##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Amendment No. 1
 To
 Form 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended July 31, 2007
 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 No.: 000-51439
 
 DIAMOND FOODS, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    20-2556965(State of Incorporation)
    
    (IRS Employer Identification No.)1050 South Diamond StreetStockton, California
    
    95205-7087(Address of Principal Executive Offices)
    
    (Zip Code)
 209-467-6000  (Telephone No.)
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class:
    
    Name of Exchange on Which Registered:Common Stock, $0.001 par value
    
    NASDAQ Global Select MarketSeries A Junior Preferred Stock Purchase Right
    
    NASDAQ Global Select Market
 Securities registered pursuant to Section 12(g) of the Act:
None
 o þ
 o þ
 þ o
 þ
  o þ o
 o þ




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EXPLANATORY NOTE
   2




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TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    4Item 1A.
    
    Risk Factors
    
    
    9Item 1B.
    
    Unresolved Staff Comments
    
    
    12Item 2.
    
    Properties
    
    
    12Item 3.
    
    Legal Proceedings
    
    
    13Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    13PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    14Item 6.
    
    Selected Financial Data
    
    
    14Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 7A.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    22Item 8.
    
    Financial Statements and Supplementary Data
    
    
    23Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    44Item 9A.
    
    Controls and Procedures
    
    
    44Item 9B.
    
    Other Information
    
    
    44PART IIIItem 10.
    

Directors,
Executive Officers the Registrant and Corporate Governance
    
    
    44Item 11.
    
    Executive Compensation
    
    
    49Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    64Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    66Item 14.
    

Principal
Accounting Fees and Services
    
    
    67PART IVItem 15.
    

Exhibits, Financial Statement Schedules
    
    
    68Signatures
    
    
    71EXHIBIT 23.01EXHIBIT 23.02EXHIBIT 31.01EXHIBIT 31.02EXHIBIT 32.01
  3




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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
   
 PART I
 
 Item 1. Business
 Overview
    
    
    Culinary.  We sell culinary nuts under the Diamond of California brand in grocery store
center aisle and produce aisles and through mass merchandisers and club stores. Culinary
nuts are marketed to individuals who prepare meals or baked goods at home and who value
fresh, high-quality products.
    
    Snack.  We sell snack products under the Emerald and Emerald/Harmony brands. These
products, which include roasted, glazed and flavored nuts, trail mixes, seeds, dried fruit
and similar offerings packaged in innovative resealable containers, are typically available
in grocery store snack and produce aisles, mass merchandisers, club stores, convenience
stores, drug stores and other places where snacks are sold.
    
    In-shell.  We sell in-shell nuts under the Diamond of California brand, primarily during
the winter holiday season. These products are typically available in grocery store produce
sections, mass merchandisers and club stores.
    
    Ingredient/Food Service.  We market ingredient and food service nuts under the Diamond of
California brand to food processors, restaurants, bakeries and food service companies and
their suppliers. Our institutional and industrial customers use our standard or
customer-specified products to add flavor and enhance nutritional value and texture in their
product offerings.
 4




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Year Ended July 31, 2007
    
    
    Year Ended July 31, 2006
    
    
    Year Ended July 31, 2005North
    
    
    Inter-
    
    
    
    
    
    
    North
    
    
    Inter-
    
    
    
    
    
    
    North
    
    
    Inter-America
    
    
    national
    
    
    Total
    
    
    America
    
    
    national
    
    
    Total
    
    
    America
    
    
    national
    
    
    TotalCulinary
    
    $
    207.0
    
    
    $
    9.0
    
    
    $
    216.0
    
    
    $
    189.4
    
    
    $
    12.1
    
    
    $
    201.5
    
    
    $
    164.2
    
    
    $
    21.0
    
    
    $
    185.2Snack
    
    
    79.6
    
    
    
    
    
    
    
    79.6
    
    
    
    40.7
    
    
    
    
    
    
    
    40.7
    
    
    
    21.5
    
    
    
    
    
    
    
    21.5In-shell
    
    
    46.5
    
    
    
    34.7
    
    
    
    81.2
    
    
    
    44.7
    
    
    
    40.3
    
    
    
    85.0
    
    
    
    42.8
    
    
    
    42.3
    
    
    
    85.1Total retail
    
    
    333.1
    
    
    
    43.7
    
    
    
    376.8
    
    
    
    274.8
    
    
    
    52.4
    
    
    
    327.2
    
    
    
    228.5
    
    
    
    63.3
    
    
    
    291.8Ingredient/food service
    
    
    73.9
    
    
    
    69.1
    
    
    
    143.0
    
    
    
    84.5
    
    
    
    62.4
    
    
    
    146.9
    
    
    
    107.0
    
    
    
    59.2
    
    
    
    166.2Other
    
    
    2.8
    
    
    
    
    
    
    
    2.8
    
    
    
    3.1
    
    
    
    
    
    
    
    3.1
    
    
    
    4.5
    
    
    
    
    
    
    
    4.5Total
    
    $
    409.8
    
    
    $
    112.8
    
    
    $
    522.6
    
    
    $
    362.4
    
    
    $
    114.8
    
    
    $
    477.2
    
    
    $
    340.0
    
    
    $
    122.5
    
    
    $
    462.5
  www.diamondfoods.com.
 Our Strategy
  Increase market share in the snack industry.
 Improve gross and operating margins.
 Expand and improve our distribution channels.
 Pursue external growth opportunities.
 
    
    introduce new products that are complementary to our existing product lines and are
capable of being marketed through our existing production and distribution systems;
    
    build our brands value; and
 5




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
    
    enhance our processing and distribution capabilities to lower our costs.
 Principal Products
  Category
    
    Products
    
    Product FeaturesCulinary
    
         Shelled nuts
    
         Whole, sliced, chopped and ground
nuts     Pegboard nuts
    
         Recipe ready packages ranging
from 2.25- 4.0 ounce sizes     Glazed nuts     Harvest Reserve Premium nuts
    
         Premium specialty nuts sold in
stand-up resealable bagsSnack
    
         Glazed nuts
    
         Patented glazing process combined
with unique flavors     Mixed nuts
    
         Package sizes ranging from
2.5-ounce to 40-ounce in foil bags,
canisters, and Polyethylene
Terephthalate (PET) Jugs     Roasted nuts
    
         Innovative canisters designed to
be portable with a lid measuring one
serving  1.5 oz of nuts     Trail mix
    
         Unique blends and nutritionally
dense products     Natural snack products for the produce aisle
    
         4 segments for produce snacks: nuts and seeds; trail/snack mixes;
dried fruits; and sweet snacks,
under the Emerald/Harmony brandIn-shell
    
         Various uncracked nuts,
cleaned and/or polished
    
         Packaged in clear visible bags,
mesh bags and bulk display units     Mixed nuts
    
         Various package sizes ranging from
one-pound bags to 25-kilogram sacks,
with nut sizes ranging from baby to
jumboIngredient/Food Service
    
         Shelled and processed nuts
    
         Whole, sliced, chopped and diced
ground nuts     Custom-processed nuts
    
         Food processor product of uniform
size and consistent color     Glazed nuts
    
         Various large package sizes
(ranging from 2 pounds to 30 pounds)
tailored for business usage     Flexible processing and packaging
operations
   6




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Marketing
    Sales and Distribution
   Product Development and Production
   7




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Competition
  Raw Materials and Supplies
    Trademarks and Patents
  Seasonality
  Employees
  8




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Item 1A. Risk Factors
  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.
  Our raw materials are subject to fluctuations in availability and price.
    We face intense competition from national and regional competitors and snack food industry
competitors that could negatively affect our results of operations.
  9




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Sales to our top customer represented approximately 19% of our net sales. 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 two quarters.
  Changes in the food industry, including changing dietary trends and consumer preferences, could
reduce demand for our products.
  Developments in the walnut industry could threaten our position in the industry.
  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 will not be able to implement our business strategy
or operate our business effectively.
  10




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The Public Health Security and Bioterrorism Preparedness and Response Act of 2002 could disrupt our
supply of imported nuts.
  Government regulation could increase our costs of production and increase our legal and regulatory
expenditures.
  We are subject to risks of doing business internationally.
  
    
    local economic and political conditions, including disruptions in trading markets;
    
    restrictive foreign governmental actions, including restrictions on transfers of funds
and trade protection measures, including export duties and quotas and customs duties and
tariffs;
    
    changes in legal or regulatory requirements affecting foreign investment, loans, taxes,
imports, and exports;
    
    currency exchange rate fluctuations which, depending upon the nature of the changes, may
make our finished products more expensive compared to foreign grown products or may increase
our cost of obtaining foreign-sourced raw materials; and
    
    earthquakes, tsunamis, floods or other major disasters may limit the supply of nuts that
we purchase abroad.
 11




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Increased costs associated with product processing and transportation, such as water, electricity,
natural gas and fuel, could increase our expenses and reduce our profitability.
  A disruption at any of our production facilities would significantly decrease production, which
could increase our cost of sales and reduce our income from operations.
  The acquisition of other businesses could pose risks to our profitability.
  Our business could be negatively impacted if we fail to maintain satisfactory labor relations.
  
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  12




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Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  13




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
  DividendsHigh
    
    Low
    
    DeclaredYear Ended July 31, 2007:Fourth Quarter
    
    $
    18.20
    
    
    $
    15.25
    
    
    $
    0.03Third Quarter
    
    $
    19.64
    
    
    $
    15.00
    
    
    $
    0.03Second Quarter
    
    $
    19.93
    
    
    $
    15.90
    
    
    $
    0.03First Quarter
    
    $
    18.10
    
    
    $
    13.15
    
    
    $
    0.03Year Ended July 31, 2006:Fourth Quarter
    
    $
    20.04
    
    
    $
    13.85
    
    
    $
    0.03Third Quarter
    
    $
    21.80
    
    
    $
    16.52
    
    
    $
    0.03Second Quarter
    
    $
    22.00
    
    
    $
    15.45
    
    
    $
    0.03First Quarter
    
    $
    22.54
    
    
    $
    16.01
    
    
    $
    
    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 May 1 through May 31, 2007
    
    
    3,002
    
    
    $
    16.58
    
    
    
    
    
    
    
    Repurchases from June 1 through June 30, 2007
    
    
    2,498
    
    
    $
    17.51
    
    
    
    
    
    
    
    Repurchases from July 1 through July 31, 2007
    
    
    64,815
    
    
    $
    17.03
    
    
    
    
    
    
    
    Total
    
    
    70,315
    
    
    $
    17.03
    
    
    
    
    
    
    
    
 
 (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 and are treated as
treasury shares available for reissuance. 
 Item 6. Selected Financial Data
  Years Ended July 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(In thousands, except per share information)Statements of operations (2007 and 2006)/Net
proceeds data (1):Net sales
    
    $
    522,585
    
    
    $
    477,205
    
    
    $
    462,548
    
    
    $
    359,683
    
    
    $
    308,450Patronage inventory at beginning of period
    
    
    
    
    
    
    
    
    
    
    (101,403
    )
    
    
    (94,701
    )
    
    
    (96,508
    )Patronage inventory at end of period
    
    
    
    
    
    
    
    
    
    
    67,152
    
    
    
    101,403
    
    
    
    94,701
 14




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Years Ended July 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(In thousands, except per share information)Net sales (2007 and 2006)/Gross marketing
pool proceeds
    
    
    522,585
    
    
    
    477,205
    
    
    
    428,297
    
    
    
    366,385
    
    
    
    306,643Total cost of sales
    
    
    443,945
    
    
    
    411,809
    
    
    
    191,387
    
    
    
    142,592
    
    
    
    111,483Gross margin (2007 and 2006)/Proceeds before operating
expenses
    
    
    78,640
    
    
    
    65,396
    
    
    
    236,910
    
    
    
    223,793
    
    
    
    195,160Operating expenses:Selling general and administrative
    
    
    42,541
    
    
    
    37,046
    
    
    
    33,188
    
    
    
    28,169
    
    
    
    26,937Advertising
    
    
    20,445
    
    
    
    17,977
    
    
    
    22,153
    
    
    
    14,673
    
    
    
    8,744Restructuring and other costs, net
    
    
    (15
    )
    
    
    3,442
    
    
    
    
    
    
    
    
    
    
    
    Loss on termination of defined benefit plan
    
    
    3,054
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    66,025
    
    
    
    58,465
    
    
    
    55,341
    
    
    
    42,842
    
    
    
    35,681Income from operations (2007 and 2006) / Operating proceeds
    
    
    12,615
    
    
    
    6,931
    
    
    
    181,569
    
    
    
    180,951
    
    
    
    159,479Interest, net
    
    
    1,291
    
    
    
    295
    
    
    
    4,433
    
    
    
    3,403
    
    
    
    3,282Conversion costs
    
    
    
    
    
    
    
    
    
    
    697
    
    
    
    
    
    
    
    Early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    2,028
    
    
    
    
    
    
    
    Other
    
    
    98
    
    
    
    310
    
    
    
    
    
    
    
    
    
    
    
    Income/Proceeds before income taxes
    
    
    11,226
    
    
    
    6,326
    
    
    
    174,411
    
    
    
    177,548
    
    
    
    156,197Income tax expense (benefit)
    
    
    2,793
    
    
    
    (1,010
    )
    
    
    (8,385
    )
    
    
    (43
    )
    
    
    1,526Net income (2007 and 2006)/Net proceeds
    
    $
    8,433
    
    
    $
    7,336
    
    
    $
    182,796
    
    
    $
    177,591
    
    
    $
    154,671Earnings per shareBasic
    
    $
    0.53
    
    
    $
    0.47Diluted
    
    $
    0.53
    
    
    $
    0.47Shares used to compute earnings per shareBasic
    
    
    15,786
    
    
    
    15,634Diluted
    
    
    15,786
    
    
    
