##### 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 January 31, 2011
 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
    
    20-2556965(State of Incorporation)
    
    (IRS Employer Identification No.)600 Montgomery Street, 17th Floor
San Francisco, California
    
    94111-2702(Address of Principal Executive
Offices)
    
    (Zip Code)
 415-912-3180  (Telephone No.)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



TABLE OF CONTENTS
 PagePart I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19Part II.OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 3. Defaults Upon Senior Securities
    
    
    20Item 4. Removed and Reserved
    
    
    20Item 5. Other Information
    
    
    20Item 6. Exhibits
    
    
    21SIGNATURES
    
    
    22EX-31.01EX-31.02EX-32.01
  2




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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
   3




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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 31,2011
    
    
    2010
    
    
    2010ASSETSCurrent assets:Cash and cash
equivalents
    
    $
    2,276
    
    
    $
    5,642
    
    
    $
    11,962Trade receivables, net
    
    
    80,590
    
    
    
    65,553
    
    
    
    54,652Inventories
    
    
    215,697
    
    
    
    143,405
    
    
    
    149,053Deferred income taxes
    
    
    10,497
    
    
    
    10,497
    
    
    
    12,908Prepaid income taxes
    
    
    3,087
    
    
    
    9,225
    
    
    
    1,661Prepaid expenses and other current assets
    
    
    11,557
    
    
    
    5,767
    
    
    
    2,819Total current
assets
    
    
    323,704
    
    
    
    240,089
    
    
    
    233,055Restricted cash
    
    
    21,215
    
    
    
    
    
    
    
    Property, plant and
equipment, net
    
    
    117,022
    
    
    
    117,816
    
    
    
    50,916Deferred income taxes
    
    
    12,254
    
    
    
    13,625
    
    
    
    6,269Goodwill
    
    
    404,078
    
    
    
    396,788
    
    
    
    75,243Other intangible assets,
net
    
    
    451,745
    
    
    
    449,018
    
    
    
    96,951Other long-term assets
    
    
    7,510
    
    
    
    8,536
    
    
    
    3,700Total assets
    
    $
    1,337,528
    
    
    $
    1,225,872
    
    
    $
    466,134LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of
long-term debt
    
    $
    41,700
    
    
    $
    40,000
    
    
    $
    15,872Accounts payable and accrued liabilities
    
    
    109,868
    
    
    
    92,166
    
    
    
    79,171Payable to growers
    
    
    83,553
    
    
    
    35,755
    
    
    
    76,976Total current
liabilities
    
    
    235,121
    
    
    
    167,921
    
    
    
    172,019Long-term obligations
    
    
    507,200
    
    
    
    516,100
    
    
    
    81,650Deferred income taxes
    
    
    147,317
    
    
    
    144,755
    
    
    
    3,060Other liabilities
    
    
    19,229
    
    
    
    17,153
    
    
    
    12,240Stockholders 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; 22,234,642,
22,121,534 and 16,857,118 shares issued and
21,973,478, 21,891,928 and
16,629,076 shares outstanding at January 31,
2011, July 31, 2010 and
January 31,
2010,
respectively
    
    
    22
    
    
    
    22
    
    
    
    17Treasury stock, at cost: 261,164, 229,606 and
228,042 shares held at
January 31, 2011, July 31, 2010 and January 31,
2010, respectively
    
    
    (6,392
    )
    
    
    (5,050
    )
    
    
    (4,986
    )Additional paid-in
capital
    
    
    312,505
    
    
    
    307,032
    
    
    
    124,894Accumulated other comprehensive income (loss)
    
    
    11,759
    
    
    
    (869
    )
    
    
    (1,067
    )Retained earnings
    
    
    110,767
    
    
    
    78,808
    
    
    
    78,307Total
stockholders
equity
    
    
    428,661
    
    
    
    379,943
    
    
    
    197,165Total liabilities and
stockholders equity
    
    $
    1,337,528
    
    
    $
    1,225,872
    
    
    $
    466,134
  4




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DIAMOND FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share information)
(Unaudited)
 Three Months
    
