##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 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, 2005
 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
(State of Incorporation)
    
    20-2556965
(IRS Employer Identification No.)
 1050 South Diamond Street
Stockton, California
(Address of Principal Executive Offices)
    
    95205-7087
(Zip Code)
 209-467-6000
(Telephone No.)
   Name of exchange on whichTitle of each class:
    
    registered:Common Stock, $0.001 par value
Series A Junior Preferred Stock Purchase Right
    
    Nasdaq National Market
Nasdaq National Market
 þ o
 o
 o þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE:




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##### Table of Contents



TABLE OF CONTENTS
  
 PagePart IItem 1. Business
    
    
    3Item 2. Properties
    
    
    11Item 3. Legal Proceedings
    
    
    11Item 4. Submission of Matters to a Vote of Security Holders
    
    
    11Part IIItem 5. Market for Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    11Item 6. Selected Financial Data
    
    
    12Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 7A. Quantitative and Qualitative Disclosure About Market Risk
    
    
    20Item 8. Financial Statements and Supplementary Data
    
    
    21Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    38Item 9A. Controls and Procedures
    
    
    38Item 9B. Other Information
    
    
    38Part IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    38Item 11. Executive Compensation
    
    
    38Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    38Item 13. Certain Relationships and Related Transactions
    
    
    39Item 14. Principal Accountant Fees and Services
    
    
    39Part IVItem 15. Exhibits and Financial Statement Schedules
    
    
    39SignaturesEXHIBIT 23.01EXHIBIT 31.01EXHIBIT 31.02EXHIBIT 32.01
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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 baking 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 roasted, glazed and flavored snack nut products in innovative
resealable containers under the Emerald of California brand. These products are typically
available in grocery store snack aisles, mass merchandisers, 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.
 3




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Year Ended July 31, 2005
    
    
    Year Ended July 31, 2004
    
    
    Year Ended July 31, 2003North
    
    
    Inter-
    
    
    
    
    
    
    
    
    
    
    Inter-
    
    
    
    
    
    
    
    
    
    
    Inter-America
    
    
    national
    
    
    Total
    
    
    North America
    
    
    national
    
    
    Total
    
    
    North America
    
    
    national
    
    
    TotalCulinary
    
    $
    164.2
    
    
    $
    21.0
    
    
    $
    185.2
    
    
    $
    142.0
    
    
    $
    15.3
    
    
    $
    157.3
    
    
    $
    113.3
    
    
    $
    12.2
    
    
    $
    125.5Snack
    
    
    21.5
    
    
    
    
    
    
    
    21.5
    
    
    
    7.1
    
    
    
    
    
    
    
    7.1
    
    
    
    3.1
    
    
    
    
    
    
    
    3.1In-shell
    
    
    42.8
    
    
    
    42.3
    
    
    
    85.1
    
    
    
    38.4
    
    
    
    39.5
    
    
    
    77.9
    
    
    
    37.4
    
    
    
    32.8
    
    
    
    70.2Total retail
    
    
    228.5
    
    
    
    63.3
    
    
    
    291.8
    
    
    
    187.5
    
    
    
    54.8
    
    
    
    242.3
    
    
    
    153.8
    
    
    
    45.0
    
    
    
    198.8Ingredient/food service
    
    
    107.0
    
    
    
    59.2
    
    
    
    166.2
    
    
    
    71.0
    
    
    
    41.5
    
    
    
    112.5
    
    
    
    74.6
    
    
    
    31.1
    
    
    
    105.7Other
    
    
    4.5
    
    
    
    
    
    
    
    4.5
    
    
    
    4.9
    
    
    
    
    
    
    
    4.9
    
    
    
    4.0
    
    
    
    
    
    
    
    4.0Total
    
    $
    340.0
    
    
    $
    122.5
    
    
    $
    462.5
    
    
    $
    263.4
    
    
    $
    96.3
    
    
    $
    359.7
    
    
    $
    232.4
    
    
    $
    76.1
    
    
    $
    308.5
  Our Strategy
  Increase market share in the snack nut 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
    
    enhance our processing and distribution capabilities to lower our costs.
 4




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Principal Products
  Category
    
    Products
    
    Product FeaturesCulinary
    
    
    
    Shelled nuts
    
    
    
    Whole, sliced, chopped, and ground nuts
    
    Pegboard nuts
    
    
    
    Package sizes ranging from convenient 2.25-ounce pegboard packages to three-pound bags
    
    Glazed nuts
    
    Harvest Reserve Premium nuts
    
    
    
    Recipe-ready
    
    Maximum freshness through resealable, atmosphere-controlled packagingSnack
    
    
    
    Glazed nuts
    
    
    
    Unique flavors, including Apple Cinnamon, Butter Toffee, Chocolate Brownie and Pecan Pie
    
    Mixed nuts
    
    
    
    Package sizes ranging from 0.5-ounce to 12-ounce in tubes, containers, and resealable foil bags
    
    Roasted nuts
    
    
    
    Innovative, eye-catching packaging and on-the-go containersIn-shell
    
    
    
    Various uncracked nuts,
cleaned and/or polished
    
    
    
    Packaged in-shell
    
    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 ground nuts
    
    Custom-processed nuts
    
    
    
    Food processor product of uniform size and consistent color
    
    Glazed nuts
    
    
    
    Various large package sizes tailored for business usage
    
    Flexible processing and packaging operations
  Marketing
   5




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Sales and Distribution
   Product Development and Production
   Competition
  Raw Materials and Supplies
   6




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Trademarks and Patents
  Seasonality
  Employees
  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.
  7




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We face intense competition from national and regional competitors and snack food industry competitors that could negatively affect our results of operations.
   The impact of the conversion and initial public offering on our business is difficult to predict; it could disrupt existing relationships and harm our financial results.
  Sales to our top four customers represent over 25% of our net sales. As a result, the loss of any of these customers 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.
  8




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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.
  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.
  9




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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.
  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 would pose risks to our profitability.
  Our business could be negatively impacted if we fail to maintain satisfactory labor relations.
  10




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##### Table of Contents



Item 2. Properties
  
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  For:
    
    
    175,256Against:
    
    
    40,026Abstain:
    
    
    N/ABroker non-votes:
    
    
    N/A
 
 PART II
 
 Item 5.
    