    15,653
 Years Ended July 31,2007
    
    2006
    
    2005
    
    2004
    
    2003(In thousands)Balance sheet data:Cash and cash equivalents
    
    $
    33,755
    
    
    $
    35,614
    
    
    $
    49,035
    
    
    $
    4,780
    
    
    $
    306Working capital
    
    
    100,527
    
    
    
    87,689
    
    
    
    89,022
    
    
    
    72,556
    
    
    
    56,343Total assets
    
    
    236,403
    
    
    
    253,032
    
    
    
    252,028
    
    
    
    205,895
    
    
    
    172,168Total debt, including short-term debt
    
    
    20,507
    
    
    
    20,000
    
    
    
    22,119
    
    
    
    79,756
    
    
    
    61,239Total stockholders/members equity
    
    
    125,341
    
    
    
    110,826
    
    
    
    99,462
    
    
    
    59,214
    
    
    
    44,216Other data (Unaudited):Walnuts sales as a percentage of total net sales
    
    
    59.8
    %
    
    
    67.0
    %
    
    
    71.4
    %
    
    
    71.7
    %
    
    
    75.7
    %
 
 (1)
    
    As an agricultural cooperative association, we derived revenues from
our patronage business, which consisted of processing and marketing
walnuts on behalf of Diamond members and our non-patronage business,
which consisted of purchasing, processing and marketing nut varieties
other than walnuts. Our financial statements prior to fiscal year 2006
included statements of net proceeds prepared in accordance with GAAP
for agricultural cooperative associations, rather than statements of
operations. Net proceeds are amounts distributable to member growers
from the patronage business. Net proceeds also include net income or
loss from non-patronage business. Net proceeds do not include walnut
acquisition costs. Effective August 1, 2005, our financial statements
have been prepared in accordance with GAAP for companies that are not
cooperative associations. We were not a public company during fiscal
years prior to 2006, thus no earnings per share data is presented for
those years. Also see Note 1 of notes to consolidated financial
statements. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Summary
  15




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Critical Accounting Policies
  Revenue Recognition.
 Inventories.
  16




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Valuation of Long-lived and Intangible Assets and Goodwill. Accounting for the Impairment or Disposal of
Long-lived Assets. Goodwill
and Other Intangible Assets
  Employee Benefits.
 Income Taxes. Accounting for
Income Taxes
 Accounting for Stock-Based Compensation. Share-Based Payment
 Non-GAAP Financial Information
   17




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
    
    are unable to determine retroactively what we would have paid for walnuts in prior years
had we not been a cooperative association;
    
    are unable to determine whether what we would have paid for walnuts would approximate
amounts paid to other growers by other processors as reflected in the CASS statistics;
    
    are limited by the level of detail provided by the CASS statistics; and
    
    cannot ensure that the cost of sales amounts implied by the CASS statistics are
representative of future cost of sales amounts.
  Year Ended July 31,2007
    
    
    2006
    
    
    2005(In thousands)Net sales
    
    $
    522,585
    
    
    $
    477,205
    
    
    $
    462,548Non-GAAP cost of sales
    
    
    443,945
    
    
    
    409,039
    
    
    
    413,750Non-GAAP gross margin
    
    $
    78,640
    
    
    $
    68,166
    
    
    $
    48,798
  Year Ended July 31,2006
    
    
    2005(In thousands)GAAP cost of sales
    
    $
    411,809
    
    
    $
    191,387Adjustment to remove one time impact of accounting for certain inventories on NRV basis
    
    
    (2,770
    )
    
    
    Adjustment to convert walnut inventories to cost basis and to record estimated walnut cost of goods sold
    
    
    
    
    
    
    222,363Non-GAAP cost of sales
    
    $
    409,039
    
    
    $
    413,750
 Results of Operations
 2007 Compared to 2006
  Years ended July 31,
    
    
    % Change from2007
    
    
    2006
    
    
    2006 to 2007North American Retail(1)
    
    $
    333,117
    
    
    $
    274,879
    
    
    
    21.2
    %International
    
    
    112,830
    
    
    
    114,781
    
    
    
    (1.7
    )North American Ingredient/Food Service
    
    
    73,822
    
    
    
    84,475
    
    
    
    (12.6
    )Other
    
    
    2,816
    
    
    
    3,070
    
    
    
    (8.3
    )Total
    
    $
    522,585
    
    
    $
    477,205
    
    
    
    9.5
    %
 
 (1)
    
    North American Retail represents sales of our culinary, snack and
in-shell products in North America.  18




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Years ended July 31,2007
    
    2006Walnuts
    
    
    59.8
    %
    
    
    67.0
    %Other nuts
    
    
    40.2
    %
    
    
    33.0
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 Gross margin.
 Selling, general and administrative.
 Advertising.
 Restructuring and other costs, net.
  Loss on termination of defined benefit plan.
 Interest.
 Income taxes.
 2006 Compared to 2005
  19




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##### Table of Contents



Years ended July 31,
    
    
    % Change from2006
    
    
    2005
    
    
    2005 to 2006North American Retail
    
    $
    274,879
    
    
    $
    228,522
    
    
    
    20.3
    %International
    
    
    114,781
    
    
    
    122,514
    
    
    
    (6.3
    )North American Ingredient/Food Service
    
    
    84,475
    
    
    
    107,029
    
    
    
    (21.1
    )Other
    
    
    3,070
    
    
    
    4,483
    
    
    
    (31.5
    )Total
    
    $
    477,205
    
    
    $
    462,548
    
    
    
    3.2
    %
   Years Ended July 31,2006
    
    2005Walnuts
    
    
    67.0
    %
    
    
    71.4
    %Other nuts
    
    
    33.0
    %
    
    
    28.6
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 Gross margin.
 Selling, general and administrative.
 Advertising.
 Interest.
 Income taxes.
 Liquidity and Capital Resources
   20




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##### Table of Contents



Contractual Obligations and Commitments
  Payments Due by PeriodLess than
    
    
    1-3
    
    
    3-5
    
    
    More thanTotal
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsLong-term obligation (a)
    
    $
    20.3
    
    
    $
    0.1
    
    
    $
    4.1
    
    
    $
    8.1
    
    
    $
    8.0Interest on long-term obligations
    
    
    6.5
    
    
    
    1.5
    
    
    
    2.8
    
    
    
    1.7
    
    
    
    0.5Operating leases
    
    
    13.8
    
    
    
    2.0
    
    
    
    3.8
    
    
    
    3.7
    
    
    
    4.3Purchase commitments (b)
    
    
    3.6
    
    
    
    3.6
    
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities (c)
    
    
    6.7
    
    
    
    0.2
    
    
    
    0.4
    
    
    
    0.5
    
    
    
    5.6Total
    
    $
    50.9
    
    
    $
    7.4
    
    
    $
    11.1
    
    
    $
    14.0
    
    
    $
    18.4
 
 (a)
    
    Excludes $2.3 million in letters of credit outstanding related to normal business transactions. 21




---



##### Table of Contents



(b)
    
    Commitments to purchase new equipment. Excludes purchase commitments under Walnut Purchase
Agreements.(c)
    
    Excludes $0.4 million in deferred rent liabilities. Off-Balance Sheet Arrangements
  Effects of Inflation
  Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement 109,
 Fair Value Measurements
 The Fair Value Option for Financial Assets
and Financial Liabilities  Including an amendment of FASB Statement No. 115
 Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 Market Risk.
 Commodities Risk.
 22




---



##### Table of Contents



Interest Rate Risk.
   
 Item 8. Financial Statements and Supplementary Data
 MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
     /s/ Michael J. Mendes
    
    /s/ Seth HalioPresident and
    
    Executive Vice President andChief Executive officer
    
    Chief Financial Officer
  23




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control Integrated Framework
    Internal Control  Integrated Framework
 Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans. Share-Based Payment,
  
 24




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##### Table of Contents



DIAMOND FOODS, INC.
 CONSOLIDATED BALANCE SHEETS
 July 31,2007
    
    
    2006(In thousands, except shareand per share information)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    33,755
    
    
    $
    35,614Trade receivables, net
    
    
    50,662
    
    
    
    49,536Inventories
    
    
    90,619
    
    
    
    99,177Deferred income taxes
    
    
    4,805
    
    
    
    4,578Prepaid income taxes
    
    
    1,854
    
    
    
    3,147Property held for sale
    
    
    
    
    
    
    1,728Prepaid expenses and other current assets
    
    
    2,417
    
    
    
    4,182Total current assets
    
    
    184,112
    
    
    
    197,962Property, plant and equipment, net
    
    
    33,936
    
    
    
    34,291Investment in CoBank
    
    
    1,774
    
    
    
    2,191Deferred income taxes
    
    
    4,922
    
    
    
    4,812Goodwill
    
    
    5,432
    
    
    
    5,077Other intangible assets, net
    
    
    3,707
    
    
    
    3,941Other assets
    
    
    2,520
    
    
    
    4,758Total assets
    
    $
    236,403
    
    
    $
    253,032LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long term obligations
    
    $
    162
    
    
    $
    Accounts payable and accrued liabilities
    
    
    26,306
    
    
    
    28,371Payable to growers
    
    
    57,117
    
    
    
    81,902Total current liabilities
    
    
    83,585
    
    
    
    110,273Long-term obligations
    
    
    20,345
    
    
    
    20,000Other liabilities
    
    
    7,132
    
    
    
    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;
15,848,717 and 15,737,194 shares issued and 15,764,647 and
15,737,194 shares outstanding at July 31, 2007 and 2006,
respectively
    
    
    16
    
    
    
    16Treasury stock, at cost: 84,070 shares at July 31, 2007
    
    
    (1,436
    )
    
    
    Additional paid-in capital
    
    
    101,106
    
    
    
    93,962Accumulated other comprehensive income (loss)
    
    
    2,233
    
    
    
    (36
    )Retained earnings
    
    
    23,422
    
    
    
    16,884Total stockholders equity
    
    
    125,341
    
    
    
    110,826Total liabilities and stockholders equity
    
    $
    236,403
    
    
    $
    253,032
  25




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##### Table of Contents



DIAMOND FOODS, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS (2007 AND 2006)
CONSOLIDATED STATEMENT OF NET PROCEEDS (2005)
 Year Ended July 31,2007
    
    
    2006
    
    
    2005(In thousands, except per share information)Net sales
    
    $
    522,585
    
    
    $
    477,205
    
    
    $
    462,548Patronage inventory at end of period
    
    
    
    
    
    
    
    
    
    
    (101,403
    )Patronage inventory at beginning of period
    
    
    
    
    
    
    
    
    
    
    67,152Net sales (2007 and 2006)/Gross marketing pool proceeds (2005)
    
    
    522,585
    
    
    
    477,205
    
    
    
    428,297Cost of sales
    
    
    443,945
    
    
    
    409,039
    
    
    
    191,387Cost of sales  NRV amount
    
    
    
    
    
    
    2,770
    
    
    
    Total cost of sales
    
    
    443,945
    
    
    
    411,809
    
    
    
    191,387Gross margin (2007 and 2006)/Proceeds before operating expenses (2005)
    
    
    78,640
    
    
    
    65,396
    
    
    
    236,910Operating expenses:Selling, general and administrative (including $5,859 and $3,992 of
stock-based compensation for 2007 and 2006)
    
    
    42,541
    
    
    
    37,046
    
    
    
    33,188Advertising
    
    
    20,445
    
    
    
    17,977
    
    
    
    22,153Restructuring and other costs, net
    
    
    (15
    )
    
    
    3,442
    
    
    
    Loss on termination of defined benefit plan
    
    
    3,054
    
    
    
    
    
    
    
    Total operating expenses
    
    
    66,025
    
    
    
    58,465
    
    
    
    55,341Income from operations (2007 and 2006)/Operating proceeds (2005)
    
    
    12,615
    
    
    
    6,931
    
    
    
    181,569Interest expense, net
    
    
    1,291
    
    
    
    295
    
    
    
    4,433Conversion costs
    
    
    
    
    
    
    
    
    
    
    697Other
    
    
    98
    
    
    
    310
    
    
    
    Early extinguishments of debt
    
    
    
    
    
    
    
    
    
    
    2,028Income before income tax expense (benefit)(2007 and 2006)/
Proceeds before income tax (benefit) (2005)
    
    
    11,226
    
    
    
    6,326
    
    
    
    174,411Income tax expense (benefit)
    
    
    2,793
    
    
    
    (1,010
    )
    
    
    (8,385
    )Net income (2007 and 2006)/Net proceeds (2005)
    
    $
    8,433
    
    
    $
    7,336
    
    
    $
    182,796Earnings per shareBasic
    
    $
    0.53
    
    
    $
    0.47Diluted
    
    $
    0.53
    
    
    $
    0.47Shares used to compute earnings per shareBasic
    
    
    15,786
    
    
    
    15,634Diluted
    
    
    15,786
    
    
    
    15,653
  26




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##### Table of Contents



DIAMOND FOODS, INC.
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS/MEMBERS EQUITY
 Accumulated
    
    
    TotalAdditional
    
    
    Working
    
    
    
    
    
    
    Other
    
    
    Stockholders/Common Stock
    
    
    Treasury
    
    
    Paid-In
    
    
    Capital
    
    
    Retained
    
    
    Comprehensive
    
    
    MembersShares
    
    
    Amount
    
    
    Stock
    
    
    Capital
    
    
    Retains
    
    
    Earnings
    
    
    Income/(Loss)
    
    
    Equity(In thousands, except share information)Balance, July 31, 2004
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    41,714
    
    
    $
    17,500
    
    
    $
    
    
    
    $
    59,214Nonpatronage loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,545
    )
    
    
    
    
    
    
    (6,545
    )Working capital retains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,500
    
    
    
    
    
    
    
    
    
    
    
