment of defined benefit plan
    
    
    (3,039
    )
    
    
    Stock-based compensation
    
    
    2,612
    
    
    
    1,891Gain on sale of property held for sale
    
    
    (1,193
    )
    
    
    Loss on disposal of property, plant and equipment
    
    
    6
    
    
    
    449Gain on foreign currency
    
    
    36
    
    
    
    Changes in assets and liabilities:Trade receivables
    
    
    13,945
    
    
    
    9,205Inventories
    
    
    (67,517
    )
    
    
    (54,114
    )Prepaid expenses and other current assets
    
    
    3,182
    
    
    
    (3,772
    )Other assets
    
    
    328
    
    
    
    1,014Accounts payable and accrued liabilities
    
    
    1,862
    
    
    
    (3,576
    )Payable to growers
    
    
    24,136
    
    
    
    40,240Other liabilities
    
    
    168
    
    
    
    353Net cash (used in) provided by
operating activities
    
    
    (8,857
    )
    
    
    5,513CASH FLOWS FROM INVESTING ACTIVITIESNet proceeds from sale of property held for sale
    
    
    2,927
    
    
    
    Purchases of property, plant and equipment
    
    
    (4,320
    )
    
    
    (4,209
    )Payment of additional acquisition costs
    
    
    (97
    )
    
    
    Net cash used in investing activities
    
    
    (1,490
    )
    
    
    (4,209
    )CASH FLOWS FROM FINANCING ACTIVITIESPayment of notes payable, net
    
    
    
    
    
    
    (2,119
    )Payment to members for membership interest
    
    
    
    
    
    
    (17,329
    )Issuance of common stock under stock plans
    
    
    387
    
    
    
    611Dividends paid
    
    
    (946
    )
    
    
    (467
    )Stock options exercised
    
    
    514
    
    
    
    Purchase of treasury stock
    
    
    (201
    )
    
    
    Net cash used in financing activities
    
    
    (246
    )
    
    
    (19,304
    )Net decrease in cash and cash equivalents
    
    
    (10,593
    )
    
    
    (18,000
    )Cash and cash equivalents:Beginning of period
    
    
    35,614
    
    
    
    49,035End of period
    
    $
    25,021
    
    
    $
    31,035Supplemental disclosure of cash flow information:Cash paid during the period for:Interest
    
    $
    698
    
    
    $
    633Income taxes
    
    
    3,844
    
    
    
    3,195Non-cash investing activity:Accrued capital expenditures
    
    
    2
    
    
    
    Non-cash financing activity:Accrued liability exchanged for options
to acquire common stock
    
    
    
    
    
    
    646
  6




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DIAMOND FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended January 31, 2007 and 2006
(in thousands, except share and per share information)
 (1) Organization and Basis of Presentation
    (2) Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement 109, Accounting
for Income Taxes.
 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
 Fair Value Measurements
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Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans
 (3) Stock Plan Information
 Share-Based Payment. Accounting for Stock Issued to Employees. Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement
No. 123
 Accounting for Stock-Based Compensation
 Three Months
    
    
    Six MonthsEnded January 31,
    
    
    Ended January 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income, as reported
    
    $
    2,030
    
    
    $
    3,077
    
    
    $
    11,671
    
    
    $
    7,151Total stock-based compensation recorded in the statement
of operations, net of related tax effects
    
    
    785
    
    
    
    679
    
    
    
    1,515
    
    
    
    1,144Total stock-based compensation expense determined under
fair
value based method for all awards, net of related
tax effects
    
    
    (1,046
    )
    
    
    (967
    )
    
    
    (2,042
    )
    
    
    (1,684
    )Pro forma net income
    
    $
    1,769
    
    
    $
    2,789
    
    
    $
    11,144
    
    
    $
    6,611Net income per common equivalent share:Basic  as reported
    
    $
    0.13
    
    
    $
    0.20
    
    
    $
    0.74
    
    
    $
    0.46Basic  pro forma
    
    $
    0.11
    
    
    $
    0.18
    
    
    $
    0.71
    
    
    $
    0.42Diluted  as reported
    
    $
    0.13
    
    
    $
    0.20
    
    
    $
    0.74
    
    
    $
    0.46Diluted  pro forma
    
    $
    0.11
    
    
    $
    0.18
    
    
    $
    0.71
    
    
    $
    0.42
 Stock Option Awards:
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Three Months
    
    Six MonthsEnded January 31,
    
    Ended January 31,2007
    
    2006
    
    2007
    
    2006Average expected life,
in years
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    6Expected volatility
    
    
    30.00
    %
    
    
    27.50
    %
    
    
    30.00
    %
    
    
    27.50
    %Risk-free interest rate
    
    
    4.65
    %
    
    
    4.45
    %
    
    
    4.70
    %
    
    
    4.30
    %Dividend rate
    
    
    0.68
    %
    
    
    0.57
    %
    
    
    0.74
    %
    
    
    0.64
    %
  WeightedaverageNumber of
    
    Weighted
    
    remaining
    
    AggregateShares
    
    average exercise
    
    contractual life
    
    intrinsic value (in(in thousands)
    
    price per share
    
    (in years)
    
    thousands)Outstanding at July 31, 2006
    
    
    1,648
    
    
    $
    17.43Granted
    
    
    12
    
    
    
    17.91Exercised
    
    
    (30
    )
    
    
    17.00Cancelled
    
    
    (56
    )
    
    
    17.53Outstanding at January 31, 2007
    
    
    1,574
    
    
    
    17.43
    
    
    
    8.7
    
    
    $
    2,639Exerciseable at January 31, 2007
    
    
    601
    
    
    
    17.50
    
    
    
    8.6
    
    
    $
    969
   WeightedNumber of
    
    average grantShares
    
    date fair value(in thousands)
    
    per shareNonvested at July 31, 2006
    
    
    1,307
    
    
    $
    5.80Granted
    
    
    12
    
    
    
    6.33Vested
    
    
    (290
    )
    
    
    5.93Cancelled
    
    
    (56
    )
    
    
    5.72Nonvested at January 31, 2007
    
    
    973
    
    
    
    5.76
  Restricted Stock Awards:
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WeightedNumber of
    
    average grantShares
    
    date fair value(in thousands)
    
    per shareOutstanding at July 31, 2006
    
    
    529
    
    
    $
    17.52Granted
    
    
    7
    
    
    
    18.80Vested
    
    
    (27
    )
    
    
    20.48Cancelled
    
    
    (2
    )
    
    
    21.00Outstanding at January 31,
2007
    
    
    507
    
    
    
    17.38
   Employee Stock Purchase Plan:
 Three Months Ended January 31,2007
    
    2006Average expected life, in years
    
    
    0.75
    
    
    
    0.75Expected volatility
    
    
    30.00
    %
    
    
    27.50
    %Risk-free interest rate
    
    
    4.65
    %
    
    
    4.45
    %Dividend rate
    
    
    0.68
    %
    
    
    0.71
    %
 (4) Earnings Per Share
  (5) Balance sheet items
  10




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January 31,
    
    
    July 31,2007
    
    
    2006Raw materials and supplies
    
    $
    95,948
    
    
    $
    32,484Work in process
    
    
    16,773
    
    
    
    16,148Finished goods
    
    
    53,534
    
    
    
    50,545Total
    
    $
    166,255
    
    
    $
    99,177
  January 31,
    
    
    July 31,2007
    
    
    2006Accounts payable
    
    $
    17,845
    
    
    $
    19,090Accrued salaries and benefits
    
    
    3,736
    
    
    
    4,496Accrued promotion
    
    
    5,686
    
    
    
    3,477Income taxes payable
    
    
    231
    
    
    
    Other
    
    
    2,212
    
    
    
    1,308Total
    
    $
    29,710
    
    
    $
    28,371
 (6) Acquisition of Assets of Harmony Foods Corporation
  Business Combinations.
 Pro Forma  Financial Information
  Three Months
    
    Six MonthsEnded January 31,
    
    Ended January 31,2006
    
    2006Net Sales
    
    $
    132,331
    
    
    $
    319,293Net Income
    
    $
    1,547
    
    
    $
    4,392Diluted earnings
per share
    
    $
    0.10
    
    
    $
    0.28
 11




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(7) Credit Facilities
     (8) Retirement Plans
   Pension Benefits
    
    
    Other BenefitsThree Months ended
    
    
    Six Months ended
    
    
    Three Months ended
    
    
    Six Months endedJanuary, 31
    
    
    January, 31

    
    
    January, 31
    
    
    January, 312007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    240
    
    
    $
    527
    
    
    $
    808
    
    
    $
    1,117
    
    
    $
    28
    
    
    $
    63
    
    
    $
    57
    
    
    $
    126Interest cost
    
    
    442
    
    
    
    414
    
    
    
    919
    
    
    
    863
    
    
    
    78
    
    
    
    136
    
    
    
    155
    
    
    
    272Expected return on plan assets
    
    
    (578
    )
    
    
    (570
    )
    
    
    (1,144
    )
    
    
    (1,150
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    4
    
    
    
    (71
    )
    
    
    (67
    )
    
    
    (143
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of net loss
    
    
    105
    
    
    
    185
    
    
    
    258
    
    
    
    404
    
    
    
    (114
    )
    
    
    5
    
    
    
    (227
    )
    
    
    10Net periodic benefit cost / (income)
    
    
    213
    
    
    
    485
    
    
    
    774
    
    
    
    1091
    
    
    
    (8
    )
    
    
    204
    
    
    
    (15
    )
    
    
    408Gain on curtailment of defined
benefit plan
    
    
    
    
    
    
    
    
    
    
    (3,039
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total benefit cost / (income)
    
    $
    213
    
    
    $
    485
    
    
    $
    (2,265
    )
    
    $
    1,091
    
    
    $
    (8
    )
    
    $
    204
    
    
    $
    (15
    )
    
    $
    408
 Termination of Defined Benefit Plan
  Defined Contribution Plan
 12




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(9) Restructuring and Other Costs, Net
  (10) Contingencies
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
    Critical Accounting Policies
  13




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Revenue Recognition.
 Inventories.
  Valuation of Long-lived and Intangible Assets and Goodwill.
   Employee Benefits.
 Income Taxes. Accounting for
Income Taxes
 Accounting for Stock-Based Compensation. Share-Based Payment
 14




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Non-GAAP Financial Information
  Three months ended
    
    Six months endedJanuary 31,
    
    January 31,2007
    
    2006
    
    2007
    
    2006(in thousands)Net sales
    
    $
    143,622
    
    
    $
    124,157
    
    
    $
    313,134
    
    
    $
    302,217Cost of sales
    
    
    123,281
    
    
    
    105,587
    
    
    
    264,853
    
    
    
    258,066Gross margin
    
    
    20,341
    
    
    
    18,570
    
    
    
    48,281
    
    
    
    44,151Operating expenses:Selling, general and
administrative
    
    
    11,512
    
    
    
    8,998
    
    
    
    23,045
    
    
    
    18,188Advertising
    
    
    5,117
    
    
    
    4,293
    
    
    
    8,354
    
    
    
    10,887Total operating expenses
    
    
    16,629
    
    
    
    13,291
    
    
    
    31,399
    
    
    
    29,075Operating income
    
    
    3,712
    
    
    
    5,279
    
    
    
    16,882
    
    
    
    15,076Interest expense, net
    
    
    290
    
    
    
    248
    
    
    
    571
    
    
    
    272Other expense
    
    
    112
    
    
    
    3
    
    
    
    82
    
    
    
    216Income before income
tax expense
    
    $
    3,310
    
    
    $
    5,028
    
    
    $
    16,229
    
    
    $
    14,588
 15




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##### Table of Contents



Three months ended
    
    Six months endedJanuary 31,
    
    January 31,2007
    
    2006
    
    2007
    
    2006GAAP income before income tax expense
    
    $
    3,500
    
    
    $
    5,028
    
    
    $
    20,122
    
    
    $
    11,818Adjustment to remove one time impact of accounting for
certain inventories on NRV basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,770Adjustments to remove restructuring and other costs and
gain on curtailment of defined benefit plan
    
    
    (190
    )
    
    
    
    
    
    
    (3,893
    )
    
    
    Non-GAAP income before income tax expense
    
    
    3,310
    
    
    
    5,028
    
    
    
    16,229
    
    
    
    14,588GAAP income tax expense
    
    
    1,470
    
    
    
    1,951
    
    
    
    8,451
    
    
    
    4,667Adjustment to reflect tax effects of Non-GAAP adjustments
    
    
    (80
    )
    
    
    
    
    
    
    (1,635
    )
    
    
    1,108Non-GAAP income tax expense
    
    
    1,390
    
    
    
    1,951
    
    
    
    6,816
    
    
    
    5,775Non-GAAP net income
    
    $
    1,920
    
    
    $
    3,077
    
    
    $
    9,413
    
    
    $
    8,813
 About Diamonds non-GAAP Financial Measures.
   
    
    A one-time charge to costs of sales that we incurred in connection with our conversion. As
an agricultural cooperative association, we were required to use net realizable value (NRV)
accounting for certain inventories; as a for-profit corporation we are required to use the
lower of cost or market method to value all inventories. As a result of using NRV accounting,
certain inventories were valued higher than they would have been under the lower of cost or
market method. Therefore, as these inventories were sold, the amount charged to cost of goods
sold was higher. We excluded this charge because it is non-recurring and is not indicative of
ongoing operations.
    
    Restructuring and other costs and non-recurring gains which are principally related to the
closure of our Lemont facility and the costs incurred to consolidate operations in our
Fishers facility, a gain on the sale of the Lemont facility, the estimated costs of
terminating certain contracts and the professional service fees associated with tax credits
for years prior to 2006. Our management believes it is useful to investors to exclude these
amounts since they are non-recurring in nature and are not reflective of the operating
results of Diamond on an on-going basis.
    
    Amounts associated with curtailing and terminating our administrative pension plan due to its non-recurring nature.
    
    Income tax benefits from tax credits related to years prior to 2006 since these items have a one-time impact.
  16




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Results of Operations
   Three Months ended
    
    
    
    
    
    
    Six Months endedJanuary 31,
    
    
    % Change from
    
    
    January 31,
    
    
    % Change from2007
    
    
    2006
    
    
    2006 to 2007
    
    
    2007
    
    
    2006
    
    
    2006 to 2007North American Retail (1)
    
    $
    100,972
    
    
    $
    78,835
    
    
    
    28.1
    %
    
    $
    211,641
    
    
    $
    186,165
    
    
    
    13.7
    %International
    
    
    24,267
    
    
    
    24,328
    
    
    
    (0.3
    )
    
    
    60,248
    
    
    
    69,336
    
    
    
    (13.1
    )North American Ingredient/Food Service
    
    
    17,606
    
    
    
    20,275
    
    
    
    (13.2
    )
    
    
    39,775
    
    
    
    44,811
    
    
    
    (11.2
    )Other
    
    
    777
    
    
    
    719
    
    
    
    8.1
    
    
    
    1,470
    
    
    
    1,905
    
    
    
    (22.8
    )Total
    
    $
    143,622
    
    
    $
    124,157
    
    
    
    15.7
    %
    
    $
    313,134
    
    
    $
    302,217
    
    
    
    3.6
    %
 
 (1)
    
    North American Retail represents sales of our culinary, snack and in-shell nuts in North
America.
   Three Months ended
    
    
    Six Months endedJanuary 31,
    
    
    January 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Walnuts
    
    
    55.6
    %
    
    
    64.8
    %
    
    
    58.9
    %
    
    
    66.5
    %Other nuts
    
    
    44.4
    %
    
    
    35.2
    %
    
    
    41.1
    %
    
    
    33.5
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Gross margin.
 Selling, General and Administrative.
 18




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##### Table of Contents



Advertising.
 Restructuring and Other Costs, Net.
 Gain
on Curtailment of Defined Benefit Plan
 Interest.
 Income Taxes.
 Liquidity and Capital Resources
      19




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Contractual Obligations and Commitments
  Payments Due by PeriodLess than
    
    
    1-3
    
    
    3-5
    
    
    More thanTotal
    
    
    1 Year (c)
    
    
    Years
    
    
    Years
    
    
    5 YearsLong-term obligation (a)
    
    $
    20.0
    
    
    $
    
    
    
    $
    
    
    
    $
    8.0
    
    
    $
    12.0Interest on long-term obligations
    
    
    7.1
    
    
    
    0.6
    
    
    
    3.0
    
    
    
    2.3
    
    
    
    1.2Operating leases
    
    
    14.8
    
    
    
    0.9
    
    
    
    4.0
    
    
    
    4.4
    
    
    
    5.5Purchase commitments (b)
    
    
    0.7
    
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    $
    42.6
    
    
    $
    2.2
    
    
    $
    7.0
    
    
    $
    14.7
    
    
    $
    18.7
 
 (a)
    
    Excludes $2.0 million in letters of credit outstanding related to normal business
transactions.(b)
    
    Commitments to purchase equipment.(c)
    
    Represents obligations and commitments for the remaining six months of fiscal 2007.
 Effects of Inflation
  Recent Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
  20




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 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 January 1
through January 31, 2007
    
    
    10,279
    
    
    $
    17.47
    
    
    
    
    
    
    
    Total
    
    
    10,279
    
    
    $
    17.47
    
    
    
    
    
    
    
    
 
 (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 and cancelled by Diamond 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 2010 annual
meeting of stockholders and until his successor has been elected and
qualified or until his earlier resignation, death or removal.
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VotesFor
    
    Withheld
    
    Broker Non-VotesRobert M. Lea
    
    
    10,203,637
    
    
    
    1,364,923
    
    
    
    Dennis Mussell
    
    
    10,220,136
    
    
    
    1,350,424
    
    
    
    Glen C. Warren, Jr.
    
    
    10,077,639
    
    
    
    1,492,921
    
    
    
    
 2.
    
    To ratify the appointment of Deloitte & Touche LLP as our
independent registered public accounting firm for the fiscal year
ending July 31, 2007The stockholders votes with respect to the appointment of
Deloitte & Touche LLP as our independent registered public
accounting firm for the fiscal year ending July 31, 2007 were as
follows:
 VotesFor
    
    Against
    
    Abstentions
    
    Broker Non-Votes11,470,077
    
    
    49,505
    
    
    
    50,978
    
    
    
    
  
 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
 
 SIGNATURES
  DIAMOND FOODS, INC.Date: March 8, 2007
    
    By:
    
    /s/ Seth HalioSeth HalioChief Financial Officer and dulyauthorized officer
 23