    Market for Registrants Common Equity and Related Stockholder
Matters and Issuer Purchases of Equity Securities
   Dividend Policy
  Use of Proceeds
   11




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Item 6. Selected Financial Data
  Year ended July 31,(in thousands)2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005Statements of net proceeds data (1):Net sales and other revenues
    
    $
    287,729
    
    
    $
    282,158
    
    
    $
    308,450
    
    
    $
    359,683
    
    
    $
    462,548Patronage inventory at beginning of period
    
    
    (77,127
    )
    
    
    (68,377
    )
    
    
    (96,508
    )
    
    
    (94,701
    )
    
    
    (101,403
    )Patronage inventory at end of period
    
    
    68,377
    
    
    
    96,508
    
    
    
    94,701
    
    
    
    101,403
    
    
    
    67,152Gross marketing pool proceeds
    
    
    278,979
    
    
    
    310,289
    
    
    
    306,643
    
    
    
    366,385
    
    
    
    428,297Purchased commodities
    
    
    33,149
    
    
    
    31,245
    
    
    
    41,752
    
    
    
    63,951
    
    
    
    88,353Processing, packing and distribution costs
    
    
    68,894
    
    
    
    67,250
    
    
    
    69,731
    
    
    
    78,641
    
    
    
    103,034Proceeds before operating expenses
    
    
    176,936
    
    
    
    211,794
    
    
    
    195,160
    
    
    
    223,793
    
    
    
    236,910Operating expenses:Selling, general and administrative
    
    
    28,976
    
    
    
    26,317
    
    
    
    26,937
    
    
    
    28,169
    
    
    
    33,188Advertising
    
    
    9,720
    
    
    
    9,105
    
    
    
    8,744
    
    
    
    14,673
    
    
    
    22,153Total operating expenses
    
    
    38,696
    
    
    
    35,422
    
    
    
    35,681
    
    
    
    42,842
    
    
    
    55,341138,240
    
    
    
    176,372
    
    
    
    159,479
    
    
    
    180,951
    
    
    
    181,569Equity in earnings of Sun Growers
    
    
    336
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest, net
    
    
    4,450
    
    
    
    3,353
    
    
    
    3,282
    
    
    
    3,403
    
    
    
    4,433Conversion costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    697Early extinguishments of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,028Proceeds before income taxes
    
    
    134,126
    
    
    
    173,019
    
    
    
    156,197
    
    
    
    177,548
    
    
    
    174,411Income tax expense (benefit)
    
    
    1,124
    
    
    
    1,396
    
    
    
    1,526
    
    
    
    (43
    )
    
    
    (8,385
    )Net proceeds
    
    $
    133,002
    
    
    $
    171,623
    
    
    $
    154,671
    
    
    $
    177,591
    
    
    $
    182,796
 As of July 31,(in thousands)2001
    
    2002
    
    2003
    
    2004
    
    2005Balance sheet data:Cash and cash equivalents
    
    $
    266
    
    
    $
    190
    
    
    $
    306
    
    
    $
    780
    
    
    $
    49,035Working capital
    
    
    52,479
    
    
    
    72,111
    
    
    
    56,343
    
    
    
    72,556
    
    
    
    89,022Total assets
    
    
    145,241
    
    
    
    167,164
    
    
    
    172,168
    
    
    
    205,895
    
    
    
    252,028Total debt, including short-term debt
    
    
    47,650
    
    
    
    61,150
    
    
    
    61,239
    
    
    
    79,756
    
    
    
    22,119Total members/stockholders equity
    
    
    50,035
    
    
    
    48,204
    
    
    
    44,216
    
    
    
    59,214
    
    
    
    99,462
 12




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Year ended July 31,2001
    
    2002
    
    2003
    
    2004
    
    2005Other data (Unaudited):Walnuts received, in millions of pounds
    
    
    218.8
    
    
    
    279.0
    
    
    
    252.1
    
    
    
    297.4
    
    
    
    282.7Walnut sales as a percentage of total gross sales
    
    
    77.9
    %
    
    
    76.6
    %
    
    
    74.1
    %
    
    
    70.6
    %
    
    
    68.7
    %
 
 (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 include statements of net proceeds prepared in
accordance with GAAP, 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 will be prepared in accordance with GAAP for companies
that are not cooperative associations. 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
     13




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Critical Accounting Policies
  Revenue Recognition.
 Inventories.
 Impairment of Long-Lived Assets.
 Employee Benefits.
 Income Taxes. Accounting for
Income Taxes,
 14




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Results of Operations
 2005 Compared to 2004
   PercentageChange2004
    
    
    2005
    
    
    2004 to 2005North American Retail (1)
    
    $
    187,451
    
    
    $
    228,522
    
    
    
    21.9
    %International
    
    
    96,312
    
    
    
    122,514
    
    
    
    27.2North American Ingredient/Food Service
    
    
    70,991
    
    
    
    107,029
    
    
    
    50.8Other
    
    
    4,929
    
    
    
    4,483
    
    
    
    (9.0
    )Total
    
    $
    359,683
    
    
    $
    462,548
    
    
    
    28.6
    %
 
 (1)
    
    North American Retail represents sales of our culinary, snack and in-shell nuts in North
America.   2004
    