    38,500Initial public offering of common stock,
net of underwriting and offering expenses
and amounts due former members electing
cash in lieu of common stock
    
    
    15,555,506
    
    
    
    16
    
    
    
    
    
    
    
    88,491
    
    
    
    (38,500
    )
    
    
    
    
    
    
    
    
    
    
    50,007Revolvement of working capital retains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41,714
    )
    
    
    
    
    
    
    
    
    
    
    (41,714
    )Balance, July 31, 2005
    
    
    15,555,506
    
    
    
    16
    
    
    
    
    
    
    
    88,491
    
    
    
    
    
    
    
    10,955
    
    
    
    
    
    
    
    99,462Shares issued under Employee Stock
Purchase Plan (ESPP)
    
    
    57,872
    
    
    
    
    
    
    
    
    
    
    
    802
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    802Stock compensation expense
    
    
    123,816
    
    
    
    
    
    
    
    
    
    
    
    3,992
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,992ESPP disqualifying dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37Conversion of Long Term
Incentive Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    640
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    640Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,407
    )
    
    
    
    
    
    
    (1,407
    )Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,336
    
    
    
    
    
    
    
    7,336Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    (36
    )Total comprehensive income:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,300Balance, July 31, 2006
    
    
    15,737,194
    
    
    
    16
    
    
    
    
    
    
    
    93,962
    
    
    
    
    
    
    
    16,884
    
    
    
    (36
    )
    
    
    110,826Shares issued under ESPP and upon stock
option exercises
    
    
    88,355
    
    
    
    
    
    
    
    
    
    
    
    1,204
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,204Stock compensation expense
    
    
    23,168
    
    
    
    
    
    
    
    
    
    
    
    5,859
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,859ESPP disqualifying dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78Tax benefit  restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Treasury stock repurchase
    
    
    (84,070
    )
    
    
    
    
    
    
    (1,436
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,436
    )Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,895
    )
    
    
    
    
    
    
    (1,895
    )Adjustment to initially apply SFAS No. 158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,230
    
    
    
    2,230Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,433
    
    
    
    
    
    
    
    8,433Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    39Total comprehensive income:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,472Balance, July 31, 2007
    
    
    15,764,647
    
    
    $
    16
    
    
    $
    (1,436
    )
    
    $
    101,106
    
    
    $
    
    
    
    $
    23,422
    
    
    $
    2,233
    
    
    $
    125,341




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##### Table of Contents



DIAMOND FOODS, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended July 31,2007
    
    
    2006
    
    
    2005(In thousands)CASH FLOWS FROM OPERATING ACTIVITIESNet income (2007 and 2006)/Net proceeds (2005)
    
    $
    8,433
    
    
    $
    7,336
    
    
    $
    182,796Adjustments to reconcile net income (2007 and 2006)/net proceeds (2005) to
net cash provided by operating activities:Depreciation and amortization
    
    
    7,561
    
    
    
    5,532
    
    
    
    4,717Deferred income taxes
    
    
    (1,874
    )
    
    
    (1,531
    )
    
    
    (6,593
    )Loss on termination of defined benefit plan
    
    
    2,575Tax benefit related to stock-based compensation plans
    
    
    81
    
    
    
    37
    
    
    
    Excess tax benefit from ESPP and stock option transactions
    
    
    (81
    )
    
    
    (37
    )
    
    
    Stock-based compensation
    
    
    5,859
    
    
    
    3,992
    
    
    
    Gain on sale of property held for sale
    
    
    (1,193
    )
    
    
    
    
    
    
    Loss on disposal of fixed assets
    
    
    19
    
    
    
    442
    
    
    
    Gain on foreign currency
    
    
    39
    
    
    
    
    
    
    
    Early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    233CoBank patronage dividend paid in stock
    
    
    (2
    )
    
    
    (47
    )
    
    
    (119
    )Changes in assets and liabilities (net of effects of acquisition):Trade receivables
    
    
    (1,048
    )
    
    
    (4,805
    )
    
    
    (9,470
    )Inventories
    
    
    8,077
    
    
    
    17,278
    
    
    
    24,346Prepaid expenses and other current assets
    
    
    1,581
    
    
    
    (1,957
    )
    
    
    (1,482
    )Other assets
    
    
    454
    
    
    
    1,764
    
    
    
    1,310Accounts payable and accrued liabilities
    
    
    (1,871
    )
    
    
    (4,419
    )
    
    
    8,106Payable to growers
    
    
    (24,785
    )
    
    
    9,348Other liabilities
    
    
    (11
    )
    
    
    1,027
    
    
    
    811Adjustment to current member account for change in prepaid inventory costs
    
    
    
    
    
    
    
    
    
    
    7,216Cash payments to members
    
    
    
    
    
    
    
    
    
    
    (201,415
    )Net cash provided by operating activities
    
    
    3,814
    
    
    
    33,960
    
    
    
    10,456CASH FLOWS FROM INVESTING ACTIVITIES:Capital revolvement from CoBank
    
    
    419
    
    
    
    126
    
    
    
    100Proceeds from sales of property, plant and equipment
    
    
    2,941
    
    
    
    49
    
    
    
    Acquisition of Harmony
    
    
    (197
    )
    
    
    (19,186
    )
    
    
    Purchases of property, plant, and equipment
    
    
    (6,790
    )
    
    
    (8,354
    )
    
    
    (10,500
    )Net cash used in investing activities
    
    
    (3,627
    )
    
    
    (27,365
    )
    
    
    (10,400
    )CASH FLOWS FROM FINANCING ACTIVITIES:Note payable borrowings (repayments), net
    
    
    
    
    
    
    (2,119
    )
    
    
    (42,173
    )Net proceeds from initial public offering
    
    
    
    
    
    
    
    
    
    
    105,836Payment to members for membership interests
    
    
    
    
    
    
    (17,329
    )
    
    
    Issuance of common stock under stock plans
    
    
    1,204
    
    
    
    802
    
    
    
    Dividends paid
    
    
    (1,895
    )
    
    
    (1,407
    )
    
    
    Excess tax benefit from ESPP and stock option transactions
    
    
    81
    
    
    
    37
    
    
    
    Purchases of treasury stock
    
    
    (1,436
    )
    
    
    
    
    
    
    Additions to long-term obligation
    
    
    
    
    
    
    
    
    
    
    10,000Payments of long-term obligations
    
    
    
    
    
    
    
    
    
    
    (25,464
    )Net cash provided by (used in) financing activities
    
    
    (2,046
    )
    
    
    (20,016
    )
    
    
    48,199Net increase (decrease) in cash and cash equivalents
    
    
    (1,859
    )
    
    
    (13,421
    )
    
    
    48,255Cash and cash equivalents:Beginning of period
    
    
    35,614
    
    
    
    49,035
    
    
    
    780End of period
    
    $
    33,755
    
    
    $
    35,614
    
    
    $
    49,035Supplemental disclosure of cash flow information:Cash paid (received) during the period for:Interest
    
    $
    1,638
    
    
    $
    696
    
    
    $
    4,580Income taxes
    
    
    3,878
    
    
    
    2,178
    
    
    
    (296
    )Non-cash investing activities:Liabilities assumed in Harmony acquisition
    
    
    
    
    
    
    3,404
    
    
    
    Accrued capital expenditures
    
    
    94
    
    
    
    380
    
    
    
    420Non-cash financing activities:Net proceeds from initial public offering payable to members
    
    
    
    
    
    
    
    
    
    
    17,329Accrued liability exchanged for options to acquire common stock
    
    
    
    
    
    
    640
    
    
    
    Capital lease obligations incurred
    
    
    507
    
    
    
    
    
    
    
    
  28




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##### Table of Contents



DIAMOND FOODS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2007, 2006 and 2005
(In thousands, except share and per share information)
 (1)  Conversion and Initial Public Offering
  (2)  Organization and Significant Accounting Policies
 Business
  Basis of Presentation
  Use of Estimates
   Certain Risks and Concentrations
  29




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##### Table of Contents



Principles of Consolidation
  Cash and Cash Equivalents
  Inventories
  Crop Accounting Policy
  Investment in CoBank
  Property, Plant and Equipment
  Slotting and Other Contractual Arrangements
  Impairment of Long-Lived and Intangible Assets and Goodwill
 Accounting for the Impairment or Disposal of
Long-lived Assets Goodwill and Other Intangible Assets.
 30




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##### Table of Contents



Revenue Recognition
  Promotion and Advertising Costs
 Accounting for Consideration Given by a Vendor to a Customer.
 Shipping and Handling Costs
  Income Taxes
   Fair Value of Financial Instruments
  Foreign Currency Hedging
  31




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##### Table of Contents



Derivative Financial Instruments and Hedging.
  At July 31, 2006
    
    $
    (36
    )Net change on cash flow hedges
    
    
    0Reclassification to other income
    
    
    36At July 31, 2007
    
    $
    
 Stock-Based Compensation
 Share-Based Payment, Accounting for Stock-Based Compensation. Accounting for Stock Issued to Employees,
 Adoption of SFAS. No. 158
 Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans.
 Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement 109,
 Fair Value Measurements
 The Fair Value Option for Financial Assets
and Financial Liabilities 
 32




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##### Table of Contents



(3)  Stock-Based Compensation
     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,
 2007
    
    
    2006Net income, as reported
    
    $
    8,433
    
    
    $
    7,336Total stock-based compensation recorded in the statement of operations, net of related tax effects
    
    
    4,401
    
    
    
    2,388Total stock-based compensation expense determined under fair value based method for all awards,
net of related tax effects
    
    
    (5,748
    )
    
    
    (3,514
    )Pro forma net income
    
    $
    7,086
    
    
    $
    6,210Net income per common equivalent share:Basic  as reported
    
    $
    0.53
    
    
    $
    0.47Basic  pro forma
    
    $
    0.45
    
    
    $
    0.40Diluted  as reported
    
    $
    0.53
    
    
    $
    0.47Diluted  pro forma
    
    $
    0.45
    
    
    $
    0.40
 33




---



##### Table of Contents



Stock Option Awards:
 2007
    
    2006Average expected life, in years
    
    
    6
    
    
    
    6Expected volatility
    
    
    30.00
    %
    
    
    27.50
    %Risk-free interest rate
    
    
    4.75
    %
    
    
    4.61
    %Dividend rate
    
    
    0.72
    %
    
    
    0.67
    %
  Weighted Average
    
    Weighted AverageNumber of
    
    Exercise Price Per
    
    Remaining
    
    AggregateShares
    
    Share
    
    Contractual Life
    
    Intrinsic Value(In thousands)
    
    
    
    
    
    (In years)
    
    (In thousands)Outstanding at July 31, 2005
    
    
    1,123
    
    
    $
    17.00Granted
    
    
    657
    
    
    
    18.15Exercised
    
    
    
    
    
    
    Cancelled
    
    
    (132
    )
    
    
    17.44Outstanding at July 31, 2006
    
    
    1,648
    
    
    
    17.43
    
    
    
    9.2
    
    
    $
    Granted
    
    
    117
    
    
    
    16.93Exercised
    
    
    (35
    )
    
    
    16.97Cancelled
    
    
    (109
    )
    
    
    17.88Outstanding at July 31, 2007
    
    
    1,621
    
    
    
    17.37
    
    
    
    8.3
    
    
    $
    226Exercisable at July 31, 2006
    
    
    341
    
    
    
    17.00
    
    
    
    9.0
    
    
    $
    Exercisable at July 31, 2007
    
    
    877
    
    
    
    17.18
    
    
    
    8.2
    
    
    $
    159
   Weighted AverageNumber of
    
    Grant Date FairShares
    
    Value Per Share(In thousands)Nonvested at July 31, 2005
    
    
    1,123
    
    
    $
    5.18Granted
    
    
    657
    
    
    
    6.13Vested
    
    
    (341
    )
    
    
    5.18Cancelled
    
    
    (132
    )
    
    
    5.66Nonvested at July 31, 2006
    
    
    1,307
    
    
    
    5.80Granted
    
    
    117
    
    
    
    5.91Vested
    
    
    (615
    )
    
    
    5.71Cancelled
    
    
    (65
    )
    
    
    5.84Nonvested at July 31, 2007
    
    
    744
    
    
    
    5.89
  34




---



##### Table of Contents



Restricted Stock Awards:
 Weighted AverageNumber of
    
    Grant Date FairShares
    
    Value Per Share(In thousands)Outstanding at July 31, 2005
    
    
    598
    
    
    $
    17.00Granted
    
    
    149
    
    
    
    18.94Vested
    
    
    (193
    )
    
    
    17.00Cancelled
    
    
    (25
    )
    
    
    17.65Outstanding at July 31, 2006
    
    
    529
    
    
    
    17.52Granted
    
    
    27
    
    
    
    16.75Vested
    
    
    (242
    )
    
    
    17.37Cancelled
    
    
    (4
    )
    
    
    19.67Outstanding at July 31, 2007
    
    
    310
    
    
    
    17.50
   Employee Stock Purchase Plan:
 2007
    
    2006Average expected life, in years
    
    
    0.75
    
    
    
    0.75Expected volatility
    
    
    29.4
    %
    
    
    27.5
    %Risk-free interest rate
    
    
    4.8
    %
    
    
    4.3
    %Dividend rate
    
    
    0.68
    %
    
    
    0.71
    %
  (4)  Earnings Per Share
  (5)  Acquisition of Assets of Harmony Foods Corporation
  35




---



##### Table of Contents



Business Combinations.
  Accounts receivable
    
    $
    2,563Inventory
    
    
    4,704Prepaid expenses
    
    
    203Property, plant and equipment
    
    
    5,640Customers contracts and related relationships
    
    
    2,400Trademark and trade names
    
    
    1,600Goodwill
    
    
    5,432Liabilities assumed
    
    
    (3,159
    )Purchase price
    
    $
    19,383
  July 31,2007
    
    
    2006Goodwill
    
    $
    5,432
    
    
    $
    5,077Intangible assets subject to amortization:Customer contracts and related relationships
    