    
    Six MonthsEnded January 31,
    
    
    Ended January 31,2011
    
    
    2010
    
    
    2011
    
    
    2010Net sales
    
    $
    257,592
    
    
    $
    184,169
    
    
    $
    510,158
    
    
    $
    364,810Cost of sales
    
    
    186,736
    
    
    
    143,591
    
    
    
    375,706
    
    
    
    278,741Gross profit
    
    
    70,856
    
    
    
    40,578
    
    
    
    134,452
    
    
    
    86,069Operating expenses:Selling, general and administrative
    
    
    24,011
    
    
    
    15,338
    
    
    
    47,114
    
    
    
    28,835Advertising
    
    
    9,968
    
    
    
    12,150
    
    
    
    22,437
    
    
    
    18,442Acquisition and integration related expenses
    
    
    937
    
    
    
    
    
    
    
    1,436
    
    
    
    Total operating expenses
    
    
    34,916
    
    
    
    27,488
    
    
    
    70,987
    
    
    
    47,277Income from operations
    
    
    35,940
    
    
    
    13,090
    
    
    
    63,465
    
    
    
    38,792Interest expense, net
    
    
    5,992
    
    
    
    916
    
    
    
    12,109
    
    
    
    2,164Income before income taxes
    
    
    29,948
    
    
    
    12,174
    
    
    
    51,356
    
    
    
    36,628Income taxes
    
    
    10,228
    
    
    
    3,360
    
    
    
    17,422
    
    
    
    12,884Net income
    
    $
    19,720
    
    
    $
    8,814
    
    
    $
    33,934
    
    
    $
    23,744Earnings per share:Basic
    
    $
    0.90
    
    
    $
    0.53
    
    
    $
    1.55
    
    
    $
    1.43Diluted
    
    $
    0.87
    
    
    $
    0.52
    
    
    $
    1.51
    
    
    $
    1.39Shares used to compute earnings per share:Basic
    
    
    21,565
    
    
    
    16,280
    
    
    
    21,519
    
    
    
    16,280Diluted
    
    
    22,221
    
    
    
    16,764
    
    
    
    22,031
    
    
    
    16,735Dividends declared per share
    
    $
    0.045
    
    
    $
    0.045
    
    
    $
    0.090
    
    
    $
    0.090
  5




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DIAMOND FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months EndedJanuary 31,2011
    
    
    2010CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    33,934
    
    
    $
    23,744Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    14,978
    
    
    
    5,432Deferred income taxes
    
    
    2,102
    
    
    
    2,039Excess tax benefit from stock option transactions
    
    
    (1,367
    )
    
    
    (302
    )Stock-based compensation
    
    
    3,516
    
    
    
    1,401Other, net
    
    
    211
    
    
    
    253Changes in assets and liabilities:Trade receivables
    
    
    (15,037
    )
    
    
    (21,160
    )Inventories
    
    
    (72,292
    )
    
    
    (64,026
    )Prepaid expenses, income taxes and other current assets
    
    
    348
    
    
    
    (927
    )Accounts payable and accrued liabilities
    
    
    19,495
    
    
    
    15,979Payable to growers
    
    
    47,798
    
    
    
    47,827Other, net
    
    
    1,055
    
    
    
    254Net cash provided by operating activities
    
    
    34,741
    
    
    
    10,514CASH FLOWS FROM INVESTING ACTIVITIES:Net proceeds from sale of property, plant and equipment
    
    
    9
    
    
    
    159Purchase of property, plant and equipment
    
    
    (9,251
    )
    
    
    (4,343
    )Restricted cash
    
    
    (21,215
    )
    
    
    Acquisition of Pop Secret
    
    
    
    
    
    
    (62
    )Net cash used in investing activities
    
    
    (30,457
    )
    
    
    (4,246
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repayment of revolving line of credit under the Secured Credit Facility
    
    
    (8,400
    )
    
    
    Proceeds from issuance of long-term debt
    
    
    21,200
    
    
    
    Payment of long-term debt and notes payable
    
    
    (20,063
    )
    
    
    (17,558
    )Dividends paid
    
    
    (1,977
    )
    