    
    2005Walnuts
    
    
    70.6
    %
    
    
    68.7
    %Other nuts
    
    
    29.4
    
    
    
    31.3Total
    
    
    100.0
    %
    
    
    100.0
    %
  Proceeds Before Operating Expenses.
 Selling, General and Administrative.
 15




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Advertising.
 Interest.
 Income Taxes.
 Net Proceeds.
 2004 Compared to 2003
 Net Sales.
  PercentageChange2003
    
    
    2004
    
    
    2003 to 2004North American Retail
    
    $
    153,812
    
    
    $
    187,451
    
    
    
    21.9
    %International
    
    
    76,062
    
    
    
    96,312
    
    
    
    26.6North American Ingredient/Food Service
    
    
    74,549
    
    
    
    70,991
    
    
    
    (4.8
    )Other
    
    
    4,027
    
    
    
    4,929
    
    
    
    22.4Total
    
    $
    308,450
    
    
    $
    359,683
    
    
    
    16.6
   2003
    
    
    2004Walnuts
    
    
    74.1
    %
    
    
    70.6
    %Other nuts
    
    
    25.9
    
    
    
    29.4Total
    
    
    100.0
    %
    
    
    100.0
    %
 16




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Proceeds Before Operating Expenses.
 Selling, General and Administrative.
 Advertising.
 Interest.
 Income Taxes.
 Net Proceeds.
 Supplemental Financial Information
  o
    
    are unable to determine retroactively what we would have paid for walnuts in
prior years had we not been a grower-owned cooperative;o
    
    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;o
    
    are limited by the level of detail
provided by the CASS statistics; ando
    
    cannot assure you that the cost of sales amounts implied by the CASS statistics
are representative of future cost of sales amounts that we will pay
for walnuts.
  17




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Supplemental Financial InformationYear Ended July 31,2005
    
    
    2004
    
    
    2003(unaudited)Net sales and other revenues
    
    $
    462,548
    
    
    $
    359,683
    
    
    $
    308,450Cost of sales
    
    
    413,750
    
    
    
    303,518
    
    
    
    253,894Gross margin
    
    
    48,798
    
    
    
    56,165
    
    
    
    54,556Operating expenses:Selling, general and administrative
    
    
    33,188
    
    
    
    28,169
    
    
    
    26,937Advertising
    
    
    22,153
    
    
    
    14,673
    
    
    
    8,744Total operating expenses
    
    
    55,341
    
    
    
    42,842
    
    
    
    35,681Operating income (loss)
    
    $
    (6,543
    )
    
    $
    13,323
    
    
    $
    18,875
    Liquidity and Capital Resources
     18




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Contractual Obligations and Commitments
  Payments Due by PeriodMoreLess than
    
    
    1-3
    
    
    3-5
    
    
    ThanTotal
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsLong-term obligations (a)
    
    $
    20.0
    
    
    $
    
    
    
    $
    
    
    
    $
    4.0
    
    
    $
    16.0Interest on long-term obligations
    
    
    8.8
    
    
    
    1.5
    
    
    
    2.9
    
    
    
    2.6
    
    
    
    1.8Operating leases
    
    
    2.9
    
    
    
    0.8
    
    
    
    1.7
    
    
    
    0.4
    
    
    
    Purchase commitments (b)
    
    
    1.3
    
    
    
    1.3
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    33.0
    
    
    $
    3.6
    
    
    $
    4.6
    
    
    $
    7.0
    
    
    $
    17.8
 
 (a)
    
    Excludes $2.0 million in total letters of credit outstanding related to normal
business transactions.(b)
    
    Commitments to purchase new equipment. Effects of Inflation
  19




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Recent Accounting Pronouncements
 Consolidation of Variable Interest Entities an Interpretation of Accounting Research Bulletin No.
51 (FIN 46).
 Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity
 Share-Based Payment
 Accounting for Inventory Costs
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 Market Risk.
 Commodities Risk.
 Interest Rate Risk.
 20




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Item 8. Financial Statements and Supplementary Data
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Consolidation of Variable
Interest Entities,
 
 21




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DIAMOND FOODS, INC.
 CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share information)
 July 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    49,035
    
    
    $
    780Trade receivables, less allowance for doubtful
accounts of $515 and $883, respectively
    
    
    42,246
    
    
    
    32,776Inventories
    
    
    111,270
    
    
    
    135,616Deferred income taxes
    
    
    2,726
    
    
    
    583Prepaid expenses and other current assets
    
    
    5,169
    
    
    
    3,687Total current assets
    
    
    210,446
    
    
    
    173,442Property, plant and equipment, net
    
    
    27,658
    
    
    
    21,455Investment in CoBank
    
    
    2,269
    
    
    
    2,250Deferred income taxes
    
    
    5,133
    
    
    
    683Other assets
    
    
    6,522
    
    
    
    8,065Total assets
    
    $
    252,028
    
    
    $
    205,895LIABILITIES AND STOCKHOLDERS/MEMBERS EQUITYCurrent liabilities:Notes payable  banks
    
    $
    
    
    
    $
    41,374Notes payable  members
    
    
    2,119
    
    
    
    2,918Payable to members for membership interest
    
    
    17,329
    
    
    
    Accounts payable and accrued liabilities
    
    
    29,422
    
    
    
    20,896Payable to members
    
    
    72,554
    
    
    
    35,698Total current liabilities
    
    
    121,424
    
    
    
    100,886Long-term obligations
    
    
    20,000
    
    
    
    35,464Other liabilities
    
    
    11,142
    
    
    
    10,331Commitments and contingencies
Stockholders/Members equity:Common stock, $0.001 par value; Authorized:100,000,000 shares; 15,555,506 shares issued and
outstanding at July 31, 2005
    
    
    16
    
    
    
    Additional paid-in capital
    
    
    88,491
    
    
    
    Working capital retains
    
    
    
    
    
    
    41,714Retained earnings
    
    
    10,955
    
    
    
    17,500Total stockholders/members equity
    
    
    99,462
    
    
    
    59,214Total liabilities and stockholders/members equity
    
    $
    252,028
    
    
    $
    205,895
  22




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##### Table of Contents



DIAMOND FOODS, INC.
 CONSOLIDATED STATEMENTS OF NET PROCEEDS
(In thousands)
 Year ended July 31,2005
    
    
    2004
    
    
    2003Net sales and other revenues
    
    $
    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
    
    
    
    94,701Gross marketing pool proceeds
    
    
    428,297
    
    
    
    366,385
    
    
    
    306,643Purchased commodities
    
    
    88,353
    
    
    
    63,951
    
    
    
    41,752Processing, packing and distribution costs
    
    
    103,034
    
    
    
    78,641
    
    
    
    69,731Proceeds before operating expenses
    
    
    236,910
    
    
    
    223,793
    
    
    
    195,160Operating expenses:Selling, general and administrative
    
    
    33,188
    
    
    
    28,169
    
    
    
    26,937Advertising
    
    
    22,153
    
    
    
    14,673
    
    
    
    8,744Total operating expenses
    
    
    55,341
    
    
    
    42,842
    
    
    
    35,681181,569
    
    
    
    180,951
    
    
    
    159,479Interest, net
    
    
    4,433
    
    
    
    3,403
    
    
    
    3,282Conversion costs
    
    
    697
    
    
    
    
    
    
    
    Early extinguishments of debt
    
    
    2,028
    
    
    
    
    
    
    
    Proceeds before income taxes
    
    
    174,411
    
    
    
    177,548
    
    
    
    156,197Income tax expense (benefit)
    
    
    (8,385
    )
    
    
    (43
    )
    
    
    1,526Net proceeds
    
    $
    182,796
    
    
    $
    177,591
    
    
    $
    154,671
  23




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##### Table of Contents



DIAMOND FOODS, INC.
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS/MEMBERS EQUITY
(In thousands, except share information)
 TotalAdditional
    
    
    
    
    
    
    Working
    
    
    
    
    
    
    Stockholders/Common Stock
    
    
    Paid-in
    
    
    Crop
    
    
    Capital
    
    
    Retained
    
    
    MembersShares
    
    
    Amount
    
    
    Capital
    
    
    Retains
    
    
    Retains
    
    
    Earnings
    
    
    EquityBalance, July 31, 2002
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4,595
    
    
    $
    27,896
    
    
    $
    15,713
    
    
    $
    48,204Nonpatronage income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,827
    
    
    
    1,827Revolvement of crop retains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,595
    )
    
    
    
    
    
    
    
    
    
    
    (4,595
    )Working capital retains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,676
    
    
    
    
    
    
    
    26,676Revolvement of working capital retains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,896
    )
    
    
    
    
    
    
    (27,896
    )Balance, July 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,676
    
    
    
    17,540
    
    
    
    44,216Nonpatronage loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    (40
    )Working capital retains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,714
    
    
    
    
    
    
    
    41,714Revolvement of working capital retains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,676
    )
    
    
    
    
    
    
    (26,676
    )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
    
    
    $
    99,462
  24




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##### Table of Contents



DIAMOND FOODS, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Year Ended July 31,2005
    
    
    2004
    
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net proceeds
    
    $
    182,796
    
    
    $
    177,591
    
    
    $
    154,671Adjustments to reconcile net proceeds to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    4,717
    
    
    
    4,896
    
    
    
    5,496Deferred income taxes
    
    
    (6,593
    )
    
    
    
    
    
    
    Early extinguishments of debt
    
    
    233
    
    
    
    
    
    
    
    CoBank patronage stock dividend
    
    
    (119
    )
    
    
    (75
    )
    
    
    (74
    )Changes in assets and liabilities:Trade receivables
    
    
    (9,470
    )
    
    
    (15,131
    )
    
    
    (1,587
    )Inventories
    
    
    24,346
    
    
    
    (19,327
    )
    
    
    239Prepaid expenses and other current assets
    
    
    (1,482
    )
    
    
    612
    
    
    
    (1,038
    )Other assets
    
    
    1,310
    
    
    
    (95
    )
    
    
    (4,259
    )Accounts payable and accrued liabilities
    
    
    8,106
    
    
    
    4,460
    
    
    
    4,144Other liabilities
    
    
    811
    
    
    
    947
    
    
    
    722Adjustment to current member account for change in
prepaid inventory costs
    
    
    7,216
    
    
    
    (52
    )
    
    
    87Net cash proceeds
    
    
    211,871
    
    
    
    153,826
    
    
    
    158,401Less: cash payments to members
    
    
    (201,415
    )
    
    
    (167,411
    )
    
    
    (154,709
    )Net cash provided by (used in) operating activities.
    