    
    2,400
    
    
    
    2,400Trademarks and trade names
    
    
    1,600
    
    
    
    1,6004,000
    
    
    
    4,000Total goodwill and intangible assets
    
    $
    9,432
    
    
    $
    9,077
  July 31,2007
    
    
    2006Goodwill
    
    $
    5,432
    
    
    $
    5,077Intangible assets subject to amortization:Customer contracts and related relationships, net
of accumulated amortization of $150 and $30, for
2007 and 2006, respectively
    
    
    2,250
    
    
    
    2,370Trademarks and trade names, net of accumulated
amortization of $143 and $29, for 2007 and 2006,
respectively
    
    
    1,457
    
    
    
    1,5713,707
    
    
    
    3,941Total goodwill and intangible assets, net
    
    $
    9,139
    
    
    $
    9,018
    Pro Forma  Financial Information
  July 31,2006
    
    2005Net sales
    
    $
    502,503
    
    
    $
    522,649Net loss
    
    $
    (397
    )
    
    $
    (14,667
    )Diluted earnings per share
    
    $
    (0.03
    )
    
    
    *
 36




---



##### Table of Contents



*
    
    As a cooperative association prior to the conversion, Diamond had no
shares outstanding; therefore earnings per share is not meaningful. (6)  Notes Payable and Long-Term Obligations
     (7)  Balance sheet items
  July 31,2007
    
    
    2006Raw materials and supplies
    
    $
    19,653
    
    
    $
    32,484Work in process
    
    
    14,043
    
    
    
    16,148Finished goods
    
    
    56,923
    
    
    
    50,545Total
    
    $
    90,619
    
    
    $
    99,177
  July 31,2007
    
    
    2006Accounts payable
    
    $
    15,151
    
    
    $
    19,090Accrued salaries and benefits
    
    
    4,082
    
    
    
    4,496Accrued promotion
    
    
    5,882
    
    
    
    3,477Other
    
    
    1,191
    
    
    
    1,308Total
    
    $
    26,306
    
    
    $
    28,371
 (8)  Property, Plant and Equipment
  July 31,2007
    
    
    2006Land and improvements
    
    $
    1,569
    
    
    $
    1,569Buildings and improvements
    
    
    16,975
    
    
    
    16,933Machinery, equipment and software
    
    
    95,037
    
    
    
    86,700Construction in progress
    
    
    4,221
    
    
    
    5,898Total
    
    
    117,802
    
    
    
    111,100Less accumulated depreciation
    
    
    (83,866
    )
    
    
    (76,809
    )Property, plant and equipment, net
    
    $
    33,936
    
    
    $
    34,291
 37




---



##### Table of Contents



(9)  Income Taxes
  Year Ended July 31,2007
    
    
    2006
    
    
    2005Current
Federal
    
    $
    4,449
    
    
    $
    688
    
    
    $
    (1,684
    )State
    
    
    218
    
    
    
    (167
    )
    
    
    (108
    )Deferred
    
    
    (1,874
    )
    
    
    (1,531
    )
    
    
    (6,593
    )Total
    
    $
    2,793
    
    
    $
    (1,010
    )
    
    $
    (8,385
    )
  Year Ended July 31,2007
    
    
    2006
    
    
    2005Federal tax computed at the statutory rate
    
    $
    3,929
    
    
    $
    2,214
    
    
    $
    61,044Benefit for payments to members
    
    
    
    
    
    
    
    
    
    
    (66,322
    )Stock-based compensation
    
    
    56
    
    
    
    114
    
    
    
    Change in valuation allowance
    
    
    (1,044
    )
    
    
    
    
    
    
    (19
    )Recognition of net deferred tax assets
resulting from the conversion, net of
valuation allowance of $799
    
    
    
    
    
    
    
    
    
    
    (1,912
    )State taxes, net of federal impact
    
    
    211
    
    
    
    (3,503
    )
    
    
    (746
    )Other items, net
    
    
    (359
    )
    
    
    165
    
    
    
    (430
    )Income tax expense (benefit)
    
    $
    2,793
    
    
    $
    (1,010
    )
    
    $
    (8,385
    )
  At
    
    
    At July 31, 2006July 31,
    
    
    
    
    
    
    Valuation2007
    
    
    Gross
    
    
    Allowance
    
    
    NetDeferred tax assets:Current:Inventories
    
    $
    878
    
    
    $
    873
    
    
    $
    
    
    
    $
    873Receivables
    
    
    228
    
    
    
    240
    
    
    
    
    
    
    
    240Accruals
    
    
    2,475
    
    
    
    2,881
    
    
    
    
    
    
    
    2,881Retirement benefits
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    Net operating loss
    
    
    17
    
    
    
    168
    
    
    
    
    
    
    
    168Other
    
    
    947
    
    
    
    416
    
    
    
    
    
    
    
    416Total current
    
    
    4,805
    
    
    
    4,578
    
    
    
    
    
    
    
    4,578Non-current:Enterprise Zone Credits
    
    
    3,608
    
    
    
    3,692
    
    
    
    
    
    
    
    3,692AMT Credits
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    67Retirement benefits
    
    
    4,705
    
    
    
    4,636
    
    
    
    (1,044
    )
    
    
    3,592Total non-current
    
    
    8,313
    
    
    
    8,395
    
    
    
    (1,044
    )
    
    
    7,351Deferred tax liabilities:Non-current:Retirement benefits
    
    
    3,013
    
    
    
    2,355
    
    
    
    
    
    
    
    2,355Property, plant and equipment
    
    
    28
    
    
    
    157
    
    
    
    
    
    
    
    157Other
    
    
    350
    
    
    
    27
    
    
    
    
    
    
    
    27Total non-current
    
    
    3,391
    
    
    
    2,539
    
    
    
    
    
    
    
    2,539Total deferred income taxes
    
    $
    9,727
    
    
    $
    10,434
    
    
    $
    (1,044
    )
    
    $
    9,390Composed of:Net current deferred income taxes
    
    $
    4,805
    
    
    
    
    
    
    
    
    
    
    $
    4,578Net long-term deferred income taxes
    
    
    4,922
    
    
    
    
    
    
    
    
    
    
    
    4,812Total deferred income taxes
    
    $
    9,727
    
    
    
    
    
    
    
    
    
    
    $
    9,390
  38




---



##### Table of Contents



(10)  Commitments and Contingencies
      2008
    
    $
    1,9622009
    
    
    1,9212010
    
    
    1,9122011
    
    
    1,4552012
    
    
    1,155Thereafter
    
    
    5,454Total
    
    $
    13,859
 (11)  Segment Disclosures
  2007
    
    
    2006
    
    
    2005United States
    
    $
    389,230
    
    
    $
    342,369
    
    
    $
    322,461Europe
    
    
    57,343
    
    
    
    57,734
    
    
    
    70,526Other
    
    
    76,012
    
    
    
    77,102
    
    
    
    69,561Total
    
    $
    522,585
    
    
    $
    477,205
    
    
    $
    462,548
   2007
    
    
    2006
    
    
    2005North American Retail
    
    $
    333,117
    
    
    $
    274,879
    
    
    $
    228,522International
    
    
    112,830
    
    
    
    114,781
    
    
    
    122,514North American Ingredient/Food Service
    
    
    73,822
    
    
    
    84,475
    
    
    
    107,029Other
    
    
    2,816
    
    
    
    3,070
    
    
    
    4,483$
    522,585
    
    
    $
    477,205
    
    
    $
    462,548
 39




---



##### Table of Contents



(12)  Valuation Reserves and Qualifying Accounts
 AmountBeginning
    
    Charged
    
    Charged to
    
    End ofof Period
    
    to Expense
    
    Reserve
    
    PeriodAllowance for Doubtful AccountsYear ended July 31, 2005
    
    $
    883
    
    
    $
    196
    
    
    $
    (564
    )
    
    $
    515Year ended July 31, 2006
    
    
    515
    
    
    
    204
    
    
    
    (121
    )
    
    
    598Year ended July 31, 2007
    
    
    598
    
    
    
    (228
    )
    
    
    (22
    )
    
    
    348Deferred Tax Asset Valuation AllowanceYear ended July 31, 2005
    
    
    264
    
    
    
    780
    
    
    
    
    
    
    
    1,044Year ended July 31, 2006
    
    
    1,044
    
    
    
    
    
    
    
    
    
    
    
    1,044Year ended July 31, 2007
    
    
    1,044
    
    
    
    (1,044
    )
    
    
    
    
    
    
    
 (13)  Retirement Plans
    Pension Benefits
    
    
    Other BenefitsChange in benefit obligation
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Benefit obligation at beginning of year
    
    $
    32,581
    
    
    $
    34,901
    
    
    $
    5,279
    
    
    $
    10,575Service cost
    
    
    1,209
    
    
    
    2,234
    
    
    
    114
    
    
    
    253Interest cost
    
    
    1,763
    
    
    
    1,726
    
    
    
    310
    
    
    
    543Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    178
    
    
    
    287Plan amendments
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    Curtailments
    
    
    (2,556
    )
    
    
    
    
    
    
    
    
    
    
    Settlements
    
    
    (3,191
    )
    
    
    
    
    
    
    
    
    
    
    Actuarial loss (gain)
    
    
    107
    
    
    
    (3,417
    )
    
    
    (909
    )
    
    
    (5,756
    )Benefits paid
    
    
    (14,796
    )
    
    
    (2,863
    )
    
    
    (520
    )
    
    
    (623
    )Benefit obligation at end of year
    
    $
    15,198
    
    
    $
    32,581
    
    
    $
    4,452
    
    
    $
    5,279
 Pension Benefits
    
    
    Other BenefitsChange in plan assets
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Fair value of plan assets at beginning of year
    
    $
    29,046
    
    
    $
    30,522
    
    
    $
    
    
    
    $
    Actual return on plan assets
    
    
    3,114
    
    
    
    1,387
    
    
    
    
    
    
    
    Employer contribution
    
    
    345
    
    
    
    
    
    
    
    342
    
    
    
    336Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    178
    
    
    
    287Benefits paid
    
    
    (14,796
    )
    
    
    (2,863
    )
    
    
    (520
    )
    
    
    (623
    )Settlements
    
    
    (3,191
    )
    
    
    
    
    
    
    
    
    
    
    Fair value of plan assets at end of year
    
    $
    14,518
    
    
    $
    29,046
    
    
    $
    
    
    
    $
    Funded status at end of year
    
    $
    (680
    )
    
    $
    (3,535
    )
    
    $
    (4,452
    )
    
    $
    (5,279
    )
  Pension Benefits
    
    
    Other Benefits2007
    
    
    2006
    
    
    2007
    
    
    2006Noncurrent assets
    
    $
    1,792
    
    
    $
    5,857
    
    
    $
    
    
    
    $
    Current liabilities
    
    
    
    
    
    
    
    
    
    
    (183
    )
    
    
    (240
    )Noncurrent liabilities
    
    
    (2,472
    )
    
    
    (1,644
    )
    
    
    (4,269
    )
    
    
    (9,645
    )$
    (680
    )
    
    $
    4,213
    
    
    $
    (4,452
    )
    
    $
    (9,885
    )
 40




---



##### Table of Contents



Pension Benefits
    
    
    Other BenefitsNet loss (gain)
    
    $
    1,111
    
    
    $
    (5,061
    )Prior service cost (credit)
    
    
    183
    
    
    
    $
    1,294
    
    
    $
    (5,061
    )
   2007
    
    2006Projected benefit obligation
    
    $
    2,472
    
    
    $
    2,395Accumulated benefit obligation
    
    
    1,842
    
    
    
    1,556Fair value of plan assets
    
    
    
    
    
    
    
  Pension Benefits
    
    
    Other BenefitsNet Periodic Benefit Cost /(Income)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005Service cost
    
    $
    1,209
    
    
    $
    2,234
    
    
    $
    2,013
    
    
    $
    114
    
    
    $
    253
    
    
    $
    273Interest cost
    
    
    1,763
    
    
    
    1,726
    
    
    
    1,845
    
    
    
    310
    
    
    
    543
    
    
    
    589Expected return on plan assets
    
    
    (2,236
    )
    
    
    (2,300
    )
    
    
    (2,299
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    (57
    )
    
    
    (287
    )
    
    
    (287
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of net (gain) loss
    
    
    499
    
    
    
    809
    
    
    
    699
    
    
    
    (454
    )
    
    
    21
    
    
    
    35Net periodic benefit cost /(income)
    
    
    1,178
    
    
    
    2,182
    
    
    
    1,971
    
    
    
    (30
    )
    
    
    817
    
    
    
    897Gain on curtailment of defined benefit plan
    
    
    (3,039
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss on settlement of defined benefit plan (1)
    
    
    5,805
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total benefit cost /(income)
    
    $
    3,944
    
    
    $
    2,182
    
    
    $
    1,971
    
    
    $
    (30
    )
    
    $
    817
    
    
    $
    897
 
 (1)
    
    Excludes $288 of costs to terminate the plan.   Assumptions
  Pension Benefits
    
    Other Benefits2007
    
    2006
    
    2005
    
    2007
    
    2006
    
    2005Discount rate
    
    
    6.40
    %
    
    
    5.91
    %
    
    
    5.25
    %
    
    
    6.40
    %
    
    
    6.00
    %
    
    
    5.25
    %Rate of compensation increase
    
    
    5.50
    
    
    
    5.50
    
    
    
    5.50
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
  Pension Benefits
    
    Other Benefits2007
    
    2006
    
    2005
    
    2007
    
    2006
    
    2005Discount rate
    
    
    5.91
    %
    
    
    5.25
    %
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    5.25
    %
    
    
    6.00
    %Expected long-term return on plan assets
    
    
    8.00
    
    
    