    
    (1,496
    )Excess tax benefit from stock option transactions
    
    
    1,367
    
    
    
    302Other, net
    
    
    203
    
    
    
    (356
    )Net cash used in financing activities
    
    
    (7,670
    )
    
    
    (19,108
    )Effect of exchange rate changes on cash
    
    
    20
    
    
    
    Net decrease in cash and cash equivalents
    
    
    (3,366
    )
    
    
    (12,840
    )Cash and cash equivalents:Beginning of period
    
    
    5,642
    
    
    
    24,802End of period
    
    $
    2,276
    
    
    $
    11,962Supplemental disclosure of cash flow information:Cash paid during the period for:Interest
    
    $
    11,146
    
    
    $
    1,523Income taxes
    
    $
    1,511
    
    
    $
    7,963Non-cash investing activity:Accrued capital expenditures
    
    $
    693
    
    
    $
    160
  6




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##### Table of Contents



DIAMOND FOODS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  For the three and six months ended January 31, 2011 and 2010  (In thousands, except share and per share information, unaudited)
 (1) Organization and Basis of Presentation
 ® ® ®
    (2) Recent Accounting Pronouncements
 Business Combinations (Topic 805): Disclosure of
Supplementary Pro Forma Information for Business Combinations
 (3) Fair Value Measurements
  7




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Fair ValueLiability Derivatives
    
    Balance Sheet Location
    
    1/31/11
    
    
    7/31/10
    
    
    1/31/10Derivatives designated as hedging instruments under ASC 815:Interest rate contracts
    
    Interest payable
    
    $
    
    
    
    $
    (2
    )
    
    $
    Interest rate contracts
    
    Other current liabilities
    
    
    (580
    )
    
    
    (666
    )
    
    
    Interest rate contracts
    
    Other non-current liabilities
    
    
    (83
    )
    
    
    
    
    
    
    Cash flow hedges
    
    Accounts payable and accrued liabilities
    
    
    (105
    )
    
    
    (12
    )
    
    
    Total derivatives designated as hedging instruments under ASC 815
    
    
    
    $
    (768
    )
    
    $
    (680
    )
    
    $
    Derivatives not designated as hedging instruments under ASC 815:Interest rate contracts
    
    Accrued interest
    
    $
    
    
    
    $
    
    
    
    $
    (6
    )Interest rate contracts
    
    Other current liabilities
    
    
    
    
    
    
    
    
    
    
    (418
    )Cash flow hedges
    
    Accounts payable and accrued liabilities
    
    
    (41
    )
    
    
    
    
    
    
    Total derivatives not designated as hedging instrument under ASC 815
    
    
    
    $
    (41
    )
    
    $
    
    
    
    $
    (424
    )Total derivatives
    
    
    
    $
    (809
    )
    
    $
    (680
    )
    
    $
    (424
    )
  Location of Loss
    
    
    Amount of LossAmount of Gain (Loss)
    
    
    Reclassified from
    
    
    Reclassified from
    
    
    Location of LossRecognized in OCI on
    
    
    Accumulated OCI into
    
    
    Accumulated OCI into
    
    
    Recognized in Income on
    
    
    Amount of Loss RecognizedDerivatives in ASC 815 Cash
    
    Derivative (Effective
    
    
    Income (Effective
    
    
    Income (Effective
    
    
    Derivative (Ineffective
    
    
    in Income on DerivativeFlow Hedging Relationships
    
    Portion)
    
    
    Portion)
    
    
    Portion)
    
    
    Portion)
    
    
    (Ineffective Portion)1/31/11
    
    
    1/31/10
    
    
    
    
    
    1/31/11
    
    
    1/31/10
    
    
    
    
    
    1/31/11
    
    
    1/31/10Interest rate contracts
    
    $
    137
    
    
    $
    
    
    
    Interest expense
    
    $
    (181
    )
    
    $
    
    
    
    Interest expense
    
    $
    
    
    
    $
    Cash flow hedges
    
    
    (47
    )
    
    
    
    
    
    Net sales
    
    
    (4
    )
    
    
    
    
    
    Net sales
    
    
    
    
    
    
    Total
    
    $
    90
    
    
    $
    
    
    
    
    
    
    
    $
    (185
    )
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
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##### Table of Contents



Amount of Loss Recognized inDerivatives Not Designated as Hedging
    
    Location of Loss Recognized in
    
    Income on DerivativeInstruments under ASC 815
    
    Income on Derivative
    
    1/31/11
    
    
    1/31/10Interest rate contracts
    
    Interest expense
    
    $
    
    
    
    $
    (164
    )Cash flow hedges
    
    Interest expense
    
    
    (31
    )
    
    
    Total
    
    
    
    
    
    $
    (31
    )
    
    $
    (164
    )
  Location of Loss
    
    
    Amount of LossAmount of Gain (Loss)
    
    
    Reclassified from
    
    
    Reclassified from
    
    
    Location of LossRecognized in OCI on
    
    
    Accumulated OCI into
    
    
    Accumulated OCI into
    
    
    Recognized in Income on
    
    
    Amount of Loss RecognizedDerivatives in ASC 815 Cash
    
    Derivative (Effective
    
    
    Income (Effective
    
    
    Income (Effective
    
    
    Derivative (Ineffective
    
    
    in Income on DerivativeFlow Hedging Relationships
    
    Portion)
    
    
    Portion)
    
    
    Portion)
    
    
    Portion)
    
    
    (Ineffective Portion)1/31/11
    
    
    1/31/10
    
    
    
    
    
    1/31/11
    
    
    1/31/10
    
    
    
    
    
    1/31/11
    
    
    1/31/10Interest rate contracts
    
    $
    (353
    )
    
    $
    240
    
    
    Interest expense
    
    $
    (356
    )
    
    $
    
    
    
    Interest expense
    
    $
    
    
    
    $
    Cash flow hedges
    
    
    (96
    )
    
    
    
    
    
    Net sales
    
    
    (4
    )
    
    
    
    
    
    Net sales
    
    
    
    
    
    
    Total
    
    $
    (449
    )
    
    $
    240
    
    
    
    
    
    
    $
    (360
    )
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
 Amount of Loss Recognized inDerivatives Not Designated as Hedging
    
    Location of Loss Recognized in
    
    Income on DerivativeInstruments under ASC 815
    
    Income on Derivative
    
    1/31/11
    
    
    1/31/10Interest rate contracts
    
    Interest expense
    
    $
    
    
    
    $
    (433
    )Cash flow hedges
    
    Interest expense
    
    
    (75
    )
    
    
    Total
    
    
    
    
    
    $
    (75
    )
    
    $
    (433
    )
 Assets and Liabilities Measured at Fair Value on a Recurring Basis
  Fair Value Measurements and
Disclosures,
 (4) Stock Plan Information
  Compensation  Stock Compensation
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Stock Option Awards:
 Three Months
    
    
    Six MonthsEnded January 31,
    
    
    Ended January 31,2011
    
    
    2010
    
    
    2011
    
    
    2010Average expected life, in years
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    6Expected volatility
    
    
    37.00
    %
    
    
    46.00
    %
    
    
    37.00
    %
    
    
    46.00
    %Risk-free interest rate
    
    
    2.12
    %
    
    
    3.56
    %
    
    
    1.93
    %
    
    
    3.50
    %Dividend rate
    
    
    0.36
    %
    
    
    0.55
    %
    
    
    0.40
    %
    
    
    0.57
    %
  Weighted averageWeighted average
    
    
    remaining
    
    
    AggregateNumber of Shares
    
    
    exercise price per
    
    
    contractual life (in
    
    
    intrinsic value (in(in thousands)
    
    
    share
    
    
    years)
    
    
    thousands)Outstanding at July 31, 2010
    
    
    1,452
    
    
    $
    21.11Granted
    
    
    350
    
    
    
    40.66Exercised
    
    
    (35
    )
    
    
    16.85Cancelled
    
    
    (12
    )
    
    
    33.36Outstanding at January 31, 2011
    
    
    1,755
    
    
    
    25.01
    
    
    
    6.7
    
    
    $
    43,467Exercisable at January 31, 2011
    
    
    1,204
    
    
    
    18.46
    
    
    
    5.4
    
    
    
    37,694
   Weighted averageNumber of Shares
    
    
    grant date fair(in thousands)
    
    
    value per shareNonvested at July 31, 2010
    
    
    234
    
    
    $
    15.28Granted
    
    
    350
    
    
    
    14.94Vested
    
    
    (24
    )
    
    
    9.03Cancelled
    
    
    (9
    )
    
    
    17.93Nonvested at January 31, 2011
    
    
    551
    
    
    
    15.30
  Restricted Stock Awards:
 10




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##### Table of Contents



WeightedNumber of
    
    
    average grantShares
    
    
    date fair value(in thousands)
    
    
    per shareOutstanding at July 31, 2010
    
    
    408
    
    
    $
    26.78Granted
    
    
    88
    
    
    
    41.52Vested
    
    
    (78
    )
    
    
    21.13Cancelled
    
    
    (11
    )
    
    
    36.68Outstanding at January 31, 2011
    
    
    407
    
    
    
    30.83
   (5) Earnings Per Share
 Earnings Per Share
  Three Months
    
    
    Six MonthsEnded January 31,
    
    
    Ended January 31,2011
    
    
    2010
    
    
    2011
    
    
    2010Numerator:Net income
    
    $
    19,720
    
    
    $
    8,814
    
    
    $
    33,934
    
    
    $
    23,744Less: income allocated to participating securities
    
    
    (367
    )
    
    
    (184
    )
    
    
    (630
    )
    
    
    (487
    )Income attributable to common shareholders  basic
    
    
    19,353
    
    
    
    8,630
    
    
    
    33,304
    
    
    
    23,257Add: undistributed income attributable to participating securities
    
    
    350
    
    
    
    169
    
    
    
    612
    
    
    
    456Less: undistributed income reallocated to participating securities
    
    
    (339
    )
    
    
    (164
    )
    
    
    (598
    )
    
    
    (444
    )Income attributable to common shareholders  diluted
    
    $
    19,364
    
    
    $
    8,635
    
    
    $
    33,318
    
    
    $
    23,269Denominator:Weighted average shares outstanding  basic
    
    
    21,565
    
    
    
    16,280
    
    
    
    21,519
    
    
    
    16,280Dilutive shares  stock options
    
    
    656
    
    
    
    484
    
    
    
    512
    
    
    
    455Weighted average shares outstanding  diluted
    
    
    22,221
    
    
    
    16,764
    
    
    
    22,031
    
    
    
    16,735Income per share attributable to common shareholders (1):Basic
    
    $
    0.90
    
    
    $
    0.53
    
    
    $
    1.55
    
    
    $
    1.43Diluted
    
    $
    0.87
    
    
    $
    0.52
    
    
    $
    1.51
    
    
    $
    1.39
 
 (1)
    
    Computations may reflect rounding adjustments.  11




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##### Table of Contents



(6) Acquisition of Kettle Foods
 Business Combinations
  Accounts receivable
    
    $
    29,188Inventory
    
    
    12,526Deferred tax asset
    
    
    2,119Prepaid expenses and other assets
    
    
    3,617Property, plant and equipment
    
    
    66,289Brand intangibles
    
    
    235,000Customer relationships
    
    
    120,000Goodwill
    
    
    321,545Assumed liabilities
    
    
    (39,211
    )Deferred tax liabilities
    
    
    (134,851
    )Purchase price
    
    $
    616,222
     (7) Balance Sheet Items
  January 31,
    
    
    July 31,
    
    
    January 31,2011
    
    
    2010
    
    
    2010Raw materials and supplies
    
    $
    137,336
    
    
    $
    64,660
    
    
    $
    86,864Work in process
    
    
    22,186
    
    
    
    23,768
    
    
    
    17,452Finished goods
    
    
    56,175
    
    
    
    54,977
    
    
    
    44,737Total
    
    $
    215,697
    
    
    $
    143,405
    
    
    $
    149,053
 12




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##### Table of Contents



January 31,
    
    
    July 31,
    
    
    January 31,2011
    
    
    2010
    
    
    2010Accounts payable
    
    $
    51,514
    
    
    $
    42,784
    
    
    $
    45,874Accrued promotion
    
    
    28,832
    
    
    
    22,787
    
    
    
    18,727Accrued salaries and benefits
    
    
    11,447
    
    
    
    17,587
    
    
    
    8,238Income taxes payable
    
    
    5,884
    
    
    
    
    
    
    
    4,225Other
    
    
    12,191
    
    
    
    9,008
    
    
    
    2,107Total
    
    $
    109,868
    
    
    $
    92,166
    
    
    $
    79,171
 (8) Intangible Assets and Goodwill
  Balance as of July 31, 2010
    
    $
    396,788Acquisitions/other activities
    
    
    Translation adjustments
    
    
    7,290Balance as of January 31, 2011
    
    $
    404,078
  January 31,
    
    
    July 31,
    
    
    January 31,2011
    
    
    2010
    
    
    2010Brand intangibles (not subject to amortization)
    
    $
    299,963
    
    
    $
    297,500
    
    
    $
    62,500Intangible assets subject to amortization:Customer contracts and related relationships
    
    
    161,678
    
    
    
    157,300
    
    
    
    37,300Total other intangible assets, gross
    
    
    461,641
    
    
    
    454,800
    
    
    
    99,800Less accumulated amortization on intangible assets:Customer contracts and related relationships
    
    
    (9,896
    )
    
    
    (5,782
    )
    
    
    (2,849
    )Total other intangible assets, net
    
    $
    451,745
    
    
    $
    449,018
    
    
    $
    96,951
  (9) Credit Facilities and Long-Term Obligations
   13




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##### Table of Contents



(10) Retirement Plans
   Pension Benefits
    
    
    Other BenefitsThree Months Ended
    
    
    Six Months Ended
    
    
    Three Months Ended
    
    
    Six Months EndedJanuary 31,
    
    
    January 31,
    
    
    January 31,
    
    
    January 31,2011
    
    
    2010
    
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Service cost
    
    $
    20
    
    
    $
    162
    
    
    $
    40
    
    
    $
    323
    
    
    $
    16
    
    
    $
    15
    
    
    $
    32
    
    
    $
    31Interest cost
    
    
    316
    
    
    
    299
    
    
    
    632
    
    
    
    598
    
    
    
    27
    
    
    
    34
    
    
    
    54
    
    
    
    67Expected return on plan assets
    
    
    (258
    )
    
    
    (238
    )
    
    
    (516
    )
    
    
    (476
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    3
    
    
    
    7
    
    
    
    7
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of net loss / (gain)
    
    
    166
    
    
    
    127
    
    
    
    331
    
    
    
    255
    
    
    
    (199
    )
    
    
    (206
    )
    
    
    (398
    )
    
    
    (412
    )Net periodic benefit cost / (income)
    
    $
    247
    
    
    $
    357
    
    
    $
    494
    
    
    $
    713
    
    
    $
    (156
    )
    
    $
    (157
    )
    
    $
    (312
    )
    
    $
    (314
    )
  (11) Contingencies
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
 ® ® ®
 14




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##### Table of Contents



Results of Operations
   Three Months Ended
    
    
    
    
    
    
    Six Months EndedJanuary 31,
    
    
    % Change from
    
    
    January 31,
    
    
    % Change from2011
    
    
    2010
    
    
    2010 to 2011
    
    
    2011
    
    
    2010
    
    
    2010 to 2011Retail (1)
    
    $
    215,642
    
    
    $
    132,248
    
    
    
    63.1
    %
    
    $
    443,393
    
    
    $
    276,404
    
    
    
    60.4
    %International Non-Retail
    
    
    36,793
    
    
    
    36,039
    
    
    
    2.1
    %
    
    
    57,808
    
    
    
    59,158
    
    
    
    -2.3
    %North American Ingredient/Food Service and Other
    
    
    5,157
    
    
    
    15,882
    
    
    
    -67.5
    %
    
    
    8,957
    
    
    
    29,248
    
    
    
    -69.4
    %Total
    
    $
    257,592
    
    
    $
    184,169
    
    
    
    39.9
    %
    
    $
    510,158
    
    
    $
    364,810
    
    
    
    39.8
    %
 
 (1)
    
    Retail represents sales of our culinary, snack and in-shell products.   Gross profit.
 Selling, general and administrative.
 15




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##### Table of Contents



Acquisition and integration related expenses.
 Advertising.
 Interest expense, net.
 Income taxes.
 Liquidity and Capital Resources
      16




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##### Table of Contents



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
    
    $
    157.7
    
    
    $
    
    
    
    $
    
    
    
    $
    157.7
    
    
    $
    Long-term obligations
    
    
    391.2
    
    
    
    20.8
    
    
    
    83.5
    
    
    
    273.9
    
    
    
    13.0Interest on long-term obligations (a)
    
    
    52.1
    
    
    
    7.4
    
    
    
    30.5
    
    
    
    12.3
    
    
    
    1.9Operating leases
    
    
    16.5
    
    
    
    2.6
    
    
    
    7.0
    
    
    
    3.8
    
    
    
    3.1Purchase commitments (b)
    
    
    70.7
    
    
    
    47.1
    
    
    
    23.6
    
    
    
    
    
    
    
    Pension liability
    
    
    24.0
    
    
    
    0.3
    
    
    
    4.3
    
    
    
    1.4
    
    
    
    18.0Long-term deferred tax liabilities (c)
    
    
    147.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147.3Other long-term liabilities (d)
    
    
    3.3
    
    
    
    0.1
    
    
    
    1.4
    
    
    
    0.3
    
    
    
    1.5Total
    
    $
    862.8
    
    
    $
    78.3
    
    
    $
    150.3
    
    
    $
    449.4
    
    
    $
    184.8
 
 (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 January 31, 2011.(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 $0.8 million in deferred rent liabilities. Additionally, the liability for
uncertain tax positions ($3.6 million at January 31, 2011, excluding associated interest and
penalties) has been excluded from the contractual obligations table because a reasonably
reliable estimate of the timing of future tax settlements cannot be determined.(e)
    
    Represents obligations and commitments for the remaining six months of fiscal year 2011. Effects of Inflation
  17




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##### Table of Contents



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 Taxe
 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
  
 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, 2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Repurchases from December 1 - December 31, 2010
    
    
    505
    
    
    $
    46.51
    
    
    
    
    
    
    $
    Repurchases from January 1 - January 31, 2011
    
    
    1,050
    
    
    $
    51.05
    
    
    
    
    
    
    $
    Total
    
    
    1,555
    
    
    $
    49.57
    
    
    
    
    
    
    $
    
 
 (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. Removed and Reserved
 
 Item 5. Other Information
  20




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##### Table of Contents



As previouslyreported
    
    
    As corrected2009 net sales
    
    $
    787,349
    
    
    $
    828,8632009 net income
    
    $
    22,363
    
    
    $
    28,6432009 diluted earnings per share
    
    $
    1.02
    
    
    $
    1.31
  
 Item 6. Exhibits
  Filed with this
    
    Incorporated by referenceNumber
    
    Exhibit Title
    
    10-Q
    
    Form
    
    File No.
    
    Date Filed3.01
    
    Certificate of Incorporation, as amended
    
    
    
    S1
    
    333-123576
    
    July 15, 20053.02
    
    Restated Bylaws
    
    
    
    S1
    
    333-123576
    
    March 25, 20054.01
    
    Form of Certificate for common stock
    
    
    
    S1
    
    333-123576
    
    July 18, 200531.01
    
    Rule 13a-14(a) and 15d-14(a) Certification of Chief Executive Officer
    
    X31.02
    
    Rule 13a-14(a) and 15d-14(a) Certification of Chief Financial Officer
    
    X32.01
    
    Section 1350 Certifications
    
    X
 21




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SIGNATURES
  DIAMOND FOODS, INC.Date: March 8, 2011
    By:
    /s/ Steven M. NeilSteven M. NeilChief Financial and Administrative Officer
and duly authorized officer 22