    
    10,456
    
    
    
    (13,585
    )
    
    
    3,692CASH FLOWS FROM INVESTING ACTIVITIES:Capital revolvement from CoBank
    
    
    100
    
    
    
    372
    
    
    
    359Purchases of property, plant and equipment
    
    
    (10,500
    )
    
    
    (4,830
    )
    
    
    (4,024
    )Net cash used in investing activities
    
    
    (10,400
    )
    
    
    (4,458
    )
    
    
    (3,665
    )CASH FLOWS FROM FINANCING ACTIVITIES:Notes payable borrowings (repayments), net
    
    
    (42,173
    )
    
    
    28,517
    
    
    
    89Net proceeds from initial public offering
    
    
    105,836
    
    
    
    
    
    
    
    Additions to long-term obligations
    
    
    10,000
    
    
    
    
    
    
    
    Payments of long-term obligations
    
    
    (25,464
    )
    
    
    (10,000
    )
    
    
    Net cash provided by financing activities
    
    
    48,199
    
    
    
    18,517
    
    
    
    89Net increase in cash and cash equivalents
    
    
    48,255
    
    
    
    474
    
    
    
    116Cash and cash equivalents:Beginning of period
    
    
    780
    
    
    
    306
    
    
    
    190End of period
    
    $
    49,035
    
    
    $
    780
    
    
    $
    306Supplemental disclosures of cash flow information:Cash paid (received) during the period for:Interest
    
    $
    4,580
    
    
    $
    3,226
    
    
    $
    3,159Income taxes
    
    
    (296
    )
    
    
    (41
    )
    
    
    1,552Non-cash investing activity:Accrued capital expenditures
    
    
    420
    
    
    
    
    
    
    
    Non-cash financing activity:Net proceeds from initial public offering payable to
members
    
    
    17,329
  25




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##### Table of Contents



DIAMOND FOODS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 July 31, 2005, 2004 and 2003
(In thousands, except share information)
 (1) Conversion and Initial Public Offering
   (2) Organization and Significant Accounting Policies
 Organization
  Basis of Presentation
  Use of Estimates
   26




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##### Table of Contents



Certain Risks and Concentrations
  Principles of Consolidation
  Cash and Cash Equivalents
  Inventories
  July 31,2005
    
    
    2004Patronage
    
    $
    67,152
    
    
    $
    101,403Other
    
    
    44,118
    
    
    
    34,213Total
    
    $
    111,270
    
    
    $
    135,616
  July 31,2005
    
    
    2004Raw materials and supplies
    
    $
    33,949
    
    
    $
    32,588Work in process
    
    
    30,732
    
    
    
    45,771Finished goods
    
    
    46,589
    
    
    
    57,257Total
    
    $
    111,270
    
    
    $
    135,616
 Crop Accounting Policy
  Investment in CoBank
  27




---



##### Table of Contents



Property, Plant and Equipment
  Slotting and Other Contractual Arrangements
  Impairment of Long-Lived Assets
  Revenue Recognition
  Promotion and Advertising Costs
 Accounting for Consideration
Given by Vendor to a Customer.
 Shipping and Handling Costs
  Income Taxes
   28




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##### Table of Contents



Fair Value of Financial Instruments
  Foreign Currency Hedging
 Derivative Financial Instruments and Hedging.
 Stock-Based Compensation
  Reclassifications
  Recent Accounting Pronouncements
 Consolidation of Variable Interest Entities an Interpretation of Accounting Research Bulletin No.
51 (FIN 46).
 Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity
 29




---



##### Table of Contents



Share-Based Payment
 Accounting for Inventory Costs
 (3) Notes Payable and Long-Term Obligations
       30




---



##### Table of Contents



(4) Property, Plant and Equipment
  July 31,2005
    
    
    2004Land and improvements
    
    $
    1,955
    
    
    $
    1,967Buildings
    
    
    19,421
    
    
    
    18,467Machinery, equipment and software
    
    
    74,407
    
    
    
    71,079Construction in progress
    
    
    6,270
    
    
    
    1,516102,053
    
    
    
    93,029Less accumulated depreciation
    
    
    (74,395
    )
    
    
    (71,574
    )Property, plant and equipment , net
    
    $
    27,658
    
    
    $
    21,455
 (5) Income Taxes
  Year Ended July 31,2005
    
    
    2004
    
    
    2003CurrentFederal
    
    $
    (1,684
    )
    
    $
    (107
    )
    
    $
    1,239State
    
    
    (108
    )
    
    
    (38
    )
    
    
    351Deferred
    
    
    (6,593
    )
    
    
    102
    
    
    
    (64
    )Total
    
    $
    (8,385
    )
    
    $
    (43
    )
    
    $
    1,526
  Year Ended July 31,2005
    
    
    2004
    
    
    2003Federal tax computed at the
statutory rate
    
    $
    61,044
    
    
    $
    60,360
    
    
    $
    53,359Benefit for payments to members
    
    
    (66,322
    )
    
    
    (60,593
    )
    
    
    (52,217
    )Change in valuation allowance
    
    
    (19
    )
    
    
    264
    
    
    
    Recognition of net deferred tax
assets resulting from the
conversion, net of valuation
allowance of $799
    
    
    (1,912
    )
    
    
    
    
    
    
    State taxes, net of federal benefit
    
    
    (746
    )
    
    
    (76
    )
    
    
    338Other items, net
    
    
    (430
    )
    
    
    2
    
    
    
    46Income tax expense (benefit)
    
    $
    (8,385
    )
    
    $
    (43
    )
    
    $
    1,526
 31




---



##### Table of Contents



At July 31, 2005
    
    
    At July 31, 2004Valuation
    
    
    
    
    
    
    
    
    
    
    ValuationGross
    
    
    Allowance
    
    
    Net
    
    
    Gross
    
    
    Allowance
    
    
    NetDeferred tax assets:Current:Inventories
    
    $
    1,178
    
    
    
    
    
    
    $
    1,178
    
    
    $
    193
    
    
    
    
    
    
    $
    193Receivables
    
    
    205
    
    
    
    
    
    
    
    205
    
    
    
    
    
    
    
    
    
    
    
    Accruals
    
    
    1,928
    
    
    
    
    
    
    
    1,928
    
    
    
    672
    
    
    
    
    
    
    
    672Other
    
    
    100
    
    
    
    
    
    
    
    100
    
    
    
    109
    
    
    
    
    
    
    
    109Total current
    
    
    3,411
    
    
    
    
    
    
    
    3,411
    
    
    
    974
    
    
    
    
    
    
    
    974Non-current:Net operating loss
    
    
    4,207
    
    
    
    
    
    
    
    4,207
    
    
    
    
    
    
    
    
    
    
    
    Retirement benefits
    
    
    4,512
    
    
    
    (1,044
    )
    
    
    3,468
    
    
    
    881
    
    
    
    (264
    )
    
    
    617Total non-current
    
    
    8,719
    
    
    
    (1,044
    )
    
    
    7,675
    
    
    
    881
    
    
    
    (264
    )
    
    
    617Deferred tax liabilities:Current:Retirement benefits
    
    
    685
    
    
    
    
    
    
    
    685
    
    
    
    
    
    
    
    
    
    
    
    Non-current:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Retirement benefits
    
    
    2,386
    
    
    
    
    
    
    
    2,386
    
    
    
    
    
    
    
    
    
    
    
    Property, plant and equipment
    
    
    156
    
    
    
    
    
    
    
    156
    
    
    
    325
    
    
    
    
    
    
    
    325Total non-current
    
    
    2,542
    
    
    
    
    
    
    
    2,542
    
    
    
    325
    
    
    
    
    
    
    
    325Total deferred income taxes
    
    $
    8,903
    
    
    $
    (1,044
    )
    
    $
    7,859
    
    
    $
    1,530
    
    
    $
    (264
    )
    
    $
    1,266Composed of:Net current deferred income taxes
    
    
    
    
    
    
    
    
    
    $
    2,726
    
    
    
    
    
    
    
    
    
    
    $
    583Net long-term deferred income taxes
    
    
    
    
    
    
    
    
    
    
    5,133
    
    
    
    
    
    
    
    
    
    
    
    683$
    7,859
    
    
    
    
    
    
    
    
    
    
    $
    1,266
   (5) Commitments and Contingencies
   32




---



##### Table of Contents



2006
    
    $
    7592007
    
    
    6452008
    
    
    5362009
    
    
    5322010
    
    
    280Thereafter
    
    
    107Total
    
    $
    2,859
 (6) Segment Disclosures
  2005
    
    
    2004
    
    
    2003United States
    
    $
    322,461
    
    
    $
    249,494
    
    
    $
    220,877Europe
    
    
    70,526
    
    
    
    56,462
    
    
    
    46,977Other
    
    
    69,561
    
    
    
    53,727
    
    
    
    40,596Total
    
    $
    462,548
    
    
    $
    359,683
    
    
    $
    308,450
  (7) Valuation Reserves and Qualifying Accounts
 AmountBeginning
    
    
    Charged
    
    
    Charged to
    
    
    End ofof Period
    
    
    to Expense
    
    
    Reserve
    
    
    PeriodAllowance for Doubtful AccountsYear ended July 31, 2003
    
    $
    140
    
    
    $
    875
    
    
    $
    (239
    )
    
    $
    776Year ended July 31, 2004
    
    
    776
    
    
    
    200
    
    
    
    (93
    )
    
    
    883Year ended July 31, 2005
    
    
    883
    
    
    
    196
    
    
    
    (564
    )
    
    
    515Deferred Tax Asset Valuation AllowanceYear ended July 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Year ended July 31, 2004
    
    
    
    
    
    
    264
    
    
    
    
    
    
    
    264Year ended July 31, 2005
    
    
    264
    
    
    
    780
    
    
    
    
    
    
    
    1,044
 (8) Retirement Plans
  33




---



##### Table of Contents



Pension Benefits
    
    
    Other BenefitsChange in benefit obligation:
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Benefit obligation at beginning of year
    
    $
    30,417
    
    
    $
    26,738
    
    
    $
    10,038
    
    
    $
    9,502Service cost
    
    
    2,013
    
    
    
    1,688
    
    
    
    273
    
    
    
    300Interest cost
    
    
    1,845
    
    
    
    1,720
    
    
    
    589
    
    
    
    603Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    185
    
    
    
    130Actuarial loss
    
    
    4,426
    
    
    
    2,244
    
    
    
    103
    
    
    
    94Benefits paid
    
    
    (3,800
    )
    
    
    (1,973
    )
    
    
    (613
    )
    
    
    (591
    )Benefit obligation at end of year
    
    $
    34,901
    
    
    $
    30,417
    
    
    $
    10,575
    
    
    $
    10,038
 Pension Benefits
    
    
    Other BenefitsChange in plan assets:
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Fair value of plan assets at beginning of
year
    
    $
    29,099
    
    
    $
    26,325
    
    
    $
    
    
    
    $
    Actual return on plan assets
    
    
    3,733
    
    
    
    3,049
    
    
    
    
    
    
    
    Employer contributions
    
    
    1,490
    
    
    
    1,698
    
    
    
    428
    
    
    
    461Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    185
    
    
    
    130Benefits paid
    
    
    (3,800
    )
    
    
    (1,973
    )
    
    
    (613
    )
    
    
    (591
    )Fair value of plan assets at end of year
    
    $
    30,522
    
    
    $
    29,099
    
    
    $
    
    
    
    $
    Funded status (under funded)
    
    $
    (4,379
    )
    
    $
    (1,318
    )
    
    $
    (10,575
    )
    
    $
    (10,038
    )Unrecognized actuarial loss
    
    
    14,055
    
    
    
    11,762
    
    
    
    1,170
    
    
    
    1,102Unrecognized prior service cost (benefit)
    
    
    (3,281
    )
    
    
    (3,568
    )
    
    
    
    
    
    
    Net amount recognized
    
    $
    6,395
    
    
    $
    6,876
    
    
    $
    (9,405
    )
    
    $
    (8,936
    )
  Pension Benefits
    
    
    Other Benefits2005
    
    
    2004
    
    
    2005
    
    
    2004Prepaid benefit cost
    
    $
    7,688
    
    
    $
    7,912
    
    
    $
    
    
    
    $
    Accrued benefit liability
    
    
    (1,293
    )
    
    
    (1,036
    )
    
    
    (9,405
    )
    
    
    (8,936
    )Net amount recognized
    
    $
    6,395
    
    
    $
    6,876
    
    
    $
    (9,405
    )
    
    $
    (8,936
    )
   2005
    
    
    2004Projected benefit obligation
    
    $
    2,141
    
    
    $
    1,429Accumulated benefit obligation
    
    
    1,328
    
    
    
    764
  Pension Benefits
    
    
    Other Benefits2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Service cost
    
    $
    2,013
    
    
    $
    1,688
    
    
    $
    1,837
    
    
    $
    273
    
    
    $
    300
    
    
    $
    268Interest cost
    
    
    1,845
    
    
    
    1,720
    
    
    
    1,701
    
    
    
    589
    
    
    
    603
    
    
    
    598Expected return on plan assets
    
    
    (2,299
    )
    
    
    (2,190
    )
    
    
    (1,791
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
(gain)
    
    
    (287
    )
    
    
    (287
    )
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    Amortization of net loss
    
    
    699
    
    
    
    507
    
    
    
    259
    
    
    
    35
    
    
    
    48
    
    
    
    9Net periodic benefit cost
    
    $
    1,971
    
    
    $
    1,438
    
    
    $
    2,027
    
    
    $
    897
    
    
    $
    951
    
    
    $
    875
  34




---



##### Table of Contents



Assumptions
  Pension Benefits
    
    Other Benefits2005
    
    2004
    
    2003
    
    2005
    
    2004
    
    2003Discount rate
    
    
    5.25
    %
    
    
    6.00
    %
    
    
    6.50
    %
    
    
    5.25
    %
    
    
    6.00
    %
    
    
    6.50
    %Rate of compensation increase
    
    
    5.50
    
    
    
    5.50
    
    
    
    5.50
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
  Pension Benefits
    
    Other Benefits2005
    
    2004
    
    2003
    
    2005
    
    2004
    
    2003Discount rate
    
    
    6.00
    %
    
    
    6.50
    %
    
    
    7.00
    %
    
    
    6.00
    %
    
    
    6.50
    %
    
    
    7.00
    %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
    2005
    
    2004
    
    2003Health care cost trend rate assumed for next year
    
    
    8.5
    %
    
    
    9.0
    %
    
    
    9.5
    %Rate to which the cost trend rate assumed to decline (the ultimate trend rate)
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.0Year the rate reaches ultimate trend rate
    
    
    2013
    
    
    
    2013
    
    
    
    2013
  One
    
    
    OnePercentage
    
    
    PercentagePoint
    
    
    PointIncrease
    
    
    DecreaseEffect on total of service and interest cost
    
    $
    157
    
    
    $
    (125
    )Effect on postretirement benefit obligation
    
    
    1,538
    
    
    
    (1,262
    )
 Plan Assets
  2005
    
    2004
    
    2003Asset category:Equity securities
    
    
    75.0
    %
    
    
    74.7
    %
    
    
    74.4
    %Debt securities
    
    
    25.0
    %
    
    
    25.3
    %
    
    
    25.6
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 35




---



##### Table of Contents



Cash Flows
  Pension
    
    
    OtherBenefits
    
    
    Benefits2006
    
    $
    1,779
    
    
    $
    4592007
    
    
    1,913
    
    
    
    4832008
    
    
    1,336
    
    
    
    4882009
    
    
    2,191
    
    
    
    5382010
    
    
    1,689
    
    
    
    55820102014
    
    
    13,229
    
    
    
    3,274
 Medicare Modernization Act
 Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 Employers Accounting for
Postretirement Benefits other than Pensions
 Defined Contribution Plan
  (9) Stock Plans
  36




---



##### Table of Contents



(10) Quarterly Financial Information (unaudited)
 First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterYear ended July 31, 2005Net sales and other revenues
    
    $
    172,758
    
    
    $
    112,488
    
    
    $
    79,633
    
    
    $
    97,669Proceeds before operating expenses
    
    
    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
    )Year ended July 31, 2004Net sales and other revenues
    
    $
    142,236
    
    
    $
    90,832
    
    
    $
    56,425
    
    
    $
    70,190Proceeds before operating expenses
    
    
    189,962
    
    
    
    16,123
    
    
    
    8,689
    
    
    
    9,019Operating expenses
    
    
    10,550
    
    
    
    14,236
    
    
    
    9,793
    
    
    
    8,263Net proceeds (loss)
    
    
    176,630
    
    
    
    1,137
    
    
    
    (341
    )
    
    
    165Year ended July 31, 2003Net sales and other revenues
    
    $
    131,872
    
    
    $
    84,124
    
    
    $
    42,304
    
    
    $
    50,150Proceeds before operating expenses
    
    
    167,200
    
    
    
    10,081
    
    
    
    9,215
    
    
    
    8,664Operating expenses
    
    
    10,899
    
    
    
    11,672
    
    
    
    6,122
    
    
    
    6,988Net proceeds (loss)
    
    
    153,903
    
    
    
    (3,005
    )
    
    
    2,700
    
    
    
    1,073
 37




---



##### 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 and Executive Officers of the Registrant
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
  38




---



##### Table of Contents



Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accounting Fees and Services
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
  1. Financial Statements.
 (a)
    
    Report of Independent Registered Public Accounting Firm(b)
    
    Consolidated Balance Sheets at July 31, 2005 and 2004(c)
    
    Consolidated Statements of Net Proceeds for the years ended July 31, 2005,
2004 and 2003(d)
    
    Consolidated Statements of Stockholders/Members Equity for the years ended
July 31, 2005, 2004 and 2003(e)
    
    Consolidated Statements of Cash Flows for the years ended July 31, 2005, 2004
and 2003(f)
    
    Notes to the Consolidated Financial Statements
 2. Financial Statement Schedules.
  3. 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
    
    File No. 333-123576
    
    July 18, 20053.01
    
    Registrants Certificate of
Incorporation, as amended.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    July 15, 20053.02
    
    Registrants Restated Bylaws.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 20054.01
    
    Form of Certificate for Registrants
common stock.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    July 18, 200510.01
    
    Form of Indemnity Agreement between
Registrant and each of its directors and
executive officers.
    
    
    
    Form S-1
    
    File No. 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
    
    File No. 333-123576
    
    March 25, 2005
 39




---



##### Table of Contents



Filed with
    
    Incorporated by referenceNumber
    
    Exhibit Title
    
    this 10-K
    
    Form
    
    File No.
    
    Date Filed10.03*
    
    2005 Employee Stock Purchase Plan
and form of subscription agreement.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 200510.04*
    
    Diamond Walnut Growers, Inc. 401(k) Plan.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 200510.05*
    
    Diamond Foods, Inc. Annual Bonus Program.
    
    
    
    Form 8-K
    
    File No. 000-51439
    
    October 25, 200510.06
    
    Diamond of California Long-Term
Incentive Program.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 200510.07*
    
    Diamond of California Michael J. Mendes
Long Term Incentive Compensation
Program, as amended.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 200510.08*
    
    Diamond Walnut Growers, Inc. Retirement
Restoration Plan.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 200510.09*
    
    Diamond of California Management Pension
Plan.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 200510.10
    
    Diamond Walnut Growers, Inc. Pension
Plan, as restated
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 200510.11*
    
    Employment Agreement, dated March 25,
1997, between Registrant and Michael J.
Mendes.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 200510.12*
    
    Description of Compensation Arrangement
for Gary K. Ford.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 200510.13*
    
    Offer Letter, dated October 11, 2004,
for Seth Halio.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 200510.14*
    
    Description of Compensation Arrangement
for Samuel J. Keiper.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 200510.15*
    
    Description of Director Compensation
Arrangements.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 200510.16
    
    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
    
    File No. 333-123576
    
    March 25, 200510.17
    
    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
    
    File No. 333-123576
    
    March 25, 2005
 40




---



##### Table of Contents



Filed with
    
    Incorporated by referenceNumber
    
    Exhibit Title
    
    this 10-K
    
    Form
    
    File No.
    
    Date Filed10.18
    
    Intercreditor Agreement, dated September
11, 2002, between Bank of the West and
CoBank, ACB.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 200510.19
    
    Master Loan Agreement, dated February
23, 2004, between Registrant and CoBank,
ACB, as amended.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 200510.20
    
    Credit Agreement, dated December 2,
2004, between Registrant and Bank of the
West.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 200510.21
    
    Form of Walnut Purchase Agreement.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    May 3, 200510.22
    
    Trademark Agreement, dated July 1, 2002,
between Registrant and Blue Diamond
Growers.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 200510.23
    
    Rights Agreement, dated as of April 29,
2005, by and between Registrant and
EquiServe Trust Company, N.A.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    May 3, 200510.24
    
    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
    
    File No. 333-123576
    
    May 3, 200510.25
    
    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
    
    File No. 333-123576
    
    May 3, 200510.26
    
    Form of Change of Control and Retention
Agreement between Registrant and each of
its executive officers.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    May 3, 200510.27
    
    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
    
    File No. 333-123576
    
    July 15, 200521.01
    
    List of Subsidiaries of Registrant.
    
    
    
    Form S-1
    
    File No. 333-123576
    
    March 25, 200523.01
    
    Consent of Deloitte & Touche LLP
    
    X31.01
    
    Certification of Chief Executive Officer
pursuant to Exchange Act Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of
2002
    
    X
 41




---



##### Table of Contents



Filed with
    
    Incorporated by referenceNumber
    
    Exhibit Title
    
    this 10-K
    
    Form
    
    File No.
    
    Date Filed31.02
    
    Certification of Chief Financial Officer
pursuant to Exchange Act Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of
2002
    
    X32.01
    
    Certifications of Chief Executive
Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    X
 
 *
    
    Indicates management contract or compensatory plan or arrangement  42




---



##### Table of Contents



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


Signature
Date/s/ Michael J. Mendes
    
    President and Chief Executive Officer and Director (principal executive officer)

    October 27, 2005Michael J. Mendes/s/ Seth Halio
    
    Executive Vice President, Chief Financial Officer (principal financial and accounting officer)

    October 27, 2005Seth Halio/s/ Laurence M. Baer
    
    Director

    October 27, 2005Laurence M. Baer/s/ John J. Gilbert
    
    Director

    October 27, 2005John J. Gilbert/s/ Robert M. Lea
    
    Director

    October 27, 2005Robert M. Lea/s/ Dennis Mussell
    
    Director

    October 27, 2005Dennis Mussell/s/ Steven M. Neil
    
    Director

    October 27, 2005Steven M. Neil
 43




---



##### Table of Contents



/s/ Joseph P. Silveira
    
    Director

    October 27, 2005Joseph P. Silveira/s/ Glen C. Warren, Jr.
    
    Director

    October 27, 2005Glen C. Warren, Jr./s/ Robert J. Zollars
    
    Director

    October 27, 2005Robert J. Zollars
 44




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
    Exhibit Description23.01
    
    Consent of Deloitte & Touche LLP31.01
    
    Certification of Chief Executive Officer pursuant to
Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.02
    
    Certification of Chief Financial Officer pursuant to
Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.01
    
    Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 45