    8.00
    
    
    
    8.00
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ARate of compensation increase
    
    
    5.50
    
    
    
    5.50
    
    
    
    5.50
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
 41




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##### Table of Contents



2007
    
    2006
    
    2005Health care cost trend rate assumed for next year
    
    
    11.0
    %
    
    
    8.0
    %
    
    
    8.5
    %Rate to which the cost trend rate assumed to decline (the ultimate trend rate)
    
    
    5.0
    %
    
    
    5.0
    %
    
    
    5.0
    %Year the rate reaches ultimate trend rate
    
    
    2020
    
    
    
    2013
    
    
    
    2013
   One
    
    OnePercentage
    
    PercentagePoint
    
    PointIncrease
    
    DecreaseEffect on total of service and interest cost
    
    $
    78
    
    
    $
    (62
    )Effect on postretirement benefit obligation
    
    
    625
    
    
    
    (518
    )
 Plan Assets
  2007
    
    2006
    
    2005Asset category:Equity securities
    
    
    73.5
    %
    
    
    78.5
    %
    
    
    75.0
    %Debt securities
    
    
    24.3
    
    
    
    20.7
    
    
    
    25.0Cash and equivalents
    
    
    2.2
    
    
    
    0.8
    
    
    
    0.0Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   Cash Flows
  Pension
    
    OtherBenefits
    
    Benefits2008
    
    $
    338
    
    
    $
    1832009
    
    
    384
    
    
    
    2172010
    
    
    439
    
    
    
    2252011
    
    
    515
    
    
    
    2432012
    
    
    541
    
    
    
    2652013  2017
    
    
    5,352
    
    
    
    1,588
 42




---



##### Table of Contents



Incremental Effect of Applying FASB Statement No. 158 on Individual Line Items in the Statement of
Financial Position  July 31, 2007
 Before
    
    
    
    
    
    AfterApplication of
    
    
    
    
    
    Application ofSFAS No. 158
    
    Adjustments
    
    SFAS No. 158Liability for postretirement benefits
    
    $
    8,899
    
    
    $
    (3,767
    )
    
    $
    5,132Deferred income tax assets
    
    
    11,264
    
    
    
    (1,537
    )
    
    
    9,727Total liabilities
    
    
    115,669
    
    
    
    (4,607
    )
    
    
    111,062Accumulated other comprehensive income
    
    
    3
    
    
    
    2,230
    
    
    
    2,233Total stockholders equity
    
    
    123,111
    
    
    
    2,230
    
    
    
    125,341
 Defined Contribution Plan
  (14)  Restructuring and Other Costs, Net
    (15)  Quarterly Financial Information (unaudited)
 First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterYear ended July 31, 2007Net sales and other revenues
    
    $
    169,512
    
    
    $
    143,622
    
    
    $
    97,016
    
    
    $
    112,435Gross margin
    
    
    27,940
    
    
    
    20,341
    
    
    
    13,706
    
    
    
    16,653Operating expenses
    
    
    11,067
    
    
    
    16,439
    
    
    
    21,766
    
    
    
    16,753Net income (loss)
    
    
    9,641
    
    
    
    2,030
    
    
    
    (4,012
    )
    
    
    774Diluted earnings per share
    
    
    0.61
    
    
    
    0.13
    
    
    
    (0.25
    )
    
    
    0.05Diluted shares (in thousands)
    
    
    15,737
    
    
    
    15,772
    
    
    
    15,808
    
    
    
    15,826Year ended July 31, 2006Net sales and other revenues
    
    $
    178,060
    
    
    $
    124,157
    
    
    $
    67,798
    
    
    $
    107,190Gross margin
    
    
    22,811
    
    
    
    18,570
    
    
    
    8,428
    
    
    
    15,587Operating expenses
    
    
    15,784
    
    
    
    13,291
    
    
    
    13,567
    
    
    
    15,823Net income (loss)
    
    
    4,074
    
    
    
    3,077
    
    
    
    (3,175
    )
    
    
    3,360Diluted earnings per share
    
    
    0.26
    
    
    
    0.20
    
    
    
    (0.20
    )
    
    
    0.21Diluted shares (in thousands)
    
    
    15,634
    
    
    
    15,587
    
    
    
    15,668
    
    
    
    15,722Year ended July 31, 2005Net sales and other revenues
    
    $
    172,758
    
    
    $
    112,488
    
    
    $
    79,633
    
    
    $
    97,669Proceeds before operating expense
    
    
    209,225
    
    
    
    12,929
    
    
    
    8,736
    
    
    
    6,020Operating expenses
    
    
    17,639
    
    
    
    14,661
    
    
    
    11,303
    
    
    
    11,738Net Proceeds (loss)
    
    
    191,293
    
    
    
    (2,252
    )
    
    
    (3,232
    )
    
    
    (3,013
    )
 43




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
    
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers of the Registrant and Corporate Governance
 DIRECTORS AND OFFICERS
 Directors
  DirectorName of Director
    
    Age
    
    Principal Occupation
    
    SinceLaurence M. Baer
    
    
    50
    
    
    Executive Vice President and Chief Operating Officer, San
Francisco Giants.
    
    
    2005John J. Gilbert
    
    
    64
    
    
    Owner and President of Gilbert Orchards and Rio Oso Groves,
Inc.
    
    
    2005Robert M. Lea
    
    
    64
    
    
    Founder and Owner, Law Offices of Robert Lea.
    
    
    2005Michael J. Mendes
    
    
    44
    
    
    President and Chief Executive Officer of Diamond Foods, Inc.
    
    
    2005Dennis Mussell
    
    
    65
    
    
    Retired, former President and Chief Executive Officer of
Chicken of the Sea International.
    
    
    2005Steven M. Neil
    
    
    55
    
    
    Executive Vice President and Chief Financial Officer of The
Cooper Companies, Inc.
    
    
    2005Joseph P. Silveira
    
    
    60
    
    
    President of Farmland Management Services, Inc.
    
    
    2005Glen C. Warren
    
    
    51
    
    
    President, Chief Financial Officer and a director of Antero
Resources Corporation.
    
    
    2005Robert J. Zollars
    
    
    50
    
    
    Chairman and Chief Executive Officer of Vocera
Communications, Inc.
    
    
    2005
 44




---



##### Table of Contents



Laurence M. Baer
 John J. Gilbert
 Robert M. Lea
 Michael J. Mendes
 Dennis Mussell
 Steven M. Neil
 Joseph P. Silveira
 Glen C. Warren, Jr.
 45




---



##### Table of Contents



Robert J. Zollars
 Executive Officers
 Name
    
    Age
    
    PositionMichael J. Mendes
    
    
    44
    
    
    President, Chief Executive Officer and DirectorGary K. Ford
    
    
    53
    
    
    Chief Operating Officer, Executive Vice PresidentSeth Halio
    
    
    45
    
    
    Chief Financial Officer, Executive Vice PresidentSamuel J. Keiper
    
    
    57
    
    
    Vice President, Corporate Affairs and Human
ResourcesAndrew Burke
    
    
    41
    
    
    Senior Vice President, Marketing
 Michael J. Mendes
 Gary K. Ford
 Seth Halio
 Samuel J. Keiper
 Andrew Burke
 46




---



##### Table of Contents



Section 16(a) Beneficial Ownership Reporting Compliance
  CORPORATE GOVERNANCE
 www.diamondfoods.com
 Composition of Board of Directors
   
    
    Class I directors, whose terms expire at the 2009 annual meeting of stockholders;
    
    Class II directors, whose terms expire at the 2010 annual meeting of stockholders;
and
    
    Class III directors, whose terms expire at the 2008 annual meeting of stockholders.
  Board of Directors Meetings and Committees
  Audit Committee.
 47




---



##### Table of Contents



Compensation Committee.
 Nominating and Governance Committee.
 Consideration of Director Nominees
 Director Qualifications.
 Stockholder Nominees th th th th
  Independent Directors
  48




---



##### Table of Contents



Communication with the Board
  Director Attendance at Meetings
  
 Item 11. Executive Compensation
 COMPENSATION DISCUSSION AND ANALYSIS
  Diamonds Compensation Philosophy and Objectives
  Executive Compensation Processes
 Role of the compensation committee Corporate Governance
 Compensation Committee.
 The Committee Uses Reports from Consultants
 49




---



##### Table of Contents




    
    Kraft Foods, Inc.
    
    Campbell Soup Co.
    
    Hershey Foods Corp.
    
    McCormick & Co., Inc.
    
    Smucker JM Co.
    
    Lance, Inc.
    
    Hain Celestial Group, Inc.
    
    J&J Snack Foods Corp.
    
    Tootsie Roll Industries, Inc.
    
    Weider Nutrition International, Inc.
    
    SunOpta, Inc.
 The CEO Makes Recommendations.
 Components of Executive Compensation
  Base Salary .
  Annual Bonus Incentives
 50




---



##### Table of Contents



Equity Incentives .
 
    
    align the interests of our executives with those of other shareholders;
    
    promote performance orientation among executives through stock option grants the
value of which is at risk;
    
    augment total compensation to be competitive with executive compensation at other
companies; and
    
    retain executives through vesting of equity awards, particularly restricted stock.
  51




---



##### Table of Contents



Severance and Change of Control Benefits .  Potential Payments upon Employment Termination and Change of Control Events
 Retirement Plans Pension Benefits
 Perquisites
 REPORT OF THE COMPENSATION COMMITTEE
  COMPENSATION COMMITTEE
 
 52




---



##### Table of Contents



EXECUTIVE COMPENSATION
  Summary Compensation Table
 Change in PensionValue andNonqualifiedNon-Equity
    
    DeferredStock
    
    Option
    
    Incentive Plan
    
    Compensation
    
    All OtherName and Principal
    
    Fiscal
    
    Salary
    
    Bonus
    
    Awards
    
    Awards
    
    Compensation
    
    Earnings
    
    CompensationPosition
    
    Year
    
    ($)
    
    ($)
    
    ($) (1)
    
    ($)
    
    ($) (2)
    
    ($) (3)
    
    ($) (4)
    
    Total ($)Michael Mendes
President and
Chief Executive
Officer
    
    
    2007
    
    
    
    509,280
    
    
    
    
    
    1,583,176
    
    
    
    287,901
    (5)
    
    
    456,225
    
    
    
    120,184
    
    
    
    246,275
    
    
    
    3,203,041Gary Ford
Executive Vice
President, Chief
Operating Officer
    
    
    2007
    
    
    
    274,039
    
    
    
    
    
    685,384
    
    
    
    42,143
    (6)
    
    
    171,646
    
    
    
    
    
    
    
    74,278
    
    
    
    1,247,490Seth Halio 
Executive Vice
President, Chief
Financial Officer
    
    
    2007
    
    
    
    251,539
    
    
    
    
    
    595,974
    
    
    
    38,457
    (6)
    
    
    142,590
    
    
    
    
    
    
    
    41,030
    
    
    
    1,069,590Sam Keiper 
Vice President,
Corporate
Affairs and
Human Resources
    
    
    2007
    
    
    
    185,097
    
    
    
    
    
    232,684
    
    
    
    18,232
    (6)
    
    
    77,601
    
    
    
    
    
    
    
    33,102
    
    
    
    546,716Andrew Burke
Senior Vice
President, 
Marketing
    
    
    2007
    
    
    
    237,692
    
    
    
    
    
    74,622
    
    
    
    36,077
    (6)
    
    
    83,795
    
    
    
    
    
    
    
    16,546
    
    
    
    448,732
 
 (1)
    
    The amounts shown in this column represent compensation expense recognized for financial
reporting purposes during fiscal 2007 in accordance with SFAS 123R related to the awards of
restricted shares granted in fiscal years 2005, 2006 and 2007. Additional information
regarding our SFAS 123R assumptions can be found in Note 3 of the Notes to Consolidated
Financial Statements on page 33, with the exceptions that the valuation shown here in the
Summary Compensation Table assumes no forfeitures for the named executive officers. The
restricted shares reflected in this column vest over a three-year period from the date of
grant. During the vesting period, the named executive officers are the beneficial owners of
the restricted shares and possess all voting and dividend rights. Dividends are payable at
the same rate as is paid on the Companys common shares generally. During fiscal 2007, we paid
quarterly dividends at a rate of $0.03 per share.(2)
    
    Amounts in this column reflect annual, non-equity incentive plan awards earned under the
Annual Bonus Program during fiscal 2007. The payments were based on achievement of company
annual plan objectives, for the Chief Executive Officer, and of individual goal plan
objectives for the other named executive officers. The amounts are comprised of bonus paid in
December 2006, pro rated for four months, and in September 2007, which amount was based on an
eight-month period. Additional information regarding the Annual Bonus Program is provided under
Compensation Discussion and Analysis  Components of
Executive Compensation  Annual Bonus Incentives. 53




---



##### Table of Contents



(3)
    
    Amounts in this column represent the increase in present value of accumulated benefits
accrued under the Diamond Walnut Growers Retirement Restoration Plan, in which the Chief
Executive Officer participates. Additional information regarding the Retirement Restoration
Plan is set forth below in Pension Benefits.(4)
    
    Amounts shown in this column for each of the named executive officers include the following: Mr. Mendes
    
    Mr. Ford
    
    Mr. Halio
    
    Mr. Keiper
    
    Mr. BurkeHousing and Moving Expenses
    
    $
    111,321
    
    
    $
    32,400
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Travel Reimbursements
    
    
    2,131
    
    
    
    834
    
    
    
    0
    
    
    
    1,241
    
    
    
    1,428Health and Wellness Programs
    
    
    6,443
    
    
    
    480
    
    
    
    3,144
    
    
    
    0
    
    
    
    832Exec-U-Care Reimbursements (a)
    
    
    2,053
    
    
    
    6,507
    
    
    
    4,577
    
    
    
    424
    
    
    
    0Auto and Parking (b)
    
    
    4,988
    
    
    
    2,953
    
    
    
    9,297
    
    
    
    3,389
    
    
    
    0Financial Planning Services
    
    
    15,275
    
    
    
    6,711
    
    
    
    6,240
    
    
    
    6,646
    
    
    
    0Tax Gross Ups (c)
    
    
    85,896
    
    
    
    7,329
    
    
    
    4,093
    
    
    
    4,585
    
    
    
    0401(k) Contribution
    
    
    6,963
    
    
    
    6,415
    
    
    
    6,203
    
    
    
    5,692
    
    
    
    3,742Life and Medical Insurance Premiums
    
    
    11,205
    
    
    
    10,649
    
    
    
    7,476
    
    
    
    11,125
    
    
    
    10,544Total
    
    $
    246,275
    
    
    $
    74,278
    
    
    $
    41,030
    
    
    $
    33,102
    
    
    $
    16,546
 (a)
    
    Includes reimbursement for medical expenses not otherwise covered under health
insurance offered by Diamond.(b)
    
    Includes value of the use of company-owned vehicle for personal reasons.(c)
    
    For Mr. Ford, Mr. Halio and Mr. Keiper, the amounts are attributable to gross ups paid
in connection with tax obligations associated with financial planning services. For Mr.
Mendes, includes gross ups paid in connection with tax obligations associated with the
following: $54,726 in gross up for housing reimbursement taxes and $31,170
in gross up for financial planning services income.
 
 (5)
    
    The amounts shown in this column represent compensation expense recognized for financial
reporting purposes during fiscal 2007 in accordance with SFAS 123R related to options to
purchase common stock granted in fiscal 2006 and 2007. Additional information regarding our
SFAS 123R assumptions can be found in Note 3 of the Notes to Consolidated Financial
Statements on page 33, with the exceptions that the valuation shown here in the Summary
Compensation Table assumes no forfeitures for the named executive officers. The options
reflected in this column vest over a five-year period from the date of grant.(6)
    
    The amounts shown in this column represent compensation expense recognized for financial
reporting purposes during fiscal 2007 in accordance with SFAS 123R related to options to
purchase common stock granted in fiscal 2006 and 2007. Additional information regarding our
SFAS 123R assumptions can be found in Note 3 of the Notes to Consolidated Financial
Statements on page 33, with the, with the exceptions that the valuation shown here in the Summary
Compensation Table assumes no forfeitures for the named executive officers. The options
reflected in this column vest over a three-year period from the date of grant. 54




---



##### Table of Contents



2007 GRANTS OF PLAN-BASED AWARDS
 Estimated Future Payouts Under
    
    Estimated Future Payouts UnderNon-Equity Incentive Plan
    
    Equity Incentive PlanAwards (1)
    
    Awards(j)
    
    (k)
    
    (l)(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)
    
    All OtherOption
    
    ExerciseAwards:
    
    Or Base
    
    GrantNumber of
    
    
    
    
    
    Date FairSecurities
    
    Price of
    
    ValueUnderlying
    
    Option
    
    Of OptionGrant
    
    Threshold
    
    Target
    
    Maximum
    
    Threshold
    
    Target
    
    Maximum
    
    Options
    
    Awards
    
    AwardsName
    
    Date
    
    ($)
    
    ($)
    
    ($)
    
    (#)
    
    (#)
    
    (#)
    
    (#)
    
    ($/Sh)
    
    ($)Michael Mendes
    
    
    N/A
    
    
    
    0
    
    
    
    383,625
    
    
    
    511,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gary Ford
    
    
    N/A
    
    
    
    0
    
    
    
    144,375
    
    
    
    192,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Seth Halio
    
    
    N/A
    
    
    
    0
    
    
    
    132,300
    
    
    
    176,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sam Keiper
    
    
    N/A
    
    
    
    0
    
    
    
    69,563
    
    
    
    92,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Andrew Burke
    
    
    N/A
    
    
    
    0
    
    
    
    86,275
    
    
    
    115,033
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3/15/07
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    15.83
    
    
    
    10,603
 
 (1)
    
    Reflects potential payouts of amounts that could have been earned with
respect to fiscal 2007 threshold, target and maximum levels under the
Diamond Foods Annual Bonus Program. Targets for non-equity incentive
plan awards are based on 75% of maximum, which has been our practice
for senior executives. Actual amounts earned for fiscal 2007 have
been reported in Summary Compensation Table as Non-Equity Incentive
Plan Compensation, which provides actual payments made in December
2006. The Maximum amounts are based on percentages of salaries in
effect as of December 2006, prorated to four months, and September
2007, prorated to eight months. The maximum bonus percentages of
salary are: Chief Executive Officer  100%; Chief Operating Officer  70%; Chief Financial Officer 
70%; Vice President Corporate Affairs and Human Resources  50%;
Senior Vice President Marketing  50%. Mr. Burke was promoted
from Vice President, Marketing to Senior Vice President, Marketing in
April 2007, and his maximum non-equity incentive plan award was
increased from 45% of salary. Under the Annual Bonus Program, named
executive officers could receive no payment if performance objectives
are not met. Accordingly, the Threshold amounts are $0.(2)
    
    This stock option award was granted under the 2005 Equity Incentive
Plan. The option incrementally vest as to one-third of the shares
subject to the options on the first anniversary of grant and
thereafter vest in monthly pro-rata increments over the following
twenty-four months. The options have a maximum term of ten years
subject to earlier termination upon cessation of service to Diamond.
The exercise price of each option may be paid in cash or in shares of
common stock valued at the closing price on the exercise date or may
be paid with the proceeds from a same-day sale of the purchased
shares. Amounts shown in this column represent the grant date fair
value under FAS 123R of the stock options without giving effect to any
forfeiture rate. 55




---



##### Table of Contents



2007 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
 Option Awards
    
    Stock Awards(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)
    
    (i)
    
    (j)Equity
    
    EquityEquity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Incentive
    
    IncentiveIncentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market
    
    Plan Awards:
    
    Plan Awards:Plan Awards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    Value of
    
    Number of
    
    Market orNumber of
    
    
    
    
    
    Number of
    
    
    
    
    
    
    
    
    
    Number of
    
    Shares or
    
    Unearned
    
    Payout ValueSecurities
    
    Number of
    
    Securities
    
    
    
    
    
    
    
    
    
    Shares or
    
    Units of
    
    Shares, Units
    
    of UnearnedUnderlying
    
    Securities
    
    Underlying
    
    
    
    
    
    
    
    
    
    Units of
    
    Stock
    
    or Other
    
    Shares, Units orUnexercised
    
    Underlying
    
    Unexercised
    
    Option
    
    
    
    
    
    Stock That
    
    That
    
    Rights That
    
    Other RightsOptions (#)
    
    Unexercised
    
    Unearned
    
    Exercise
    
    Option
    
    Have Not
    
    Have Not
    
    Have Not
    
    That HaveExercisable
    
    Options (#)
    
    Options
    
    Price
    
    Expiration
    
    Vested
    
    Vested
    
    Vested
    
    Not VestedName
    
    (1)
    
    Unexercisable
    
    (#)
    
    ($)
    

    Date
    
      (#)(2)
    
    ($)(3)
    
    (#)
    
    ($)Michael Mendes
    
    
    168,888
    (4)
    
    
    84,445
    (4)
    
    
    
    
    
    
    17.00
    
    
    
    7/20/15
    
    
    
    84,444
    (5)
    
    
    1,387,415
    (5)
    
    
    
    
    
    
    78,750
    (6)
    
    
    146,250
    (6)
    
    
    
    
    
    
    17.07
    
    
    
    10/25/15
    
    
    
    14,067
    (8)
    
    
    231,121
    (8)
    
    
    
    
    
    
    21,096
    (7)
    
    
    42,192
    (7)
    
    
    
    
    
    
    21.00
    
    
    
    1/10/16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gary Ford
    
    
    63,333
    (4)
    
    
    31,667
    (4)
    
    
    
    
    
    
    17.00
    
    
    
    7/20/15
    
    
    
    31,666
    (5)
    
    
    520,272
    (5)
    
    
    
    
    
    
    5,972
    (7)
    
    
    11,943
    (7)
    
    
    
    
    
    
    21.00
    
    
    
    1/10/16
    
    
    
    3,978
    (8)
    
    
    65,359
    (8)
    
    
    
    
    
    
    Seth Halio
    
    
    63,333
    (4)
    
    
    31,667
    (4)
    
    
    
    
    
    
    17.00
    
    
    
    7/20/15
    
    
    
    27,444
    (5)
    
    
    450,905
    (5)
    
    
    
    
    
    
    5,450
    (7)
    
    
    10,899
    (7)
    
    
    
    
    
    
    21.00
    
    
    
    1/10/16
    
    
    
    3,636
    (8)
    
    
    59,739
    (8)
    
    
    
    
    
    
    Sam Keiper
    
    
    21,111
    (4)
    
    
    10,556
    (4)
    
    
    
    
    
    
    17.00
    
    
    
    7/20/15
    
    
    
    10,555
    (5)
    
    
    173,419
    (5)
    
    
    
    
    
    
    2,597
    (7)
    
    
    5,193
    (7)
    
    
    
    
    
    
    21.00
    
    
    
    1/10/16
    
    
    
    1,728
    (8)
    
    
    28,391
    (8)
    
    
    
    
    
    
    Andrew Burke
    
    
    5,000
    (9)
    
    
    10,000
    (9)
    
    
    
    
    
    
    14.93
    
    
    
    6/19/16
    
    
    
    10,000
    (10)
    
    
    164,300
    (10)
    
    
    
    
    
    
    0
    (11)
    
    
    15,000
    (11)
    
    
    
    
    
    
    15,83
    
    
    
    3/14/17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 56




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##### Table of Contents



(1)
    
    All options set forth in the table have a ten-year term. The
unvested portion of an option will expire prior to its stated
expiration date in the event of the optionees termination of
employment.(2)
    
    The shares set forth in column g are grants of restricted stock that
vest subject to continued employment with Diamond.(3)
    
    The market value of the unvested restricted shares was computed using
$16.43, which was the closing share price of Diamond stock on July
31, 2007.(4)
    
    These options were granted on July 20, 2005 in connection with
Diamonds initial public offering. One-third of the options vested
on July 20, 2006, and the remaining options vest in eight equal
installments each calendar quarter after July 20, 2006 such that the
options will be fully vested on July 20, 2008.(5)
    
    These shares of restricted stock were granted on July 20, 2005 in
connection with Diamonds initial public offering. One-third of the
restricted shares vested on July 20, 2006, an additional third vested
on July 20, 2007 and the remaining restricted shares will vest on
July 20, 2008.(6)
    
    From 2001 until October 2005, Mr. Mendes was the beneficiary of a
Long Term Incentive Compensation program (LTIC), pursuant to which
Diamond agreed to provide Mr. Mendes with annual cash benefits over a
ten year period, with payments to begin as early as Mr. Mendes 50th
birthday, under certain circumstances. To better align Mr. Mendes
interests with those of our stockholders, on October 25, 2005, the
Board approved terminating the LTIC and granted Mr. Mendes an option
to purchase 225,000 shares of our common stock, which are the options
reflected in the table above. The option vests over five years, with
options to purchase 20% of the shares vesting on October 25, 2006,
and the remainder vesting on a pro rata basis on each quarterly
anniversary thereafter over the next four years. The option will be
fully vested on October 25, 2010.(7)
    
    These options were granted on January 10, 2006. One-third of the
options vested on January 10, 2007, and the remaining options vest in
eight equal installments each calendar quarter after January 10, 2006
such that the options will be fully vested on January 10, 2009.(8)
    
    These shares of restricted stock were granted on January 10, 2006.
One-third of the restricted shares vested on January 10, 2007, an
addition third will vest on January 10, 2008, and the remaining
restricted shares will vest on January 10, 2009.(9)
    
    These options were granted on June 19, 2006 in connection with
commencement of Mr. Burkes employment with Diamond. One-third of
the options vested on June 19, 2007, and the remaining options vest
in eight equal installments each calendar quarter after June 19, 2007
such that the options will be fully vested on June 19, 2009.(10)
    
    These shares of restricted stock were granted on June 19, 2006 in
connection with commencement of Mr. Burkes employment with Diamond.
One-third of the restricted shares vested on June 19, 2007, an
addition third will vest on June 19, 2008, and the remaining shares
will vest on June 19, 2009.(11)
    
    These options were granted on March 14, 2007 in connection with
commencement of Mr. Burkes promotion from Vice President, Marketing
to Senior Vice President, Marketing. One-third of the options will
vest on March 14, 2008, and the remaining options will vest in eight
equal installments each calendar quarter after March 14, 2008 such
that the options will be fully vested on March 14, 2010. 57




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##### Table of Contents



2007 OPTION EXERCISES AND STOCK VESTED
 Option Awards
    
    Stock Awards(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)Number of Shares
    
    Value Realized
    
    Number of Shares
    
    Value Realized onAcquired on Exercise
    
    on Exercise
    
    Acquired on Vesting
    
    VestingName
    
    (#)
    
    ($)
    
    (#) (1)
    
    ($)(2)Michael Mendes
    
    
    
    
    
    
    
    
    
    
    91,478
    
    
    
    1,560,965Gary Ford
    
    
    
    
    
    
    
    
    
    
    33,656
    
    
    
    574,037Seth Halio
    
    
    
    
    
    
    
    
    
    
    29,262
    
    
    
    499,132Sam Keiper
    
    
    
    
    
    
    
    
    
    
    11,420
    
    
    
    194,863Andrew Burke
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    87,450
 
 (1)
    
    Represents shares of restricted stock that vested during fiscal 2007.(2)
    
    The market price used in determining the value realized was calculated using the closing share price on the date of vesting. 58




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##### Table of Contents



PENSION BENEFITS
    
    
    2% of the annual average compensation multiplied by years of credited service. Once
this amount is calculated, subtract 1% multiplied by the social security benefit payable
multiplied by the years of credited service (not to exceed 40 years).
    
    3% of the annual average compensation multiplied by years of credited service (not to
exceed 15 years). Once this amount is calculated, add 1/2% of the annual average
compensation multiplied by the years of credited service that exceed 15 years. Once this
amount is added, subtract 3-1/3% of the social security benefit payable multiplied by the
years of credited service (not to exceed 15 years).
   
    
    Early retirement is available on the first day of any month that
coincides with or immediately follows the 50th birthday,
but not before reaching ten years of service with Diamond.
    
    Benefits may start at any time between age 50 and 60.
   
    
    Single life annuity A single life annuity provides a monthly benefit until death.
This option also includes an alternative allowing for 3% annual benefit increases for
inflation protection (in which case the starting benefit is lower).
 59




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##### Table of Contents




    
    Life annuity with 5 or 10 years certain Under this form, the participant receives a
monthly benefit for life. If death occurs before the end of the 5 or 10 years, the designated
beneficiary will receive the same monthly benefit for the remainder of the 5 or 10 year period.
    
    Joint and survivor annuity Under this form, the participant receives a monthly benefit
paid for life. If the participant dies before their beneficiary, the beneficiary receives
the selected percentage (50%, 66-2/3%, 75%, or 100%) of that monthly
benefit for the rest of his or her life. A 75% joint and survivor annuity is also
available with 3% annual benefit increases for inflation protection (in which case the
starting benefit is lower).
    
    Social Security adjustment option Under this option, the single life annuity amount is
adjusted to provide a higher benefit prior to age 65 and a lower benefit thereafter
(anticipating that the participant might commence social security benefits at age 65).
    
    Immediate annuity If a participant is not yet eligible for early retirement but their
original hire date was before August 1, 2000, the participant is eligible to receive a
reduced annuity payable immediately upon termination. If the participant is single, the
benefit is paid in the single life annuity form of payment, described above, and if
married, the benefit is paid as a 50% joint and survivor annuity. This annuity is
actuarially reduced to be payable at the age at termination.
    
    Lump sum payment Under this form, the participant receives a single cash payment (lump
sum) equal to the actuarial present value of the vested benefit. The lump sum amount is
determined based on the required basis set forth in the General Agreement on Tariffs and
Trade  Retirement Protection Act of 1994 (GATT), utilizing the average 30-year T-bond
rate for the month two months prior to the month of distribution. The higher the interest
rate, the lower the lump sum, and vice versa.
 Determination of Value
  
    
    An interest rate of 6.40%, the Statement of Financial Accounting
Standards No. 87, Employers Accounting for Pensions(SFAS 87)
discount rate as of July 31, 2007. The discount rate as of July 31,
2006 was 5.85%.
    
    The value of benefits under the SERP have been determined assuming the
benefit is received as a lump sum, with the conversion based on a 6%
interest rate (was 5.5% at July 31, 2006) and the unisex Revenue
Ruling 2001-62 mortality table.
  2007 Pension Benefits
 (a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)Present Value of
    
    PaymentsNumber of Years
    
    Accumulated
    
    During LastCredited Service
    
    Benefit
    
    Fiscal YearName
    
    Plan Name
    
    (#)
    
    ($)
    
    ($)(1)Michael Mendes
    
    Retirement Restoration Plan
    
    14.8
    
    1,690,901
    
    Michael Mendes
    
    Diamond Foods, Inc. Pension Plan
    
    
    
    
    
    253,367
 60




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##### Table of Contents



(1)
    
    In connection with the termination of the Diamond Foods, Inc. Pension
Plan, employees had the option of receiving a settlement of their
accrued pension plan benefits by taking an immediate monthly life
annuity or a lump sum equal to the actuarial equivalent of the
accrued benefit. The lump sum amount was calculated using the
required lump sum basis, including the average 30-year Treasury bond
rate for the month two months prior to the month of distribution, and
the mortality table published by the IRS in Revenue Ruling 2001-62.
The lump sum value calculation included discounting with interest
each future benefit payment over the employees expected lifetime.
Mr. Mendes elected to receive the lump sum amount, which is the value
reflected in the table above. Potential Payments upon Employment Termination and Change-of-Control Events
  nolo contendere
    Michael Mendes
    
    Gary Ford
    
    Seth Halio
    
    Sam Keiper
    
    Andrew BurkeTermination after
Change of Control:Severance 
Multiple of Base
Salary and Maximum
Annual Bonus
Program Award
    
    $
    3,118,500
    
    
    $
    1,402,500
    
    
    $
    856,800
    
    
    $
    834,750
    
    
    $
    357,000Post-termination
COBRA reimbursement
for 18 months
    
    
    22,451
    
    
    
    22,451
    
    
    
    15,469
    
    
    
    22,451
    
    
    
    22,451
 61




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##### Table of Contents



Michael Mendes
    
    Gary Ford
    
    Seth Halio
    
    Sam Keiper
    
    Andrew BurkeAcceleration of unvested restricted stock as
of July 31, 2007 (1)
    
    
    1,618,536
    
    
    
    585,631
    
    
    
    510,644
    
    
    
    201,810
    
    
    
    164,300Acceleration of unvested options as of July
31, 2007 (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,000Total
    
    
    4,759,487
    
    
    
    2,010,582
    
    
    
    1,382,913
    
    
    
    1,059,011
    
    
    
    567,751Voluntary Retirement:Payment under Retirement Restoration Plan (3)
    
    
    1,690,901
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Involuntary Termination:Post-termination outplacement services
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Post-termination base salary, health and
welfare benefit continuation (12 months)
(4)
    
    
    534,717
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    544,717
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Amounts shown represent acceleration of vesting triggered by termination event after a
change of control based on $16.43 per share, which was the closing price of our stock on
July 31, 2007.(2)
    
    Amounts shown represent acceleration of vesting triggered by termination event after a
change of control based on $16.43 per share, which was the closing price of Diamonds
stock on July 31, 2007. The exercise prices of unvested options for Mr. Mendes, Mr. Ford,
Mr. Halio and Mr. Keiper exceeded $16.43.(3)
    
    Amounts reflect estimated lump-sum present value of non-qualified retirement plan benefits.(4)
    
    Amounts reflect 12 months of base salary and COBRA reimbursements as of July 31, 2007. 62




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##### Table of Contents



DIRECTOR COMPENSATION
  Fees Earned orPaid in Cash
    
    Stock Awards
    
    Option Awards
    
    TotalName
    
    ($) (1)
    
    ($) (2)
    
    ($) (3)
    
    ($)(a)
    
    (b)
    
    (c)
    
    (d)
    
    (h)Larry Baer
    
    
    32,500
    
    
    
    39,993
    
    
    
    49,823
    
    
    
    122,316Jack Gilbert
    
    
    37,000
    
    
    
    39,993
    
    
    
    49,823
    
    
    
    126,816Bob Lea
    
    
    32,000
    
    
    
    39,993
    
    
    
    49,823
    
    
    
    122,316Dennis Mussell
    
    
    34,500
    
    
    
    39,993
    
    
    
    49,823
    
    
    
    124,316Steve Neil
    
    
    37,500
    
    
    
    39,993
    
    
    
    49,823
    
    
    
    127,316Joe Silveira
    
    
    34,000
    
    
    
    39,993
    
    
    
    49,823
    
    
    
    123,816Glen Warren
    
    
    31,000
    
    
    
    39,993
    
    
    
    49,823
    
    
    
    120,816Bob Zollars
    
    
    35,000
    
    
    
    39,993
    
    
    
    49,823
    
    
    
    124,816
 
 (1)
    
    Our non-employee directors receive annual retainer and meeting fees. The annual
retainer is $18,000 and meeting fees are $2,000 for each board meeting attended. In
addition, the chairman of the Board of Directors and the chairman of the audit committee
each receive an additional annual retainer of $5,000, while the compensation committee
chair and nominating and governance committee chair each receive an additional annual
retainer of $2,500. Committee members receive a meeting fees of $500 for each board
committee meeting attended. All of our directors are reimbursed for their reasonable
expenses in attending board and board committee meetings.(2)
    
    Upon their initial appointment or election to our Board of Directors, each non-employee
director receives an automatic grant of restricted stock under our 2005 Equity Incentive
Plan. The number of shares is equal to $120,000 divided by the closing price of our stock
on the date of grant. Each such automatic stock grant is restricted, meaning that we
retain the right to repurchase the shares for the nominal purchase price until they are
vested. The restricted shares vests in three equal annual installments, commencing with
the first anniversary of the date of grant, provided the director remains in continuous
service as a director through that date. Prior to vesting, the director is entitled to
vote and receive dividends with respect to such shares, but not to transfer them. Each
award will become fully vested if we are acquired prior to or at the time of the directors
termination of service. The amounts shown in this column represent compensation expense
recognized for financial reporting purposes during fiscal 2007 in accordance with SFAS 123R
related to the awards of restricted shares granted in fiscal 2005. Additional information
regarding our SFAS 123R assumptions can be found in Note 3 of the Notes to Consolidated
Financial Statements on page 33.(3)
    
    Under our 2005 Equity Incentive Plan, each non-employee director receives an automatic
grant of an option to purchase 10,000 shares of our common stock upon first joining the
Board of Directors. The option will have an exercise price equal to the fair market value
on the date of grant. Non-employee directors who were members of the board on the date of
our initial public offering on July 20, 2005, received their initial, automatic grant on
such date, with an exercise price equal to our initial public offering price of $17.00 per
share.Our 2005 Equity Incentive Plan also provides that each non-employee director will receive an
automatic grant of an option to purchase 10,000 shares of our common stock on each
anniversary of the date of grant of the initial option. Accordingly, on July 20, 2007, each
non-employee director received this automatic grant with an exercise price equal to $17.03
per share, which was the closing price of our stock on such date. These automatic option
grants have ten-year terms and will terminate six months following the date the director
ceases to be one of our directors or consultants or 12 months following that date, if the
termination is due to death or disability. Each automatic grant of options vests and
becomes exercisable on the one-year anniversary of the date of grant, provided the director
remains in continuous service as a director through that date. In addition, each option
award will become fully vested and exercisable if we are acquired prior to or at the time of
the directors termination of service.The amounts shown in this column represent compensation expense recognized for financial
reporting purposes during fiscal 2007 in accordance with SFAS 123R related to options to
purchase common stock granted in fiscal years
2006 and 2007. Additional information regarding our SFAS 123R assumptions can be found in
Note 3 of the Notes to Consolidated Financial
Statements on page 33. 63




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##### Table of Contents



COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
 Equity Compensation Plan Information
  Equity Compensation Plan Information Table
 (a)
    
    (b)
    
    (c)Weighted
    
    Number of securitiesNumber of securities
    
    average exercise
    
    available for futureto be issued upon
    
    price of
    
    issuance under equityexercise of
    
    outstanding
    
    compensation plansoutstanding options,
    
    options, warrants
    
    (excluding securitieswarrants and rights
    
    and rights
    
    reflected in column (a))Equity compensation
plans approved by
security holders
    
    
    1,621,170
    
    
    $
    17.37
    
    
    
    948,936
    (1)Equity compensation
plans not approved
by security holders
    
    
    0
    
    
    
    
    
    
    
    Total
    
    
    1,621,170
    
    
    $
    17.37
    
    
    
    948,936
    (1)
 
 (1)
    
    Of these shares, 445,072 shares remain available for purchase under our 2005 Employee
Stock Purchase Plan and 503,864 shares remain available for purchase under our 2005 Equity
Incentive Plan. All of the shares available for grant under the 2005 Equity Incentive Plan
may be issued in the form of stock options, restricted stock, stock bonuses, stock
appreciation rights or restricted stock units. Under the terms of our 2005 Equity Incentive
Plan, on the first business day of each of the fiscal years 2006 through 2014, the
aggregate number of shares reserved and available for grant and issuance pursuant to the
plan is automatically increased by a number of shares equal to 2% of the total outstanding
shares as of the immediately preceding July 31, or a lesser number of shares determined by
our Board of Directors, provided that no more than 25,000,000 shares may be issued pursuant
to the exercise of incentive stock options. Under the terms of our 2005 Employee Stock
Purchase Plan, beginning in fiscal 2007, on the first business day of each fiscal year the
aggregate number of shares reserved for issuance under the plan is automatically increased
by a number of shares equal to 1% of the total outstanding shares as of the last day of the
immediately preceding fiscal year, or a lesser number of shares determined by our Board of
Directors, provided that the aggregate number of shares issued over the term of the plan
shall not exceed 4,000,000 shares. STOCK OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
  64




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##### Table of Contents



Number of Shares
    
    % ofName of Beneficial Owner
    
    of Common Stock
    
    Common Stock (1)Directors and Officers:Michael J. Mendes (2)
    
    
    655,757
    
    
    
    4.0
    %Gary K. Ford (3)
    
    
    206,436
    
    
    
    1.3Seth Halio (4)
    
    
    162,402
    
    
    
    1.0John J. Gilbert (5)(6)
    
    
    101,426
    
    
    
    *Joseph P. Silveira (5)(7)
    
    
    60,455
    
    
    
    *Samuel J. Keiper (8)
    
    
    63,615
    
    
    
    *Andrew Burke (9)
    
    
    37,351
    
    
    
    *Robert M. Lea (5)
    
    
    49,336
    
    
    
    *Laurence M. Baer (5)
    
    
    24,558
    
    
    
    *Dennis Mussell (5)
    
    
    24,558
    
    
    
    *Steven M. Neil (5)
    
    
    24,558
    
    
    
    *Glen C. Warren, Jr. (5)
    
    
    34,558
    
    
    
    *Robert J. Zollars (5)
    
    
    24,558
    
    
    
    *All 12 current directors and executive officers as a group (2)  (9)
    
    
    1,469,568
    
    
    
    8.8
    %Other 5% Stockholders:KDI Capital Partners, LLC (10)
    
    
    878,527
    
    
    
    5.5
    %Vardon Capital Management, LLC (11)
    
    
    1,103,883
    
    
    
    6.9
    %Massachusetts Financial Services Company (12)
    
    
    957,572
    
    
    
    5.9
    %FMR Corp. (13)
    
    
    1,830,299
    
    
    
    11.4
    %
 
 *
    
    Less than one percent.(1)
    
    Percentage is based on 16,110, 070 shares of common stock outstanding as of November 14,
2007.(2)
    
    Includes 171,651 shares that may be acquired upon exercise of stock options. Also includes
14,654 shares purchased by Mr. Mendes in the open market for an aggregate purchase price of
$248,760.(3)
    
    Pursuant to Rule 13d-3(d)(1) of the Exchange Act, includes 45,555 shares subject to stock
options exercisable in the next 60 days.(4)
    
    Includes 45,033 shares that may be acquired upon exercise of stock options.(5)
    
    Includes 4,167 shares that may be acquired upon exercise of stock options.(6)
    
    Includes 42,833 shares in the name of Gilbert Orchards and 20,076 shares in the name of Rio
Oso Groves, Inc. Mr. Gilbert is an owner and executive officer of Rio Oso Groves, Inc. and
Gilbert Orchards. Mr. Gilbert has sole voting and dispositive control over the shares owned by
Rio Oso Groves, Inc. Mr. Gilbert and William H. Gilbert have shared voting and dispositive
control over the shares owned by Gilbert Orchards. Also includes 11,144 shares in the name of
The John and Sandra Gilbert Trust DTD 3/6/2000. Mr. Gilbert is a co-trustee of the trust.(7)
    
    Includes 25,548 shares in the name of John Hancock Life Insurance Company, 1,047 shares in
the name of John Hancock Variable Life Insurance Company, 3,561 shares in the name of Texas
Municipal Plans Consortium and 2,913 shares in the name of Goose Pond Ag. Inc. Mr. Silveira
provides farm management services for each of these entities. Mr. Silveira disclaims
beneficial ownership of these shares. Also includes 2,828 shares owned by Mr. Silveira
directly.(8)
    
    Includes 15,791 shares that may be acquired upon exercise of stock options.(9)
    
    Includes 7,500 shares that may be acquired upon exercise of stock options 65




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##### Table of Contents



(10)
    
    We obtained this ownership information for KDI Capital Partners, L.L.C. et al. (KDI) from
a Schedule 13G filed with the SEC by KDI and certain individuals who are partners in KDI,
reporting ownership as of July 23, 2007. KDI and its partners share voting power as to
874,733 shares and dispositive power as to 876,777 shares. The address of KDI is 5151
Glenwood Avenue, Raleigh, North Carolina 27612.(11)
    
    We obtained this ownership information for Vardon Capital Management, LLC (Vardon) from a
Schedule 13G filed with the SEC reporting ownership as of December 29, 2006. Vardon and its
partners share voting and dispositive power over 1,103,883 shares. The address of Vardon is
120 W. 45th Street, 17th Floor, New York, New York 10036.(12)
    
    We obtained this ownership information for Massachusetts Financial Services Company (MFS)
from a Schedule 13G filed with the SEC reporting ownership as of December 31, 2006. MFS has
sole voting and dispositive power over 957,572 shares. The address of MFS is 500 Boylston
Street, Boston, Massachusetts, 02116.(13)
    
    We obtained this ownership information for FMR Corp. (FMR) from a Schedule 13G filed with
the SEC reporting ownership as of December 31, 2006. FMR has sole voting power over 553,210
shares and sole dispositive power over 1,830,299 shares. The address of FMR is 82 Devonshire
Street, Boston, Massachusetts, 02109. 
 Item 13. Certain Relationships and Related Transactions, and Director Independence
 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
   
    
    in which the amount involved exceeded or exceeds $120,000; and
 
    
    in which any director, executive officer, holder of more than 5% of any class of our
common stock or any member of their immediate family had or will have a direct or indirect
material interest.
 Grower Payments
  Fiscal
    
    GrowerName
    
    Year
    
    PaymentsJohn J. Gilbert(1)
    
    
    2008
    
    
    $
    1,456,1272007
    
    
    $
    1,935,591Robert M. Lea
    
    
    2008
    
    
    $
    530,6622007
    
    
    $
    519,745
 
 (1)
    
    Represents amounts paid to Rio Oso Groves, Inc., of which Mr. Gilbert is an owner and
executive officer, and to Gilbert Orchards, a corporation of which Mr. Gilbert is an owner and
executive officer. Indemnification of Directors and Executive Officers and Limitation of Liability
  
    
    for any breach of the directors duty of loyalty to our company or our stockholders;
 66




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##### Table of Contents




    
    for acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law;
    
    under section 174 of the Delaware General Corporation Law regarding unlawful dividends
and stock purchases; or
    
    for any transaction from which the director derived an improper personal benefit.
  
    
    must indemnify its directors and executive officers to the fullest extent permitted by
Delaware law, subject to limited exceptions;
    
    may indemnify our other employees and agents to the same extent that we indemnified our
directors and executive officers, unless otherwise required by law, our certificate of
incorporation, bylaws or agreements; and
    
    must advance expenses, as incurred, to our directors and executive officers in
connection with a legal proceeding to the fullest extent permitted by Delaware law, subject
to limited exceptions.
   
 Item 14. Principal Accounting Fees and Services
 Audit Fees
  For the year ended July 31,(in thousands)Nature of Services
    
    2007
    
    
    2006Audit Fees
    
    $
    902
    
    
    $
    1,197Audit-Related Fees
    
    
    
    
    
    
    Tax Fees
    
    
    14
    
    
    
    12All Other Fees
    
    
    
    
    
    
    Total Fees
    
    $
    916
    
    
    $
    1,209
 Audit Fees
 Audit-Related Fees Audit-Related Fees
 67




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##### Table of Contents



Tax Fees
 All Other Fees Other Fees
 Audit Committee Pre-Approval Policies and Procedures
  
 PART IV
 
 Item 15. Exhibits, Financial Statement Schedules
  Financial Statements.
       Financial Statement Schedules.
  Exhibits.
  Filed with
    
    Incorporated by ReferenceNumber
    
    Exhibit Title
    
    This 10-K
    
    Form
    
    File No.
    
    Date Filed2.01
    
    Form of Amended and Restated Agreement and
Plan of Conversion
    
    
    
    Form S-1
    
    333-123576
    
    July 18, 20052.02
    
    Asset Purchase and Sale Agreement, dated May
9, 2006, by and among Diamond Foods, Inc.,
GSH Holdings, Inc., Harmony Foods Corporation
and SPC Partners II, L.P.
    
    
    
    Form 8-K/A
    
    000-51439
    
    September 8, 20063.01
    
    Certificate of Incorporation, as amended
    
    
    
    Form S-1
    
    333-123576
    
    July 15, 2005
 68




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##### Table of Contents



Filed with
    
    Incorporated by ReferenceNumber
    
    Exhibit Title
    
    This 10-K
    
    Form
    
    File No.
    
    Date Filed3.02
    
    Restated Bylaws
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 20054.01
    
    Form of Certificate for common stock
    
    
    
    Form S-1
    
    333-123576
    
    July 18, 200510.01
    
    Form of Indemnity Agreement between
Registrant and each of its directors and
executive officers
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.02*
    
    2005 Equity Incentive Plan and forms of stock
option agreement, stock option exercise
agreement and restricted stock purchase
agreement
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.03*
    
    2005 Employee Stock Purchase Plan and form of
subscription agreement
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.04*
    
    Diamond Walnut Growers, Inc. 401(k) Plan
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.05*
    
    Diamond Foods, Inc. Annual Bonus Program
    
    
    
    Form 8-K
    
    000-51439
    
    October 25, 200510.06*
    
    Diamond Walnut Growers, Inc. Retirement
Restoration Plan
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.07*
    
    Diamond of California Management Pension Plan
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.08
    
    Diamond Walnut Growers, Inc. Pension Plan, as
restated
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.09*
    
    Employment Agreement, dated March 25, 1997,
between Registrant and Michael J. Mendes
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.10*
    
    Description of Compensation Arrangement for
Gary K. Ford
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.11*
    
    Offer Letter, dated October 11, 2004, for
Seth Halio
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.12*
    
    Description of Compensation Arrangement for
Samuel J. Keiper
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.13*
    
    Description of Director Compensation
Arrangements
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.14
    
    Preferred Securities Purchase Agreement and
accompanying agreements, dated August 20,
1998, between Registrant, DW Capital Trust I
and The Prudential Insurance Company of
America, as amended
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.15
    
    Note Purchase Agreement, dated July 17, 2001,
between Registrant, Teachers Insurance and
Annuity Association of America and
Connecticut General Life Insurance Company,
as amended
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.16
    
    Intercreditor Agreement, dated September 11,
2002, between Bank of the West and CoBank,
ACB
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.17
    
    Master Loan Agreement, dated February 23,
2004, between Registrant and CoBank, ACB, as
amended
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.18
    
    Credit Agreement, dated December 2, 2004,
between Registrant and Bank of the West
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.19
    
    Form of Walnut Purchase Agreement
    
    
    
    Form S-1
    
    333-123576
    
    May 3, 200510.20
    
    Trademark Agreement, dated July 1, 2002,
between Registrant and Blue Diamond Growers
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200510.21
    
    Rights Agreement, dated as of April 29, 2005,
by and between Registrant and EquiServe Trust
Company, N.A
    
    
    
    Form S-1
    
    333-123576
    
    May 3, 200510.22
    
    Second Amendment to Note Purchase Agreement,
dated April 8, 2005, between Registrant,
Teachers Insurance and Annuity Association of
America and Pru & Co.
    
    
    
    Form S-1
    
    333-123576
    
    May 3, 200510.23
    
    Consent of Bank of the West, dated March 17,
2005, relating to Credit Agreement, dated
December 2, 2004, between Registrant and Bank
of the West
    
    
    
    Form S-1
    
    333-123576
    
    May 3, 200510.24*
    
    Form of Change of Control and Retention
Agreement between Registrant and each of its
executive officers
    
    
    
    Form S-1
    
    333-123576
    
    May 3, 2005
 69




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##### Table of Contents



Filed with
    
    Incorporated by ReferenceNumber
    
    Exhibit Title
    
    This 10-K
    
    Form
    
    File No.
    
    Date Filed10.25
    
    Waiver regarding 7.20% Cumulative Recourse
Offered Preferred Securities, dated as of
June 1, 2005, by Wilmington Trust Co., as
Property Trustee and Delaware Trustee of the
DW Capital Trust I, The Prudential Insurance
Company of America and Diamond Walnut
Growers, Inc.
    
    
    
    Form S-1
    
    333-123576
    
    July 15, 200510.26
    
    Amendment of Credit Agreement dated December
2, 2004 between Registrant and Bank of the
West
    
    
    
    Form 8-K
    
   000-51439
    
    September 8, 200610.27
    
    Amendment to Diamond Foods, Inc. Pension Plan
    
    
    
    Form 8-K
    
   000-51439
    
    September 20, 200610.28*
    
    Form of Tax Withholding Agreement
    
    
    
    Form 8-K
    
   000-51439
    
    July 20, 200710.29
    
    Amended Supplements to Master Loan Agreement
between Diamond Foods, Inc. and CoBank, ACB
    
    
    
    Form 8-K
    
   000-51439
    
    March 16, 200710.30
    
    Amendment to Master Loan Agreement, dated as
of March 19, 2007, between Diamond Foods,
Inc. and CoBank, ACB
    
    
    
    Form 8-K
    
   000-51439
    
    March 16, 200710.31
    
    Third Amendment to Credit Agreement, dated as
of March 19, 2007, between Diamond Foods,
Inc. and Bank of the West
    
    
    
    Form 8-K
    
   000-51439
    
    March 16, 200710.32
    
    Third Amendment to Note Purchase Agreement,
dated as of March 19, 2007 between Diamond
Foods, Inc. on the one hand, and Teachers
Insurance and Annuity Association of America
and Pru & Co. on the other hand.
    
    
    
    Form 8-K
    
   000-51439
    
    March 16, 200710.33*
    
    Form of Stock Withholding Agreement
    
    
    
    Form 8-K
    
   000-51439
    
    January 10, 200721.01
    
    List of Subsidiaries
    
    
    
    Form S-1
    
    333-123576
    
    March 25, 200523.01
    
    Consent of Independent Registered Public
Accounting Firm
    
    X23.02
    
    Consent of Curcio Webb
    
    X31.01
    
    Certification of Chief Executive Officer
    
    X31.02
    
    Certification of Chief Financial Officer
    
    X32.01
    
    Section 1350 Certifications of Chief
Executive Officer and Chief Financial Officer
    
    X
 
 *
    
    Indicates management contract or compensatory plan or arrangement  70




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SIGNATURES
  DIAMOND FOODS, INC.By:
    /s/ Seth HalioSeth HalioChief Financial Officer  71




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EXHIBIT INDEX
 ExhibitNumber
    
    Exhibit Description23.01
    
    Consent of Independent Registered Public Accounting Firm23.02
    
    Consent of Curcio Webb31.01
    
    Certification of Chief Executive Officer31.02
    
    Certification of Chief Financial Officer32.01
    
    Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer