Diamond Foods Inc - FORM 10-K - September 15, 2011

Attached files

file	filename
EX-21.01 - LIST OF SUBSIDIARIES OF DIAMOND FOODS, INC. - Diamond Foods Inc	d232533dex2101.htm
EX-32.01 - SECTION 1350 CERTIFICATIONS OF CEO AND CFO - Diamond Foods Inc	d232533dex3201.htm
EX-31.01 - CERTIFICATION OF CEO - Diamond Foods Inc	d232533dex3101.htm
EX-31.02 - CERTIFICATION OF CFO - Diamond Foods Inc	d232533dex3102.htm
EX-23.01 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - Diamond Foods Inc	d232533dex2301.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended July 31, 2011

¨	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.)

600 Montgomery Street, 13th Floor San Francisco, California		94111-2702
(Address of Principal Executive Offices)		(Zip Code)

415-445-7444

(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 Market
Series A Junior Preferred Stock Purchase Right		NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	x		Accelerated filer	¨

Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ¨ No x

As of January 31, 2011, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $1,032,155,294 based on the closing sale price as reported on the NASDAQ Stock Market. As of August 31, 2011, there were 22,011,196 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant’s Proxy Statement for its 2011 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

TABLE OF CONTENTS


		Page
	PART I
Item 1.	Business		03
Item 1A.	Risk Factors		07
Item 1B.	Unresolved Staff Comments		15
Item 2.	Properties		15
Item 3.	Legal Proceedings		15
Item 4.	Removed and Reserved		15

	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		16
Item 6.	Selected Financial Data		17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk		25
Item 8.	Financial Statements and Supplementary Data		26
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		53
Item 9A.	Controls and Procedures		53
Item 9B.	Other Information		55

	PART III
Item 10.	Directors, Executive Officers and Corporate Governance		55
Item 11.	Executive Compensation		55
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		55
Item 13.	Certain Relationships and Related Transactions, and Director Independence		55
Item 14.	Principal Accounting Fees and Services		55

	PART IV
Item 15.	Exhibits and Financial Statement Schedules		55
Signatures			58

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The statements contained in this Annual Report regarding our future financial and operating performance and results, business strategy, market prices, future commodity prices, supply of raw materials, plans and forecasts and other statements that are not historical facts are forward-looking statements. We have based these forward-looking statements on our assumptions, expectations, and projections about future events only as of the date of this Annual Report.

Our forward-looking statements include discussions of trends and anticipated developments under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We use the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “seek,” “may” and other similar expressions to identify forward-looking statements that discuss our future expectations, contain projections of our results of operations or financial condition or state other “forward-looking” information. These forward-looking statements also involve many risks and uncertainties that could cause actual results to differ from our expectations in material ways. Please refer to the risks and uncertainties discussed in the section titled “Risk Factors.” You also should carefully consider other cautionary statements elsewhere in this Annual Report and in other documents we file from time to time with the Securities and Exchange Commission (“SEC”), including the Quarterly Reports on Form 10-Q to be filed by us during our 2012 fiscal year. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report.

PART I

Item 1. Business

Overview

Diamond Foods, Inc. was incorporated in Delaware in 2005 as the successor to Diamond Walnut Growers, Inc., a member-owned California agricultural cooperative association. In July 2005, Diamond Walnut Growers, Inc. merged with and into Diamond Foods, Inc., converted from a cooperative association to a Delaware corporation and completed an initial public offering of Diamond Foods’ common stock. The terms “Diamond Foods,” “Diamond,” “Company,” “Registrant,” “we,” “us,” and “our” mean Diamond Foods, Inc. and its subsidiaries unless the context indicates otherwise.

We are an innovative packaged food company focused on building, acquiring and energizing brands. We specialize in processing, marketing and distributing snack products and culinary, in-shell and ingredient nuts. In 2004, we complemented our strong heritage in the culinary nut market under the Diamond of California^® brand by launching a full line of snack nuts under the Emerald^® brand. In September 2008, we acquired the Pop Secret^® brand of microwave popcorn products, which provided us with increased scale in the snack market, significant supply chain economies of scale and cross promotional opportunities with our existing brands. In March 2010, we acquired Kettle Foods, a leading premium potato chip company in the two largest potato chip markets in the world, the United States and United Kingdom, which added the complementary premium Kettle Brand^® to our existing portfolio of leading brands in the snack industry. In April 2011, we announced that we entered into a definitive agreement with the Proctor & Gamble Company (“P&G”) to merge P&G’s Pringles business into our Company. We sell our products to global, national, regional and independent grocery, drug and convenience store chains, as well as to mass merchandisers, club stores and other retail channels.

We have three product lines:

•

Snack. We sell snack products under the Emerald^®, Pop Secret^® and Kettle Brand^® brands. Emerald products include roasted, glazed and flavored nuts, trail mixes, seeds, dried fruit and similar offerings packaged in innovative resealable containers. In September 2008, we expanded our snack product line

with the acquisition of the Pop Secret microwave popcorn from General Mills, Inc. Microwave popcorn products are offered in a variety of traditional flavors, as well as a “better-for-you” product offering featuring 100-calorie packs. In March 2010, we complemented our snack portfolio with the acquisition of Kettle Foods, a leading premium potato and tortilla chip company. Kettle Foods products are offered in a variety of flavors and sizes. Our snack products are typically available in grocery store snack, natural and produce aisles, mass merchandisers, club stores, convenience stores, drug stores, natural food stores and other places where snacks are sold.

•

Culinary and Retail In-shell. We sell culinary nuts under the Diamond of California^® brand in grocery store baking aisles 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. We also sell in-shell nuts under the Diamond of California^® brand, primarily during the winter holiday season. These products are typically available in produce sections of grocery stores, mass merchandisers and club stores.

•

Non-Retail. Our non-retail nut business includes international markets and North American ingredient customers. We market ingredient nuts internationally under the Diamond of California^® brand to food processors, restaurants, bakeries and food service companies and their suppliers. We also sell in-shell nuts under the Diamond of California^® brand, primarily during the winter holiday season. Diamond’s institutional and industrial customers use our standard or customer-specified products to add flavor and enhance nutritional value and texture in their product offerings.

Our net sales were as follows (in millions):


	Year Ended July 31,
	2011		2010		2009
Snack	$	553.2	$	321.4	$	188.9
Culinary and Retail In-shell		262.9		249.0		276.2

Total Retail		816.1		570.4		465.1

International Non-Retail		119.0		69.2		68.9
North American Ingredient/Food Service and Other		30.8		40.6		36.9

Total Non-Retail		149.8		109.8		105.8

Total Net Sales	$	965.9	$	680.2	$	570.9

Sales to Wal-Mart Stores, Inc. (which includes sales to both Sam’s Club and Wal-Mart), accounted for approximately 15%, 17% and 21% of our net sales for the years ended July 31, 2011, 2010 and 2009, respectively. Sales to Costco Wholesale Corporation accounted for 11%, 12%, and 13% of our net sales for the years ended July 31, 2011, 2010 and 2009, respectively. No other single customer accounted for more than 10% of our net sales.

Our disclosure reports that we file with the SEC are available free of charge on the Investor Relations page of our website, www.diamondfoods.com.

Marketing

We believe that our marketing efforts are fundamental to the success of our business. Advertising expenses were $44.4 million in fiscal year 2011, $33.0 million in fiscal year 2010 and $28.8 million in fiscal year 2009. We develop marketing strategies specific to each product line, focusing on building brand awareness and attracting consumers to our offerings. To maintain good customer relationships, these efforts are designed to establish a premium value proposition to minimize the impact on our customers’ private label sales.

Our consumer-targeted marketing campaigns include television, print and digital advertisements, coupons, co-marketing arrangements with complementary consumer product companies, and cooperative advertising with select retail customers. Our television advertising airs on national network and cable channels and often are aired during key sporting events suited to our product demographic. We design and provide point-of- purchase displays for use by our retail customers. These displays help to merchandize our products in a consistent, eye-catching manner and make our products available for sale in multiple locations in a store, which increases impulse purchase opportunities. Our public relations and event sponsorship efforts are an important component of our overall marketing and brand awareness strategy. We offer samples and support active lifestyle consumers by sponsoring events such as marathons and other running events. Promotional activities associated with our ingredient/food service products include attending regional and national trade shows, trade publication advertising, and customer-specific marketing efforts. These promotional efforts highlight our commitment to quality assurance, processing and storage capabilities and product customization.

Sales and Distribution

In North America, we market our consumer products through our sales personnel directly to large national grocery, mass merchandiser, club, convenience stores and drug store chains. Our sales department also oversees our broker and distributor network. Our distributor network carries Kettle Brand^® potato chips to grocery, convenience and natural food stores in various parts of the United States and Canada. In the United Kingdom, we market our potato chip products through our sales personnel directly to national grocery, co-op and impulse store chains.

We distribute our products from our production facilities in Alabama, California, Indiana, Oregon, Wisconsin, and Norwich, England, and from leased warehouse and distribution facilities in California, Georgia, Illinois, Indiana, New Jersey, Oregon, Wisconsin, Ontario, Canada and Snetterton, England. Our sales administration and logistics departments manage the administration and fulfillment of customer orders. The majority of our products are shipped from our production, warehouse and distribution facilities by contract and common carriers.

Product Development and Production

Our innovation program is broken down into four phases. A cross-functional team leads this process from idea generation through commercialization. Our team utilizes outside partners to bring additional expertise as well as resources to the front end of this development process. Once new products have been identified and developed an internal, cross-functional commercialization team manages the process from inception to large-scale production and is responsible for consistently delivering high-quality products to market. We process and package most of our nut products at the Stockton, California, Robertsdale, Alabama, and Fishers, Indiana facilities; our popcorn products are primarily processed and packaged in the Van Buren, Indiana facility under a third-party co-pack arrangement; and our potato chips are processed and packaged at Salem, Oregon, Beloit, Wisconsin, and Norwich, England facilities. Periodically, we may use third parties to process and package a portion of our products when warranted by demand and specific technical requirements.

Competition

We operate in a highly competitive environment. Our products compete against food products sold by many regional and national companies, some of which are larger and have substantially greater resources than we do. We believe that additional competitors will enter the snack product market as large food companies begin to offer products that directly compete with our snack product offerings. We also compete for shelf space of retail grocers, convenience stores, drug stores, mass merchandisers, natural food and club stores. As these retailers consolidate, the number of customers and potential customers declines and their purchasing power increases. As a result, there is greater pressure to manage distribution capabilities in ways that increase efficiency for these large retailers, especially on a national scale. In general, competition in our markets is based on product quality,

price, brand recognition and loyalty. The combination of the strength of our brands, our product quality and differentiation, as well as our broad channel distribution helps us to compete effectively in each of these categories. Our principal competitors are regional and national nut manufacturers, national popcorn manufacturers, regional and national potato chip manufacturers and regional, national and international food suppliers.

Raw Materials and Supplies

We obtain our raw materials from domestic and international sources. We currently obtain a majority of our walnuts from growers located in California who have entered into long-term supply contracts with us. Additional walnuts may be purchased from time to time from other California walnut processors. We purchase our other nut requirements from domestic and international processors on the open market. For example, during 2011, all of the walnuts, peanuts and almonds we obtained were grown in the United States, most of our supply of hazelnuts came from the United States and our supply of pecans were sourced from the United States and northern Mexico. With respect to nut types sourced primarily from abroad, we import Brazil nuts from the Amazon basin, cashew nuts from India, Africa, Brazil and Southeast Asia, hazelnuts from Turkey, and pine nuts from China and Turkey. Outside of our nut products, we obtain corn from our primary third party co-packer in the United States, with additional sourcing capabilities, if needed, from Argentina. We obtain potatoes from the United States and the United Kingdom, with additional sourcing capabilities, if needed, from Continental Europe.

We believe that we will be able to procure an adequate supply of raw materials for our products in the future, although the availability and cost of raw materials are subject to crop size, quality, yield fluctuations, changes in governmental regulation, and the rate of supply contract renewals, as well as other factors.

We purchase all other supplies used in our business from third parties, including roasting oils, seasonings, plastic containers, foil bags, labels and other packaging materials. We believe that each of these supplies is available from multiple sources and that our business is not materially dependent upon any individual supplier relationship.

Trademarks and Patents

We market our products primarily under the Diamond^®, Emerald^®, Pop Secret^® and Kettle Brand^® brands, each of which are protected with trademark registration with the U.S. Patent and Trademark Office, as well as in various other jurisdictions. Our agreement with Blue Diamond Growers limits our use of the Diamond ^®brand in connection with our marketing of snack nut products, but preserves our exclusive use of our Diamond brand for all culinary and in-shell nut products. We also own two U.S. patents related to nut processing methods, a number of U.S. patents acquired from General Mills related to popcorn pouches, flavoring and microwave technologies and patents acquired through the acquisition of Kettle Foods related to the manufacturing of chips and tortillas. While these patents, which have various durations, are an important element of our success, our business as a whole is not materially dependent on them. We expect to continue to renew for the foreseeable future those trademarks that are important to our business.

Seasonality

We experience seasonality in our business. Demand for our in-shell and culinary products is highest during the months of October, November and December. We purchase walnuts and pecans between August and February, and process them throughout the year until the following harvest. We purchase potatoes throughout the year and demand for potato chips is highest in the months of June, July and August in the United States and November and December in the United Kingdom. As a result of this seasonality, our personnel, working capital requirements and inventories peak during the last four months of the calendar year. We experience seasonality in capacity utilization at our Stockton, California and Fishers, Indiana facilities associated with the annual walnut harvest.

Employees

As of July 31, 2011, we had 1,797 full-time employees consisting of 1,310 production and distribution employees, 393 administrative and corporate employees, and 94 sales and marketing employees. Our labor requirements typically peak during the last quarter of the calendar year, when we generally use temporary labor to supplement our full-time work force. Our production and distribution employees in the Stockton, California plant are members of the International Brotherhood of Teamsters. We consider relations with our employees to be good.

Item 1A. Risk Factors

This report contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed or implied in such forward-looking statements due to such risks and uncertainties. Factors that may cause such a difference include, but are not limited to, those discussed below, in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report.

Risks Related to Our Business

We may be required to conduct product recalls and concerns with the safety and quality of food products could cause consumers to avoid our products and reduce our sales, net income, and liquidity.

The sale of food products for human consumption involves risk of injury to consumers. We face risks associated with product recalls and liability claims if our products become adulterated, mislabeled or misbranded, or cause injury, illness or death. Our products may be subject to product tampering and to contamination and spoilage risks, such as mold, bacteria, insects and other pests, shell fragments, cross-contamination and off-flavor contamination. If any of our products were to be tampered with, or otherwise tainted and we were unable to detect it prior to shipment, our products could be subject to a recall. Our ability to sell products could be reduced if governmental agencies conclude that our products have been tampered with, or that certain pesticides, herbicides or other chemicals used by growers have left harmful residues on portions of the crop or that the crop has been contaminated by aflatoxin or other agents. A significant product recall could cause our products to be unavailable for a period of time and reduce our sales. Adverse publicity could result in a loss of consumer confidence in our products, damage to our reputation and also reduce our sales for an extended period. Product recalls and product liability claims could increase our expenses and have an adverse effect on demand for our products and, consequently, reduce our sales, net income and liquidity.

Government regulations could increase our costs of production and our business could be adversely affected.

As a food company, we are subject to extensive government regulation, including regulation of the manufacturing, importation, processing, product quality, packaging, storage, distribution and labeling of our products. Furthermore, there may be changes in the legal and regulatory environment, and governmental entities or agencies in jurisdictions where we operate may impose new manufacturing, importation, processing, packaging, storage, distribution, labeling or other restrictions, which could increase our costs and affect our profitability. For example, various regulatory authorities and others have paid increasing attention to the effect on humans due to the consumption of acrylamide — a naturally-occurring chemical compound that is formed in the process of cooking many foods, including potato chips, and a potential carcinogen — and have imposed additional regulatory requirements. In the State of California, we are required to warn about the presence of acrylamide and other potential carcinogens in our products. If consumer concerns about acrylamide increase, demand for affected products could decline and our revenues and business could be harmed. Our manufacturing operations are subject to various national, regional or state and local laws and regulations that require us to obtain licenses relating to customs, health and safety, building and land use and environmental protection. We are also subject to environmental regulations governing the discharge into the air, and the generation, handling, storage, transportation, treatment and disposal of waste materials. New or amended statutes and regulations, increased production at our existing facilities, and our expansion into new operations and jurisdictions may require us to obtain new licenses

and permits, and could require us to change our methods of operations, which could be costly. Failure to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as possible criminal sanctions, all of which could have an adverse effect on our business.

A disruption at any of our production facilities would significantly decrease production, which could increase our cost of sales and reduce our net sales and income from operations.

We process and package our products in several domestic and international facilities and also have co-manufacturing agreements and co-pack arrangements with third parties. A temporary or extended interruption in operations at any of our facilities, whether due to technical or labor difficulties, destruction or damage from fire, flood or earthquake, infrastructure failures such as power or water shortages, raw material shortage or any other reason, whether or not covered by insurance, could interrupt our manufacturing operations, disrupt communications with our customers and suppliers and cause us to lose sales and write off inventory. Any prolonged disruption in the operations of our facilities would have a significant negative impact on our ability to manufacture and package our products on our own and may cause us to seek additional third-party arrangements, thereby increasing production costs. These third parties may not be as efficient as we are and may not have the capabilities to process and package some of our products, which could adversely affect sales or operating income. Further, current and potential customers might not purchase our products if they perceive our lack of alternate manufacturing facilities to be a risk to their continuing source of products.

The acquisition of other product lines or businesses could pose risks to our business and the market price of our common stock.

We intend to review acquisition prospects that we believe could complement our existing business. Any such future acquisitions could result in accounting charges, potentially dilutive issuances of stock, and increased debt and contingent liabilities, any of which could have a material adverse effect on our business and the market price of our common stock. Acquisitions entail many financial, managerial and operational risks, including difficulties integrating the acquired operations, effective and immediate implementation of internal controls over financial reporting, diversion of management attention during the negotiation and integration phases, uncertainty entering markets in which we have limited prior experience, and potential loss of key employees of acquired organizations. We may be unable to integrate product lines or businesses that we acquire, which could have a material adverse effect on our business and on the market price of our common stock.

If we do not complete our acquisition of Pringles, our business, reputation and financial condition will be adversely affected.

In April 2011, we entered into an agreement to acquire the Pringles snack business from The Procter & Gamble Company (“P&G”). The value of the proposed transaction at April 5, 2011 was approximately $2.35 billion, consisting of $1.5 billion of our common stock and the assumption of $850 million of Pringles debt. The number of shares of our common stock to be issued in the transaction was based on $1.5 billion divided by the average of 60 days of daily volume weighted average prices (“VWAP”), or 60-day VWAP, of our common stock for the period ended March 28, 2011 of $51.47, which amounted to approximately 29.1 million shares of our common stock to be issued to Pringles stockholders in connection with the transaction. As of September 14, 2011, the value of the approximately 29.1 million shares of our common stock to be issued in the transaction was $2.2 billion. The transaction, which we expect to be completed by the end of 2011, is subject to approval by our stockholders and satisfaction of customary closing conditions and regulatory approvals. We cannot provide assurance that the acquisition of Pringles will be completed on schedule, or at all. If the acquisition is not completed, the share price of our common stock may drop to the extent that the market price of our stock reflects an assumption that a transaction will be completed. If we do not complete the Pringles acquisition, we will have incurred substantial expenses and diverted significant management time and resources from our ongoing business, without receiving any of the anticipated benefits of the acquisition. In addition, we could be required to pay P&G a termination fee of approximately $60 million. If the Pringles acquisition is not consummated, our business, reputation and financial condition will be adversely affected.

If we do complete the Pringles acquisition, we may not realize some or all of its anticipated benefits, and we may encounter future difficulties with the integration of Pringles operations with our business.

Changes in the food industry, including changing dietary trends and consumer preferences and adverse publicity about the health effects of consuming some products, could reduce demand for our products.

Consumer tastes can change rapidly as a result of many factors, including shifting consumer preferences, dietary trends and purchasing patterns. Our growth is largely dependent on the snack market, where consumer preferences are particularly unpredictable. To address consumer preferences, we invest significant resources in research and development of new products. If we fail to anticipate, identify or react to consumer trends, or if new products we develop do not achieve acceptance by retailers or consumers, demand for our products could decline, which would in turn cause our revenue and profitability to be lower.

In addition, some of our products contain sodium, preservatives and other ingredients, the health effects of which are the subject of increasing public scrutiny, including the suggestion that excessive consumption of these ingredients can lead to a variety of adverse health effects. In the United States and other countries, there is increasing consumer awareness of health risks, including obesity, associated with consumption of these ingredients, as well as increased consumer litigation based on alleged adverse health impacts of consumption of various food products. A continuing global focus on health and wellness, including weight management, and increasing media attention to the role of food marketing, could adversely affect our brand’s image or lead to stricter regulations and greater scrutiny of food marketing practices. Increased legal or regulatory restrictions on our advertising, consumer promotions and marketing, or our response to such restrictions, could limit its efforts to maintain, extend and expand its brands. Moreover, adverse publicity about regulatory or legal action against us could damage its reputation and brand image, undermine customers’ confidence and reduce long-term demand for its products, even if the regulatory or legal action is unfounded or not material to our operations.

Increased costs associated with product processing and transportation, such as water, electricity, natural gas and fuel costs, could increase our expenses and reduce our profitability.

We require a substantial amount of energy and water to process our products. Transportation costs, including fuel and labor, also represent a significant portion of the cost of our products, because we use third party truck and rail companies to collect our raw materials and deliver our products to our distributors and customers. These costs fluctuate significantly over time due to factors that may be beyond our control, including increased fuel prices, adverse weather conditions or natural disasters, employee strikes and increased export and import restrictions. We may not be able to pass on increased costs of production or transportation to our customers. In addition, from time to time, transportation service providers have a backlog of shipping requests, which could impact our ability to ship products in a timely fashion. Increases in the cost of water, electricity, natural gas, fuel or labor, and failure to ship products on time, could increase our costs of production and adversely affect our profitability.

Our raw materials are subject to fluctuations in availability and price.

The availability, size, quality and cost of raw materials for the production and packaging of our products, including nuts, potatoes, corn and corn products, cooking and vegetable oils, corrugate, resins and other commodities, are subject to price volatility and fluctuations in availability caused by changes in global supply and demand, weather conditions, governmental agricultural and energy programs, exchange rates for foreign currencies and consumer demand.

For example, our potato chip products are dependent on suppliers providing us with an adequate supply of quality potatoes on a timely basis. The failure of suppliers to meet the specifications, quality standards or delivery schedules could have an adverse effect on our potato chip operations. In particular, a sudden scarcity, substantial price increase, or unavailability of ingredients could adversely affect our operating results. There can be no assurance that alternative ingredients would be available when needed on commercially attractive terms, if at all. In addition, high commodity prices could lead to unexpected costs and price increases of our products which might

dampen growth of consumer demand for our products. If we are unable to increase productivity to offset these increased costs or increase our prices, this could substantially harm our business and results of operations.

If the parties we depend upon for raw material supplies do not perform adequately, our ability to manufacture our products may be impaired, which could harm our business and results of operations.

We rely on third-party suppliers for the raw materials we use to manufacture our products, and our ability to manufacture our products depends on receiving adequate supplies on a timely basis, which may be difficult or uneconomical to procure. If we do not maintain good relationships with suppliers that are important to us or are unable to identify a replacement supplier or develop our own sourcing capabilities, our ability to manufacture our products may be harmed, which would result in interruptions in our business. In addition, even if we are able to find replacement suppliers when needed, we may not be able to enter into agreements with them on favorable terms and conditions, which could increase our costs of production. The occurrence of any of these risks could adversely affect our business and results of operations.

If we are unable to compete effectively in the markets in which we operate, our sales and profitability would be negatively affected.

In general, competition in our markets is highly competitive and based on product quality, price, brand recognition and brand loyalty. As a result, there are ongoing competitive product and pricing pressures in the markets in which we operate, as well as challenges in maintaining profit margins. Our products compete against food and snack products sold by many regional and national companies, some of which are substantially larger and have greater resources than we have. The greater scale and resources that may be available to our competitors could provide them with the ability to lower prices or increase their promotional or marketing spending to compete more effectively. To address these challenges, we must be able to successfully respond to competitive factors, including pricing, promotional incentives and trade terms. We may need to reduce our prices in response to competition and to maintain our market share. Competition and customer pressures may restrict our ability to increase prices in response to commodity or other cost increases. We may also need to increase spending on marketing, advertising and new product innovation to maintain or increase our market share. If we are unable to compete effectively, we could be unable to increase the breadth of the distribution of our products or lose customers or distribution of products, which could have an adverse impact on our sales and profitability.

The loss of any major customer could decrease sales and adversely impact our net income.

We depend on a few significant customers for a large proportion of our net sales. This concentration has become more pronounced with the trend toward consolidation in the retail grocery store industry. Sales to our largest customer, Wal-Mart Stores, Inc. (which includes sales to both Sam’s Club and Wal-Mart), represented approximately 15% of our total net sales for the year ended July 31, 2011. Sales to our second largest customer, Costco Wholesale Corporation, represented 11% of our total net sales for the year ended July 31, 2011. The success of our business is dependent on our ability to successfully manage relationships with these customers, or any other significant customer. Further, there is a continuing trend towards retail trade consolidation, which can create significant cost and margin pressure on our business. The loss of any major customers, or any other significant customer, or a material decrease in their purchases from us, could result in decreased sales and adversely impact our net income.

Our proprietary brands and packaging designs are essential to the value of our business, and the inability to protect, and costs associated with protecting, our intellectual property could harm the value of our brands and adversely affect our business and results of operations.

Our success depends significantly on our know-how and other intellectual property. We rely on a combination of trademarks, service marks, trade secrets, patents, copyrights and similar rights to protect our intellectual property. Our success also depends in large part on our continued ability to use existing trademarks and service marks in order to maintain and increase brand awareness and further develop our brand.

Our efforts to protect our intellectual property may not be adequate, third parties may misappropriate or infringe on our intellectual property or develop more efficient and advanced technologies, our patents expire over time and third parties may use such previously patented technology to compete against us, and our third-party manufacturers and partners may disclose our trade secrets. From time to time, we engage in litigation to protect our intellectual property, which could result in substantial costs as well as diversion of management attention. The occurrence of any of these risks could adversely affect our business and results of operations.

We depend on our key personnel and if we lose the services of any of these individuals, or fail to attract and retain additional key personnel, we may not be able to implement our business strategy or operate our business effectively.

Our future success largely depends on the contributions of our senior management team. We believe that these individuals’ expertise and knowledge about our industry and their respective fields and their relationships with other individuals in our industry are critical factors to our continued growth and success. We do not carry key person insurance. The loss of the services of any member of our senior management team could have an adverse effect on our business and prospects. Our success also depends upon our ability to attract and retain additional qualified sales, marketing and other personnel.

Economic downturns may adversely affect our business, financial condition and results of operations.

Unfavorable economic conditions may negatively affect our business and financial results. These economic conditions could negatively impact consumer demand for our products, the mix of our products’ sales, our ability to collect accounts receivable on a timely basis, the ability of suppliers to provide the materials required in our operations and our ability to obtain financing or to otherwise access the capital markets. Additionally, unfavorable economic conditions could have an impact on our lenders or customers, causing them to fail to meet their obligations to us. The occurrence of any of these risks could adversely affect our business, financial condition and results of operations.

Our business and operations could be negatively impacted if we fail to maintain satisfactory labor relations.

The success of our business depends substantially upon our ability to maintain satisfactory relations with our employees. Our production workforce in one of our facilities belongs to a union and is covered by a collective bargaining agreement. Strikes or work stoppages and interruptions could occur if we are unable to renew this agreement on satisfactory terms. If a work stoppage or slow down were to occur, it could adversely affect our business and disrupt our operations. The terms and conditions of existing or renegotiated agreements also could increase our costs or otherwise affect our ability to fully implement future operational changes to our business.

Our business, financial condition and results of operations could be adversely affected by the political and economic conditions of the countries in which we conduct business and other factors related to our international operations.

We conduct a substantial amount of business with vendors and customers located outside the United States. During 2011, sales outside the United States, primarily in the United Kingdom, Canada, South Korea, Japan, Germany, Netherlands, Turkey, China, and Spain accounted for approximately 30.0% of our net sales. With the pending merger with Pringles, we expect a substantial increase in the percentage of our products sold in countries other than the United States. In addition, we expect an increase of our operations and employees that are located outside of the United States. Many factors relating to our international operations and to particular countries in which we operate could have a material negative impact on our business, financial condition and results of operations. These factors include:

•

negative economic developments in economies around the world and the instability of governments, including the threat of war, terrorist attacks, epidemic or civil unrest;

•

adverse changes in laws and governmental policies, especially those affecting trade and investment;

•

pandemics, such as the flu, which may adversely affect our workforce as well as our local suppliers and customers;

•

earthquakes, tsunamis, floods or other major disasters which may limit the supply of nuts or other products that we purchase abroad;

•

tariffs, quotas, trade barriers, other trade protection measures and import or export licensing requirements imposed by governments;

•

foreign currency exchange and transfer restrictions;

•

increased costs, disruptions in shipping or reduced availability of freight transportation;

•

differing labor standards;

•

differing levels of protection of intellectual property;

•

difficulties and costs associated with complying with U.S. laws and regulations applicable to entities with overseas operations;

•

the threat that our operations or property could be subject to nationalization and expropriation;

•

varying practices of the regulatory, tax, judicial and administrative bodies in the jurisdictions where we operate, including without limitation potentially negative consequences from changes in anti-competition laws;

•

difficulties and costs associated with complying with, and enforcing remedies under, a wide variety of complex foreign laws, treaties and regulations; and

•

potentially burdensome taxation and changes in foreign tax laws.

The occurrence of any of these international business risks could have an adverse effect on our business, financial condition and results of operations.

A material impairment in the carrying value of acquired goodwill or other intangible assets could negatively affect our consolidated operating results and net worth.

A significant portion of our assets is goodwill and other intangible assets, the majority of which are not amortized but are reviewed at least annually for impairment. If the carrying value of these assets exceeds the current fair value, the asset is considered impaired and is reduced to fair value resulting in a non-cash charge to earnings. Events and conditions that could result in impairment include a sustained drop in the market price of our common stock, increased competition or loss of market share, product innovation or obsolescence, or product claims that result in a significant loss of sales or profitability over the product life. At July 31, 2011, the carrying value of goodwill and other intangible assets totaled approximately $858.4 million, compared to total assets of approximately $1,288.4 million and total shareholders’ equity of approximately $454.8 million.

Risks Related to Indebtedness

As a result of our acquisition of Kettle Foods, we are highly leveraged, which could adversely affect our ability to raise additional capital to fund our operations and limit our ability to react to changes in the economy or our industry.

In connection with the Kettle Foods acquisition, we entered into a Secured Credit Facility and incurred a substantial amount of additional debt. Our ability to make scheduled payments or to refinance our indebtedness depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flow from operations sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service

obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We may not be able to take any of these actions, and these actions may not be successful or permit us to meet our scheduled debt service obligations and these actions may not be permitted under the terms of our existing or future debt agreements. In the absence of such operating results and resources, we could face liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Since our debt agreements restrict our ability to dispose of assets, we may not be able to consummate such dispositions, and this could result in our inability to meet our debt service obligations.

This high degree of leverage could have other important consequences, including:

•

increasing our vulnerability to adverse economic, industry or competitive developments;

•

exposing us to the risk of increased interest rates because our secured credit facility is at variable rates of interest;

•

making it more difficult to satisfy obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the agreements governing the indebtedness;

•

restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

•

limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes; and

•

placing us at a competitive disadvantage compared to competitors who are less highly leveraged and who therefore, may be able to take advantage of opportunities that our leverage prevents us from pursuing.

Despite our high initial indebtedness level, we may be able to incur significant additional amounts of debt, which could further exacerbate the risks associated with our substantial indebtedness.

We may be able to incur substantial additional indebtedness in the future. Although existing agreements governing our indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. If new debt is added to our and our subsidiaries’ existing debt levels, the related risks that we now face would increase.

The debt agreements contain restrictions that may limit our flexibility in operating our business.

Our secured credit facility contains various covenants that may limit our ability to engage in specified types of transactions. These covenants limit our ability to, among other things:

•

make certain investments or other capital expenditures;

•

sell assets;

•

create liens;

•

acquire other companies and businesses;

•

borrow additional funds under new revolving credit facilities;

•

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and

•

enter into certain transactions with our affiliates.

A breach of any of these covenants could result in a default of the secured credit facility agreement. Upon the occurrence of an event of default under the secured credit facility, the lenders could elect to declare all

amounts outstanding under the secured credit facility to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under the secured credit facility could proceed against the collateral granted to them to secure that indebtedness.

Risks Related to Our Common Stock

The market price of our common stock is volatile and may result in investors selling shares of our common stock at a loss.

The trading price of our common stock is volatile and subject to fluctuations in price in response to various factors, many of which are beyond our control, including:

•

our operating performance and the performance of other similar companies;

•

changes in our revenues or earnings estimates or recommendations by any securities analysts who may decide to follow our stock or our industry;

•

publication of research reports about us or our industry by any securities analysts who may decide to follow our stock or our industry;

•

speculation in the press or investment community;

•

terrorist acts; and

•

general market conditions, including economic factors unrelated to our performance.

In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation against us could result in substantial costs and divert our management’s attention and resources.

Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from executing our growth strategy.

The timing and amount of our working capital and capital expenditure requirements may vary significantly depending on many factors, including:

•

market acceptance of our products;

•

the need to make large capital expenditures to support and expand production capacity;

•

the existence of opportunities for expansion; and

•

access to and availability of sufficient management, technical, marketing and financial personnel.

If our capital resources are not sufficient to satisfy our liquidity needs, we may seek to sell additional equity or debt securities or obtain other debt financing. The sale of additional equity or convertible debt securities would result in additional dilution to our stockholders. Additional debt would result in increased expenses and could result in covenants that would restrict our operations. With the exception of the secured credit facility, we have not made arrangements to obtain additional financing. We may not be able to obtain additional financing, if required, in amounts or on terms acceptable to us, or at all.

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

We have adopted a stockholder rights plan and will issue one preferred stock purchase right with each share of our common stock that we issue. Each right will entitle the holder to purchase one one-hundredth of a share of our Series A Junior Participating Preferred Stock. Under certain circumstances, if a person or group acquires 15% or more of our outstanding common stock, holders of the rights (other than the person or group triggering their exercise) will be able to purchase, in exchange for the $60.00 exercise price, shares of our common stock or of any company into which we are merged having a value of $120.00. The rights expire in March 2015 unless

extended by our board of directors. Because the rights may substantially dilute the stock ownership of a person or group attempting to acquire us without the approval of our board of directors, our rights plan could make it more difficult for a third party to acquire us (or a significant percentage of our outstanding capital stock) without first negotiating with our board of directors regarding such acquisition.

In addition, our board of directors has the authority to issue up to 5,000,000 shares of preferred stock (of which 500,000 shares have been designated as Series A Junior Participating Preferred Stock) and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The rights of the holders of our common stock may be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future.

Further, certain provisions of our charter documents, including provisions establishing a classified board of directors, eliminating the ability of stockholders to take action by written consent and limiting the ability of stockholders to raise matters at a meeting of stockholders without giving advance notice, may have the effect of delaying or preventing changes in control or our management, which could have an adverse effect on the market price of our stock. Further, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which will prohibit an “interested stockholder” from engaging in a “business combination” with us for a period of three years after the date of the transaction in which the person became an interested stockholder, even if such combination is favored by a majority of stockholders, unless the business combination is approved in a prescribed manner. All of the foregoing could have the effect of delaying or preventing a change in control or management.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We own our facility located on 70 acres in Stockton, California. This facility consists of approximately 635,000 square feet of office and production space and 120,000 square feet of refrigerated storage space. We acquired three production facilities in the Kettle Foods transaction consisting of approximately 70,000 square feet of office and production space in Salem, Oregon, approximately 123,000 square feet of office and production space in Norwich, England, and 68,000 square feet of office and production space in Beloit, Wisconsin. We lease office space in San Francisco, California. Three additional production facilities are located in Robertsdale, Alabama, Fishers, Indiana and Van Buren, Indiana. The Robertsdale facility is owned by us. It consists of approximately 55,000 square feet of office and production space and 15,000 square feet of refrigerated storage space. The Fishers facility is leased and consists of approximately 117,000 square feet of office and production space and 60,000 square feet of warehouse/storage space. The leases on the Fishers facility are non-cancellable operating leases which expire in 2015 and 2019. We own the Van Buren facility, in which a co-packer manufactures our popcorn products, which is approximately 40,000 square feet and is located on the co-packer’s manufacturing campus. Finally, we lease warehousing facilities in California, Georgia, Illinois, Indiana, New Jersey, Oregon, Wisconsin, Canada and the United Kingdom.

We believe that our facilities are generally well maintained and are in good operating condition, and will be adequate for our needs for the foreseeable future.

Item 3. Legal Proceedings

We are involved in various legal actions in the ordinary course of our business. Such matters are subject to many uncertainties that make their outcomes unpredictable. However, in our opinion, resolution of all legal matters is not expected to have an adverse effect on our financial condition, operating results or cash flows.

Item 4. Removed and Reserved

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock began trading on the NASDAQ National Market on July 21, 2005 under the symbol “DMND.” Prior to that date, there was not a public market for our common stock. On July 3, 2006, our common stock began to trade as a Global Select security on the NASDAQ Stock Market LLC. The following table sets forth for the periods indicated the high and low sales prices of our common stock on the NASDAQ Stock Market and quarterly cash dividends declared on common shares:


	High		Low		Dividends Declared
Year Ended July 31, 2011:
Fourth Quarter	$	79.37	$	62.78	$	0.045
Third Quarter	$	65.92	$	48.01	$	0.045
Second Quarter	$	55.97	$	42.96	$	0.045
First Quarter	$	45.24	$	37.91	$	0.045
Year Ended July 31, 2010:
Fourth Quarter	$	46.67	$	36.72	$	0.045
Third Quarter	$	46.36	$	34.27	$	0.045
Second Quarter	$	37.24	$	29.10	$	0.045
First Quarter	$	34.07	$	26.21	$	0.045

Certain of our credit agreements specify limitations on the amount of dividends that may be declared or paid in a fiscal year. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

As of August 31, 2011, we had approximately 1,011 holders of record of our common stock, although we believe that there are a larger number of beneficial owners.

The following are details of repurchases of common stock during the three months ended July 31, 2011:


Period	Total number of shares repurchased (1)		Average price paid per share		Total number of shares repurchased as part of publicly announced plans		Approximate Dollar value of shares that may yet be purchased under the plans
Repurchases from May 1 – May 31, 2011		—	$	—		—	$	—
Repurchases from June 1 – June 30, 2011		1,258	$	72.64		—	$	—
Repurchases from July 1 – July 31, 2011		—	$	—		—	$	—

Total		1,258	$	72.64		—	$	—

(1)

All of the shares in the table above were originally granted to employees as restricted stock pursuant to our 2005 Equity Incentive Plan (“EIP”). Pursuant to the EIP, all of the shares reflected above were relinquished by employees in exchange for Diamond’s agreement to pay federal and state withholding obligations resulting from the vesting of the restricted stock. The repurchases reflected above were not made pursuant to a publicly announced plan.

Item 6. Selected Financial Data

The following table sets forth selected financial data for each of the fiscal years in the five year period ended July 31, 2011:


	Year Ended July 31,
	2011		2010		2009		2008		2007
	(In thousands, except per share information)
Statements of operations:
Net sales	$	965,922	$	680,162	$	570,940	$	531,492	$	522,585
Cost of sales		714,775		519,161		435,344		443,490		443,945

Gross profit		251,147		161,001		135,596		88,002		78,640
Operating expenses:
Selling, general and administrative		96,960		64,301		60,971		43,613		42,541
Advertising		44,415		32,962		28,785		20,508		20,445
Loss on termination of defined benefit plan		—		—		—		—		3,054
Acquisition and integration related expenses		16,792		11,508		—		—		(15	)

Total operating expenses		158,167		108,771		89,756		64,121		66,025

Income from operations		92,980		52,230		45,840		23,881		12,615
Interest expense, net		23,840		10,180		6,255		1,040		1,291
Other expenses, net		—		1,849		898		—		98

Income before income taxes		69,140		40,201		38,687		22,841		11,226
Income taxes		18,929		13,990		14,944		8,085		2,793

Net income	$	50,211	$	26,211	$	23,743	$	14,756	$	8,433

Earnings per share
Basic	$	2.28	$	1.40	$	1.45	$	0.92	$	0.53
Diluted	$	2.22	$	1.36	$	1.42	$	0.91	$	0.53

Shares used to compute earnings per share
Basic		21,577		18,313		16,073		15,767		15,359
Diluted		22,242		18,843		16,391		15,825		15,359

Dividends declared per share	$	0.18	$	0.18	$	0.18	$	0.18	$	0.12

	Year Ended July 31,
	2011		2010		2009		2008		2007
	(In thousands)
Balance sheet data:
Cash and cash equivalents	$	3,112	$	5,642	$	24,802	$	74,279	$	33,755
Working capital		90,279		72,168		51,422		121,516		100,527
Total assets		1,288,395		1,225,872		394,892		273,267		236,403
Total debt, including short-term debt		531,701		556,100		115,085		20,204		20,507
Total stockholders’ equity		454,795		379,943		173,341		146,223		125,341

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Summary

We are an innovative packaged food company focused on building, acquiring and energizing brands. Our company was founded in 1912 and has a proven track record of growth, which is reflected in the growth of our revenues from approximately $200 million in fiscal year 2000 to approximately $966 million in fiscal year 2011. We specialize in processing, marketing and distributing snack products and culinary, in-shell and ingredient nuts. In 2004, we complemented our strong heritage in the culinary nut market under the Diamond of California^® brand by launching a full line of snack nuts under the Emerald^® brand. In September 2008, we acquired the Pop

Secret^® brand of microwave popcorn products, which provided us with increased scale in the snack market, significant supply chain economies of scale and cross promotional opportunities with our existing brands. In March 2010, we acquired Kettle Foods, a leading premium potato chip company in the two largest potato chip markets in the world, the United States and United Kingdom, which added the complementary premium Kettle Brand^® to our existing portfolio of leading brands in the snack industry. In April 2011, we announced that we entered into a definitive agreement with the P&G to merge P&G’s Pringles business into our Company. We sell our products to global, national, regional and independent grocery, drug and convenience store chains, as well as to mass merchandisers, club stores and other retail channels.

Our business is seasonal. Demand for nut products, particularly in-shell nuts and to a lesser extent culinary nuts, is highest during the months of October, November and December. We receive walnuts during the period from September to November and process them throughout the year. As a result of this seasonality, our personnel and working capital requirements and walnut inventories peak during the last quarter of the calendar year. This seasonality also impacts capacity utilization at our facilities, which routinely operate at capacity for the last four months of the calendar year. Generally, we receive and pay for approximately 50% of the corn for popcorn in November, and approximately 50% in April. Accordingly, the working capital requirement of our popcorn and potato chip product lines is less seasonal than that of the tree nut product lines.

Critical Accounting Policies

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Our critical accounting policies are set forth below.

Revenue Recognition. We recognize revenue when persuasive evidence of an arrangement exists, title and risk of loss has transferred to the buyer (based upon terms of shipment), price is fixed, delivery occurs and collection is reasonably assured. Revenues are recorded net of rebates, introductory or slotting payments, coupons, promotion and marketing allowances. The amount we accrue for promotion is based on an estimate of the level of performance of the trade promotion, which is dependent upon factors such as historical trends with similar promotions, expectations regarding customer and consumer participation, and sales and payment trends with similar previously offered programs. Customers have the right to return certain products. Product returns are estimated based upon historical results and are reflected as a reduction in sales.

Inventories. All inventories are accounted for on a lower of cost (first-in, first-out) or market basis.

We have entered into long-term Walnut Purchase Agreements with growers, under which they deliver their entire walnut crop to us during the Fall harvest season and we determine the minimum price for this inventory by March 31, or later, of the following calendar year. The final price is determined no later than the end of the Company’s fiscal year. This purchase price will be a price determined by us in good faith, taking into account market conditions, crop size, quality, and nut varieties, among other relevant factors. Since the ultimate price to be paid will be determined subsequent to receiving the walnut crop, we must make an estimate of price for interim financial statements. Those estimates may subsequently change and the effect of the change could be significant.

Valuation of Long-lived and Intangible Assets and Goodwill. We periodically review long-lived assets and certain identifiable intangible assets for impairment in accordance with Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment.” Goodwill and intangible assets not subject to amortization are reviewed annually for impairment in accordance with ASC 350, “Intangibles — Goodwill and Other,” or more often if there are indications of possible impairment.

The analysis to determine whether or not an asset is impaired requires significant judgments that are dependent on internal forecasts, including estimated future cash flows, estimates of long-term growth rates for our business, the expected life over which cash flows will be realized, and assumed royalty and discount rates. Changes in these estimates and assumptions could materially affect the determination of fair value and any impairment charge. While the fair value of these assets exceeds their carrying value based on our current estimates and assumptions, materially different estimates and assumptions in the future in response to changing economic conditions, changes in our business or for other reasons could result in the recognition of impairment losses.

For assets to be held and used, including acquired intangible assets subject to amortization, we initiate our review whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Recoverability of an asset is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset is expected to generate. Any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Significant management judgment is required in this process.

For brand intangible assets not subject to amortization, we test for impairment annually, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. In testing brand intangibles for impairment, we compare the fair value with the carrying value. The determination of fair value is based on a discounted cash flow analysis, using inputs such as forecasted future revenues attributable to the brand, assumed royalty rates, and a risk-adjusted discount rate that approximates our estimated cost of capital. If the carrying value exceeds the estimated fair value, the brand intangible asset is considered impaired, and an impairment loss will be recognized in an amount equal to the excess of the carrying value over the fair value of the brand intangible asset.

We perform our annual goodwill impairment test required by ASC 350 as of June 30th of each year. In testing goodwill for impairment, we initially compare the fair value of the Company’s single reporting unit with the net book value of the Company since it represents the carrying value of the reporting unit. We have one operating and reportable segment. If the fair value of the reporting unit is less than the carrying value of the reporting unit, we perform an additional step to determine the implied fair value of goodwill. The implied fair value of goodwill is determined by first allocating the fair value of the reporting unit to all assets and liabilities and then computing the excess of the reporting unit’s fair value over the amounts assigned to the assets and liabilities. If the carrying value of goodwill exceeds the implied fair value of goodwill, the excess represents the amount of goodwill impairment. Accordingly, we would recognize an impairment loss in the amount of such excess. We also consider the estimated fair value of our reporting unit in relation to the Company’s market capitalization.

We cannot guarantee that a material impairment charge will not be recorded in the future.

Employee Benefits. We incur various employment-related benefit costs with respect to qualified and nonqualified pension and deferred compensation plans. Assumptions are made related to discount rates used to value certain liabilities, assumed rates of return on assets in the plans, compensation increases, employee turnover and mortality rates. Different assumptions could result in the recognition of differing amounts of expense over different periods of time.

Income Taxes. We account for income taxes in accordance with ASC 740, “Income Taxes.” This guidance requires that deferred tax assets and liabilities be recognized for the tax effect of temporary differences between the financial statement and tax basis of recorded assets and liabilities at current tax rates. This guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The recoverability of deferred tax assets is based on both our historical and anticipated earnings levels and is reviewed periodically to determine if any additional valuation allowance is necessary when it is more likely than not that amounts will not be recovered.

There are inherent uncertainties related to the interpretations of tax regulations in the jurisdictions in which we operate. We may take tax positions that management believes are supportable, but are potentially subject to successful challenge by the applicable taxing authority. We evaluate our tax positions and establish liabilities in accordance with the guidance on uncertainty in income taxes. We review these tax uncertainties in light of changing facts and circumstances, such as the progress of tax audits, and adjust them accordingly.

Accounting for Stock-Based Compensation. We account for stock-based compensation arrangements, including stock option grants and restricted stock awards, in accordance with the provisions of ASC 718, “Compensation — Stock Compensation.” Under this guidance, compensation cost is recognized based on the fair value of equity awards on the date of grant. The compensation cost is then amortized on a straight-line basis over the vesting period. We use the Black-Scholes option pricing model to determine the fair value of stock options at the date of grant. This model requires us to make assumptions such as expected term, volatility, and forfeiture rates that determine the stock options’ fair value. These key assumptions are based on historical information and judgment regarding market factors and trends. If actual results are not consistent with our assumptions and judgments used in estimating these factors, we may be required to increase or decrease compensation expense, which could be material to our results of operations.

Results of Operations

2011 Compared to 2010

Net sales were $965.9 million and $680.2 million for the years ended July 31, 2011 and 2010. The increase in net sales was primarily due to increased snack sales (including Kettle Foods). The impact of foreign exchange on our net sales was immaterial for the year ended July 31, 2011.

Net sales by channel (in thousands):


	Year Ended July 31,				% Change from 2010 to 2011
	2011		2010		% Change from 2010 to 2011
Retail (1)	$	816,071	$	570,416		43.1	%
International Non-Retail		119,017		69,206		72.0	%
North American Ingredient/Food Service and Other		30,834		40,540		-23.9	%

Total Net Sales	$	965,922	$	680,162		42.0	%

(1)	Retail represents sales of our culinary, snack and in-shell products.

The increase in Retail sales for the year ended July 31, 2011 resulted from higher sales of snack products (including Kettle Foods), which increased by 72.1%. Retail sales for the prior year only included Kettle Foods sales for four months. International non-retail sales increased for the year ended July 31, 2011 mainly as a result of a record walnut crop, which after servicing retail customer demand was primarily shipped to international markets. North American ingredient/food service and other sales decreased primarily because the United States Department of Agriculture school lunch program was not offered in fiscal year 2011.

Gross profit. Gross profit as a percentage of net sales was 26.0% and 23.7% for the years ended July 31, 2011 and 2010. Gross profit as a percentage of net sales increased mainly due to retail sales mix, greater scale in snacks and manufacturing efficiencies, which offset some commodity price pressure and increased slotting and promotion for Emerald Breakfast on the go!.

million and $64.3 million, and 10.0% and 9.5% as a percentage of net sales, for the years ended July 31, 2011 and 2010. The increase was primarily due to the addition of Kettle Foods, including the associated intangible amortization for customer relationships, as well as workforce additions.

Advertising. Advertising expenses were $44.4 million and $33.0 million, and 4.6% and 4.8% as a percentage of net sales, for the years ended July 31, 2011 and 2010. The increases in advertising expenses were primarily due to increased media spending associated with the Emerald Breakfast on the go! launch, as well as incremental Kettle Foods brand support.

Acquisition and integration related expenses. Acquisition related expenses associated with the pending Pringles merger and integration related expenses associated with Kettle Foods were $16.8 million for the year ended July 31, 2011. Acquisition and integration related expenses associated with Kettle Foods were $11.5 million for the year ended July 31, 2010. Additional acquisition and integration related expenses related to Pringles are expected throughout fiscal year 2012.

Interest expense, net. Net interest expense was $23.8 million and $10.2 million, and 2.5% and 1.5% as a percentage of net sales, for the years ended July 31, 2011 and 2010. The increase was primarily attributable to the borrowings used to fund the Kettle Foods acquisition.

Other expense, net. There was no net other expense for the year ended July 31, 2011. Net other expense was $1.8 million for the year ended July 31, 2010. The expense represented a loss on debt extinguishment when we replaced our existing credit facility with a new secured credit facility to fund the Kettle Foods acquisition.

Income taxes. The combined effective federal and state tax rate was 27.4% and 34.8% for the years ended July 31, 2011 and 2010. The lower effective tax rate for the year ended July 31, 2011 primarily reflects the influence from certain tax rate jurisdictions where we have Kettle Foods operations. A reduction in the corporate tax rate in the United Kingdom also contributed to the decrease.

2010 Compared to 2009

Net sales were $680.2 million and $570.9 million for the years ended July 31, 2010 and 2009. The increase in net sales was primarily due to increased snack sales (including Kettle Foods). This was offset in part by lower culinary sales.

Our net sales were as follows (in thousands):


	Year Ended July 31,				% Change from 2009 to 2010
	2010		2009		% Change from 2009 to 2010
Retail (1)	$	570,416	$	465,126		22.6	%
International Non-Retail		69,206		68,890		0.5	%
North American Ingredient/Food Service and Other		40,540		36,924		9.8	%

Total Net Sales	$	680,162	$	570,940		19.1	%

(1)	Retail represents sales of our culinary, snack and in-shell products.

The increase in retail sales for the year ended July 31, 2010 resulted from higher sales of snack products (including Kettle Foods), which increased by 70.2%. This was offset in part by lower sales of culinary products as a result of lower pricing and elimination of low value added SKUs. North American ingredient/food service and other sales increased primarily as a result of higher volume and higher pricing.

Gross profit. Gross profit as a percentage of net sales was 23.7% for the years ended July 31, 2010 and 2009.

Selling, general and administrative. Selling, general and administrative expenses consist principally of salaries and benefits for sales and administrative personnel, brokerage, professional services, travel, non-manufacturing depreciation and facility costs. Selling, general and administrative expenses were $64.3 million and $61.0 million, and 9.5% and 10.7% as a percentage of net sales, for the years ended July 31, 2010 and 2009. The improvement as a percentage of net sales was primarily driven by greater scale in snack sales and higher costs during fiscal year 2009 associated with the Pop Secret acquisition.

Advertising. Advertising expense was $33.0 million and $28.8 million, and 4.8% and 5.0% as a percentage of net sales, for the years ended July 31, 2010 and 2009. The increase in advertising was primarily due to increased media spending associated with the snack brands (including Kettle Foods).

Acquisition and integration related expenses. Acquisition and integration related expenses associated with Kettle Foods were $11.5 million for the year ended July 31, 2010.

Interest expense, net. Net interest expense was $10.2 million and $6.3 million, and 1.5% and 1.1% as a percentage of net sales, for the years ended July 31, 2010 and 2009. For the year ended July 31, 2010, the increase was primarily attributable to the borrowings used to fund the Kettle Foods acquisition.

Other expense, net. Net other expense was $1.8 million for the year ended July 31, 2010. The expense represented a loss on debt extinguishment when we replaced our existing credit facility with a new secured credit facility to fund the Kettle Foods acquisition. Net other expense was $0.9 million for the year ended July 31, 2009 reflecting a $2.6 million payment on the early termination of debt, partially offset by a gain on the sale of emission reduction credits of $1.7 million.

Income taxes. The combined effective federal and state tax rate for the year ended July 31, 2010 was 34.8%. The lower effective tax rate for the year ended July 31, 2010 primarily reflects the influence from certain tax rate jurisdictions where we have Kettle Foods operations. For the year ended July 31, 2009, the combined effective federal and state tax rate for the year ended July 31, 2009 was 38.6%, and included the effect of discrete tax items, primarily the recognition of certain state tax credits.

Pending Pringles Merger

On April 5, 2011, we entered into a definitive agreement with The Procter & Gamble Company (“P&G”) to merge P&G’s Pringles business into our Company. The value of the proposed transaction at April 5, 2011 was approximately $2.35 billion, consisting of $1.5 billion of our common stock and the assumption of $850 million of Pringles debt. The number of shares of our common stock to be issued in the transaction was based on $1.5 billion divided by the average of 60 days of daily volume weighted average prices, or 60-day VWAP, of our common stock for the period ended March 28, 2011 of $51.47, which amounted to approximately 29.1 million shares of our common stock to be issued to Pringles stockholders in connection with the transaction. As of September 14, 2011, the value of the approximately 29.1 million shares of our common stock to be issued in the transaction was $2.2 billion. The parties have also agreed to a collar mechanism that would adjust the amount of debt assumed by us based upon our price during a trading period prior to the commencement of the Exchange Offer. The amount of debt to be assumed by us could increase by up to $200 million or decrease by up to $150 million based on this adjustment mechanism. The equity portion of the purchase price is represented by approximately 29.1 million shares.

The transaction, which is expected to be completed by the end of calendar 2011, is subject to approval by our stockholders and satisfaction of customary closing conditions and regulatory approvals. We expect to incur one-time costs of approximately $150 million, net of income taxes, related to the transaction over the next two years. P&G will also provide us with transition services for up to 12 months after closing. The merger will be accounted for as a purchase business combination and for accounting purposes, we will be treated as the acquiring entity.

Liquidity and Capital Resources

Our liquidity is dependent upon funds generated from operations and external sources of financing.

During the year ended July 31, 2011, cash provided by operating activities was $65.7 million compared to $1.6 million of cash used in operating activities during the year ended July 31, 2010. The increase in cash provided by operating activities was primarily due to improved profitability and inventory turnover. Cash used in investing activities was $43.2 million in fiscal year 2011 compared to $626.6 million in fiscal year 2010. The higher cash used in investing activities for the year ended July 31, 2010 was mainly due to the acquisition of Kettle Foods. Cash used in financing activities was $25.1 million in fiscal year 2011 compared to $608.9 million provided by financing activities in fiscal year 2010. The change from prior year was primarily attributable to long-term borrowings used to fund the Kettle Foods acquisition.

Cash used in operating activities during the year ended July 31, 2010 was $1.6 million compared to $53.4 million provided by operating activities during the year ended July 31, 2009. The decrease in cash from operating activities was primarily due to increased investments in inventory and the timing of accounts payable payments between years. Cash used in investing activities was $626.6 million in fiscal year 2010 compared to $198.1 million in fiscal year 2009. This increase was mainly due to the acquisition of Kettle Foods for approximately $616 million. Cash provided by financing activities was $608.9 million in fiscal year 2010 compared to $95.2 million in fiscal year 2009. The increase was primarily attributable to long-term borrowings used to fund the Kettle Foods acquisition and to our equity offering.

In February 2010, we entered into an agreement to replace our existing credit facility with a new five-year $600 million secured credit facility (the “Secured Credit Facility”) with a syndicate of lenders. We used the borrowings under the Secured Credit Facility to fund a portion of the Kettle Foods acquisition and to fund ongoing operations.

Our Secured Credit Facility consists of a $235 million revolving credit facility, of which $161 million was outstanding as of July 31, 2011, and a $400 million term loan facility, of which $350 million was outstanding as of July 31, 2011. Scheduled principal payments on the term loan are $40 million for fiscal year 2012 and each of the succeeding two years (due quarterly), and $10 million for each of the first two quarters in fiscal year 2015, with the remaining principal balance and any outstanding loans under the revolving credit facility to be repaid on the fifth anniversary of initial funding. In March 2011, the syndicate of lenders approved our request for an increase in our revolving credit facility by $35 million from $200 million, under the same terms, to fund our plant expansion and working capital requirements. In August 2011, the syndicate of lenders approved our request for an increase in our revolving credit facility by $50 million from $235 million to $285 million, under the same terms. Borrowings under the Secured Credit Facility will bear interest, at our option, at either the agent’s base rate or the London Interbank Offered Rate (“LIBOR”), plus a margin for LIBOR loans ranging from 2.25% to 3.50%, based on the consolidated leverage ratio which is defined as the ratio of total debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”). Substantially all of our tangible and intangible assets are considered collateral security under the Secured Credit Facility.

The Secured Credit Facility also provides for customary affirmative and negative covenants, including a debt to EBITDA ratio and minimum fixed charge coverage ratio. As of July 31, 2011, we were in compliance with all applicable financial covenants under the Secured Credit Facility.

In March 2010, we issued 5,175,000 shares of common stock priced at $37.00 per share. After deducting the underwriting discount and other related expenses, we received total net proceeds from the sale of our common stock of approximately $179.7 million. The proceeds from the equity offering were used to fund a portion of the purchase price for the Kettle Foods acquisition.

On December 20, 2010, Kettle Foods obtained, and we guaranteed, a 10-year fixed rate loan (the “Guaranteed Loan”) in the principal amount of $21.2 million, of which $20.4 million was outstanding as of July 31, 2011. The principal and interest payments are due monthly throughout the term of the loan. The Guaranteed Loan will be used to purchase equipment for our Beloit, Wisconsin plant expansion. Borrowed funds have been placed in an interest-bearing escrow account and will be made available as expenditures are approved for reimbursement. As the cash will be used to purchase non-current assets, such restricted cash has been classified as non-current on the balance sheet. The Guaranteed Loan also provides for customary affirmative and negative covenants, which are similar to the covenants under the Secured Credit Facility. As of July 31, 2011, we were in compliance with all applicable financial covenants under the Guaranteed Loan.

Working capital and stockholders’ equity were $90.3 million and $454.8 million at July 31, 2011 compared to $72.2 million and $379.9 million at July 31, 2010. The increase in working capital was due to an increase in receivables, associated with higher sales levels, offset by an increase in accounts payable and accrued liabilities related to higher production and sales levels.

We believe our cash and cash equivalents and cash expected to be provided from our operations, in addition to borrowings available under our Secured Credit Facility and restricted cash provided by the Guaranteed Loan, will be sufficient to fund our contractual commitments, repay obligations as required, and fund our operational requirements for at least the next twelve months.

Contractual Obligations and Commitments

Contractual obligations and commitments at July 31, 2011 were as follows (in millions):


	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Revolving line of credit	$	161.3	$	—	$	—	$	—	$	161.3
Long-term obligations		370.4		41.7		83.7		234.1		10.9
Interest on long-term obligations (a)		43.9		13.3		22.0		7.4		1.2
Operating leases		22.1		6.0		7.2		4.8		4.1
Purchase commitments (b)		89.7		83.6		6.1		—		—
Pension liability		26.9		0.6		5.1		1.5		19.7
Long-term deferred tax liabilities (c)		131.9		—		—		—		131.9
Other long-term liabilities (d)		11.7		0.8		0.9		0.4		9.6

Total	$	857.9	$	146.0	$	125.0	$	248.2	$	338.7

(a)	Amounts represent the expected cash interest payments on our long-term debt. Interest on our variable rate debt was forecasted using a LIBOR forward curve analysis as of July 31, 2011.

(b)	Commitments to purchase inventory and equipment. Excludes purchase commitments under Walnut Purchase Agreements due to uncertainty of pricing and quantity.

(c)	Primarily relates to intangible assets of Kettle Foods.

(d)

Excludes $0.7 million in deferred rent liabilities. Additionally, the liability for uncertain tax positions ($9.4 million at July 31, 2011, excluding associated interest and penalties) has been excluded from the contractual obligations table because a reasonably reliable estimate of the timing of future tax settlements cannot be determined.

Off-Balance Sheet Arrangements

As of July 31, 2011, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Effects of Inflation

The most significant inflationary factor affecting our net sales and cost of sales is the change in market prices for purchased nuts, corn, potatoes, oils and other ingredients. The prices of these commodities are affected by world market conditions and are volatile in response to supply and demand, as well as political and economic events. The price fluctuations of these commodities do not necessarily correlate with the general inflation rate. Inflation is likely to however, adversely affect operating costs such as labor, energy and materials.

Recent Accounting Pronouncements

In December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-29, “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations.” This guidance was issued to clarify that pro forma disclosures should be presented as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The disclosures should also be accompanied by a narrative description of the nature and amount of material, nonrecurring pro forma adjustments. This new guidance is effective prospectively for business combinations consummated on or after the annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. We do not believe that the adoption of this guidance will have a material impact on our consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This guidance changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The guidance is effective for interim and annual periods beginning after December 15, 2011. We do not believe that the adoption of this guidance will have a material impact on our consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” This guidance requires entities to present the total of comprehensive income, the components of net income and the components of other comprehensive income (OCI) in either a single continuous statement of comprehensive income or in two separate consecutive statements. The guidance does not change the components of OCI or when an item of OCI must be reclassified to net income, or the earnings per share calculation. The guidance is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. We do not believe that the adoption of this guidance will have a material impact on our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk. Our principal market risks are exposure to changes in commodity prices, interest rates on borrowings and foreign currency exchange rates.

Commodities Risk. The availability, size, quality, and cost of raw materials for the production of our products, including walnuts, pecans, peanuts, cashews, almonds, other nuts, corn, potatoes and oils are subject to risks inherent to farming, such as crop size and yield fluctuations caused by poor weather and growing conditions, pest and disease problems, and other factors beyond our control. Additionally, our supply of raw materials could be reduced if governmental agencies conclude that our products have been tampered with, or that certain pesticides, herbicides or other chemicals used by growers have left harmful residues on portions of the crop or that the crop has been contaminated by aflatoxin or other agents.

Interest Rate Risk. We have established a formal investment policy to help minimize the exposure to our cash equivalents for changes in interest rates, which are primarily affected by credit quality and the type of cash equivalents we hold. These guidelines focus on managing liquidity and preserving principal. Our cash

equivalents are primarily held for liquidity purposes and are comprised of high quality investments with maturities of three months or less when purchased. With such a short maturity, our portfolio’s market value is relatively insensitive to interest rate changes.

The sensitivity of our cash and cash equivalent portfolio as of July 31, 2011 to a 100 basis point increase or decrease in interest rates would be a decrease or increase of pretax income of nil.

Interest rate volatility could also materially affect the fair value of our fixed rate debt, as well as the interest rate we pay on future borrowings under our lines of credit and revolver. The interest rate we pay on future borrowings under our lines of credit and revolver are dependent on the LIBOR.

Foreign Currency Exchange Risk. We have operations outside the U.S. with foreign currency denominated assets and liabilities, primarily in the United Kingdom. Because we have foreign currency denominated assets and liabilities, financial exposure may result, primarily from the timing of transactions and the movement of exchange rates.

The foreign currency balance sheet exposures as of July 31, 2011 are not expected to result in a significant impact on future earnings or cash flows. However, in July 2010, we entered into a series of foreign exchange collars to hedge a portion of our expected Canadian Dollar denominated receivables of Kettle Foods between September 2010 and January 2011, which were subsequently extended through July 2011. In September 2010, we entered into a series of foreign exchange participating forwards to hedge a portion of our expected Canadian Dollar denominated receivables of Emerald between November 2010 and August 2011.

Our sales of finished goods and purchases of raw materials and supplies from outside the U.S. are generally denominated in U.S. dollars. Thus, certain revenues and expenses have been, and are expected to be, subject to the effect of foreign currency fluctuations, and these fluctuations may have an impact on operating results.

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Diamond Foods, Inc.

San Francisco, California

We have audited the accompanying consolidated balance sheets of Diamond Foods, Inc. and subsidiaries (the “Company”) as of July 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended July 31, 2011. We also have audited the Company’s internal control over financial reporting as of July 31, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Diamond Foods, Inc. and subsidiaries as of July 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ Deloitte & Touche LLP

San Francisco, California

September 15, 2011

DIAMOND FOODS, INC.

CONSOLIDATED BALANCE SHEETS


	July 31,
	2011			2010
	(In thousands, except share and per share information)
ASSETS
Current assets:
Cash and cash equivalents	$	3,112		$	5,642
Trade receivables, net		98,218			65,553
Inventories		145,575			143,405
Deferred income taxes		13,249			10,497
Prepaid income taxes		2,783			9,225
Prepaid expenses and other current assets		13,102			5,767

Total current assets		276,039			240,089
Restricted cash		15,795			—
Property, plant and equipment, net		127,407			117,816
Deferred income taxes		3,870			13,625
Goodwill		407,587			396,788
Other intangible assets, net		450,855			449,018
Other long-term assets		6,842			8,536

Total assets	$	1,288,395		$	1,225,872

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	41,700		$	40,000
Accounts payable and accrued liabilities		144,060			127,921

Total current liabilities		185,760			167,921
Long-term obligations		490,001			516,100
Deferred income taxes		131,870			144,755
Other liabilities		25,969			17,153
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; Authorized: 5,000,000 shares; no shares issued or outstanding		—			—
Common stock, $0.001 par value; Authorized: 100,000,000 shares; 22,319,016 and 22,121,534 shares issued and 22,049,636 and 21,891,928 shares outstanding at July 31, 2011 and 2010, respectively		22			22
Treasury stock, at cost: 269,380 and 229,606 shares at July 31, 2011 and 2010		(6,867	)		(5,050	)
Additional paid-in capital		318,083			307,032
Accumulated other comprehensive loss		18,500			(869	)
Retained earnings		125,057			78,808

Total stockholders’ equity		454,795			379,943

Total liabilities and stockholders’ equity	$	1,288,395		$	1,225,872

See notes to consolidated financial statements.

DIAMOND FOODS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	Year Ended July 31,
	2011		2010		2009
	(In thousands, except per share information)
Net sales	$	965,922	$	680,162	$	570,940
Cost of sales		714,775		519,161		435,344

Gross profit		251,147		161,001		135,596
Operating expenses:
Selling, general and administrative		96,960		64,301		60,971
Advertising		44,415		32,962		28,785
Acquisition and integration related expenses		16,792		11,508		—

Total operating expenses		158,167		108,771		89,756

Income from operations		92,980		52,230		45,840
Interest expense, net		23,840		10,180		6,255
Other expense, net		—		1,849		898

Income before income taxes		69,140		40,201		38,687
Income taxes		18,929		13,990		14,944

Net income	$	50,211	$	26,211	$	23,743

Earnings per share:
Basic	$	2.28	$	1.40	$	1.45
Diluted	$	2.22	$	1.36	$	1.42

Shares used to compute earnings per share:
Basic		21,577		18,313		16,073
Diluted		22,242		18,843		16,391

Dividends declared per share	$	0.18	$	0.18	$	0.18

See notes to consolidated financial statements.

DIAMOND FOODS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


	Common Stock					Treasury Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	Shares			Amount		Treasury Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	(In thousands, except share information)
Balance, July 31, 2008		16,180,771		$	16	$	(3,203	)	$	112,550		$	35,276		$	1,584		$	146,223
Shares issued under ESPP and upon stock option exercises		298,133			1					5,299									5,300
Stock compensation expense		115,587								3,901									3,901
Tax benefit from ESPP and stock option transactions										1,067									1,067
Treasury stock repurchased		(42,472	)				(1,053	)											(1,053	)
Dividends paid													(2,960	)					(2,960	)
Comprehensive income:
Net income													23,743						23,743
Change in pension liabilities																(2,743	)		(2,743	)
Other comprehensive income																(137	)		(137	)

Total comprehensive income:		—			—		—			—			—			—			20,863

Balance, July 31, 2009		16,552,019			17		(4,256	)		122,817			56,059			(1,296	)		173,341
Shares issued upon stock option exercises		44,574								818									818
Stock compensation expense		148,164								3,231									3,231
Tax benefit from stock option transactions										434									434
Shares issued for equity offering		5,175,000			5					191,470									191,475
Equity offering costs										(11,738	)								(11,738	)
Treasury stock repurchased		(27,829	)				(794	)											(794	)
Dividends paid													(3,462	)					(3,462	)
Comprehensive income:
Net income													26,211						26,211
Change in pension liabilities																(773	)		(773	)
Foreign currency translation adjustment																1,477			1,477
Other comprehensive income																(277	)		(277	)

Total comprehensive income:		—			—		—			—			—			—			26,638

Balance, July 31, 2010		21,891,928			22		(5,050	)		307,032			78,808			(869	)		379,943
Shares issued upon stock option exercises		96,924								1,803									1,803
Stock compensation expense		100,558								6,974									6,974
Tax benefit from stock option transactions										2,274									2,274
Treasury stock repurchased		(39,774	)				(1,817	)											(1,817	)
Dividends paid													(3,962	)					(3,962	)
Comprehensive income:
Net income													50,211						50,211
Change in pension liabilities																(659	)		(659	)
Foreign currency translation adjustment																19,930			19,930
Other comprehensive income																98			98

Total comprehensive income:		—			—		—			—			—			—			69,580

Balance, July 31, 2011		22,049,636		$	22	$	(6,867	)	$	318,083		$	125,057		$	18,500		$	454,795

See notes to consolidated financial statements.

DIAMOND FOODS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended July 31,
	2011			2010			2009
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	50,211		$	26,211		$	23,743
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		29,465			17,154			11,362
Deferred income taxes		(7,534	)		7,072			(2,800	)
Excess tax benefit from stock option transactions		(2,274	)		(434	)		(1,067	)
Stock-based compensation		6,974			3,231			3,901
Other, net		1,055			1,109			858
Changes in assets and liabilities:
Trade receivables		(32,665	)		(2,873	)		12,764
Inventories		(2,170	)		(45,852	)		10,316
Prepaid expenses and income taxes and other current assets		(893	)		(6,437	)		1,053
Accounts payable and accrued liabilities		17,577			(5,462	)		(6,562	)
Other, net		5,921			4,693			(200	)

Net cash provided by (used in) operating activities		65,667			(1,588	)		53,368

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(27,703	)		(11,790	)		(7,994	)
Deposits of restricted cash		(21,200	)		—			—
Proceeds from restricted cash		5,405			—			—
Acquisitions, net of cash acquired		—			(615,389	)		(190,224	)
Other, net		262			618			133

Net cash used in investing activities		(43,236	)		(626,561	)		(198,085	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving line of credit borrowings under the Secured Credit Facility		—			176,000			—
Repayment of revolving line of credit under the Secured Credit Facility		(4,800	)		(9,900	)		—
Proceeds from issuance of long-term debt		21,350			400,000			125,000
Debt issuance costs		—			(8,852	)		(1,973	)
Payment of long-term debt and notes payable		(40,884	)		(125,119	)		(30,141	)
Gross proceeds from equity offering		—			191,475			—
Equity offering costs		—			(11,738	)		—
Dividends paid		(3,962	)		(3,462	)		(2,960	)
Excess tax benefit from stock option transactions		2,274			434			1,067
Other, net		940			24			4,247

Net cash (used in) provided by financing activities		(25,082	)		608,862			95,240

Effect of exchange rate changes on cash		121			127			—

Net decrease in cash and cash equivalents		(2,530	)		(19,160	)		(49,477	)
Cash and cash equivalents:
Beginning of period		5,642			24,802			74,279

End of period	$	3,112		$	5,642		$	24,802

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	21,998		$	9,088		$	5,989
Income taxes		8,751			11,113			19,438
Non-cash investing activities:
Accrued capital expenditures		2,323			1,076			497

See notes to consolidated financial statements.

DIAMOND FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2011, 2010 and 2009

(In thousands, except share and per share information unless otherwise noted)

(1) Organization and Significant Accounting Policies

Business

Diamond Foods, Inc. (the “Company” or “Diamond”) is an innovative packaged food company focused on building, acquiring and energizing brands. Diamond specializes in processing, marketing and distributing snack products and culinary, in-shell and ingredient nuts. In 2004, Diamond complemented its strong heritage in the culinary nut market under the Diamond of California^® brand by launching a full line of snack nuts under the Emerald^® brand. In September 2008, Diamond acquired the Pop Secret^® brand of microwave popcorn products, which provided the Company with increased scale in the snack market, significant supply chain economies of scale and cross promotional opportunities with its existing brands. In March 2010, Diamond acquired Kettle Foods, a leading premium potato chip company in the two largest potato chip markets in the world, the United States and United Kingdom, which added the complementary premium Kettle Brand^® to Diamond’s existing portfolio of leading brands in the snack industry. In April 2011, Diamond entered into a definitive agreement with Proctor & Gamble (“P&G”) to merge the Pringles business into Diamond. Diamond sells its products to global, national, regional and independent grocery, drug and convenience store chains, as well as to mass merchandisers, club stores and other retail channels.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”). Certain prior period amounts have been reclassified to conform to the current period presentation.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates.

On an ongoing basis, the Company evaluates its estimates, including those related to inventories, trade receivables, fair value of investments, useful lives of property, plant and equipment, intangible assets, goodwill and income taxes, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for management’s judgments about the carrying values of assets and liabilities.

Certain Risks and Concentrations

The Company’s revenues are principally derived from the sale of snack, culinary, domestic in-shell, international and ingredient/food service nuts. Significant changes in customer buying behavior could adversely affect the Company’s operating results. Sales to the Company’s largest customer accounted for approximately 15%, 17% and 21% of net sales in 2011, 2010 and 2009, respectively. Sales to the second largest customer accounted for approximately 11%, 12% and 13% of net sales in 2011, 2010 and 2009, respectively.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Cash and Cash Equivalents

Cash and cash equivalents include investment of surplus cash in securities (primarily money market funds) with maturities at date of purchase of three months or less.

Inventories

All inventories are accounted for at the lower of cost (first-in, first-out) or market.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of assets ranging from 30 to 39 years for buildings and ranging from 3 to 15 years for equipment.

Slotting and Other Contractual Arrangements

In certain situations, the Company pays slotting fees to retail customers to acquire access to shelf space. These payments are recognized as a reduction of sales. In addition, the Company makes payments pursuant to contracts that stipulate the term of the agreement, the quantity and type of products to be sold and other requirements. Payments pursuant to these agreements are capitalized and included in other current and long-term assets, and are amortized on a straight-line basis over the term of the contract. The Company expenses payments if no written arrangement exists.

Impairment of Long-Lived and Intangible Assets and Goodwill

Management reviews long-lived assets and certain identifiable intangible assets with finite lives for impairment in accordance with ASC 360, “Property, Plant, and Equipment.” Goodwill and intangible assets not subject to amortization are reviewed annually for impairment in accordance with ASC 350, “Intangibles — Goodwill and Other,” or more often if there are indications of possible impairment.

The analysis to determine whether or not an asset is impaired requires significant judgments that are dependent on internal forecasts, including estimated future cash flows, estimates of long-term growth rates for our business, the expected life over which cash flows will be realized, and assumed royalty and discount rates. Changes in these estimates and assumptions could materially affect the determination of fair value and any impairment charge. While the fair value of these assets exceeds their carrying value based on management’s current estimates and assumptions, materially different estimates and assumptions in the future in response to changing economic conditions, changes in the business or for other reasons could result in the recognition of impairment losses.

For assets to be held and used, including acquired intangible assets subject to amortization, the Company initiates a review whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Recoverability of an asset is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset is expected to generate. Any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Significant management judgment is required in this process.

The Company tests its brand intangible assets not subject to amortization for impairment annually, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. In testing brand intangibles for impairment, Diamond compares the fair value with the carrying value. The determination of fair value is based on a discounted cash flow analysis, using inputs such as forecasted future revenues attributable to the brand, assumed royalty rates, and a risk-adjusted discount rate that approximates our estimated cost of capital. If the carrying value exceeds the estimated fair value, the brand intangible asset is considered impaired, and an impairment loss will be recognized in an amount equal to the excess of the carrying value over the fair value of the brand intangible asset.

The Company performs its annual goodwill impairment test required by ASC 350 as of June 30th of each year. In testing goodwill for impairment, Diamond initially compares the fair value of the Company’s single reporting unit with the net book value of the Company because it represents the carrying value of the reporting unit. Diamond has one operating and reportable segment. If fair value of the reporting unit is less than the carrying value of the reporting unit, we perform an additional step to determine the implied fair value of goodwill. The implied fair value of goodwill is determined by first allocating the fair value of the reporting unit to all assets and liabilities and then computing the excess of the reporting units’ fair value over the amounts assigned to the assets and liabilities. If the carrying value of goodwill exceeds the implied fair value of goodwill, the excess represents the amount of goodwill impairment. Accordingly, the Company would recognize an impairment loss in the amount of such excess. The Company considers the estimated fair value of the reporting unit in relation to the Company’s market capitalization.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, title and risk of loss has transferred to the buyer, price is fixed, delivery occurs and collection is reasonably assured. Revenues are recorded net of rebates, introductory or slotting payments, coupons, promotion and marketing allowances. The amount the Company accrues for promotion is based on an estimate of the level of performance of the trade promotion, which is dependent upon factors such as historical trends with similar promotions, expectations regarding customer and consumer participation, and sales and payment trends with similar previously offered programs. Customers have the right to return certain products. Product returns are estimated based upon historical results and are reflected as a reduction in sales.

Promotion and Advertising Costs

Promotional allowances, customer rebates, coupons and marketing allowances are recorded at the time the related revenue is recognized and are reflected as reductions of sales. Annual volume rebates, promotion, and marketing allowances are recorded based upon the terms of the arrangements. Coupon incentives are recorded at the time of distribution in amounts based on estimated redemption rates. The Company expenses advertising costs as incurred. Payments to reimburse customers for cooperative advertising programs are recorded in accordance with ASC 605-50, “Revenue Recognition — Customer Payments and Incentives.”

Shipping and Handling Costs

Amounts billed to customers for shipping and handling costs are included in net sales. Shipping and handling costs are charged to cost of sales as incurred.

Acquisition and Integration Related Expenses

Acquisition and integration related expenses are costs incurred to effect a business combination and subsequently to integrate the acquired business into the Company. These expenses are shown as a separate line within operating expenses and are expensed as incurred. These expenses may include transaction related legal and consulting fees, as well as business and systems integration costs.

Income Taxes

Diamond accounts for income taxes in accordance with ASC 740, “Income Taxes.” which requires that deferred tax assets and liabilities be recognized for the tax effect of temporary differences between the financial statement and tax basis of recorded assets and liabilities at current tax rates. This guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The recoverability of deferred tax assets is based on both the historical and anticipated earnings levels and is reviewed periodically to determine if any additional valuation allowance is necessary when it is more likely than not that amounts will not be recovered.

There are inherent uncertainties related to the interpretations of tax regulations in the jurisdictions in which the Company operates. Diamond may take tax positions that management believes are supportable, but are potentially subject to successful challenge by the applicable taxing authority. Tax positions are evaluated and liabilities are established in accordance with the guidance on uncertainty in income taxes. Diamond reviews these tax uncertainties in light of changing facts and circumstances, such as the progress of tax audits, and adjusts them accordingly.

Fair Value of Financial Instruments

The fair value of certain financial instruments, including cash and cash equivalents, trade receivables, accounts payable and accrued liabilities approximate the amounts recorded in the balance sheet because of the relatively short term nature of these financial instruments. The fair value of notes payable and long-term obligations at the end of each fiscal period approximates the amounts recorded in the balance sheet based on information available to Diamond with respect to current interest rates and terms for similar financial instruments.

Stock-Based Compensation

The Company accounts for stock-based compensation arrangements, including stock option grants and restricted stock awards, in accordance with ASC 718, “Compensation — Stock Compensation.” Under this guidance, compensation cost is recognized based on the fair value of equity awards on the date of grant. The compensation cost is then amortized on a straight-line basis over the vesting period. The Black-Scholes option pricing model is used to determine the fair value of stock options at the date of grant. This model requires the Company to make assumptions such as expected term, dividends, volatility, and forfeiture rates that determine the stock options fair value. These key assumptions are based on historical information and judgment regarding market factors and trends. If actual results are not consistent with the Company’s assumptions and judgments used in estimating these factors, the Company may be required to increase or decrease compensation expense, which could be material to its results of operations.

Recent Accounting Pronouncements

In December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-29, “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations.” This guidance was issued to clarify that pro forma disclosures should be presented as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The disclosures should also be accompanied by a narrative description of the nature and amount of material, nonrecurring pro forma adjustments. This new guidance is effective prospectively for business combinations consummated on or after the annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This guidance changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The guidance is effective for interim and annual periods beginning after December 15, 2011. The Company does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” This guidance requires entities to present the total of comprehensive income, the components of net income and the components of other comprehensive income (OCI) in either a single continuous statement of comprehensive income or in two separate consecutive statements. The guidance does not change the components of OCI or when an item of OCI must be reclassified to net income, or the earnings per share calculation. The guidance is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The Company does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements.

(2) Fair Value of Financial Instruments

The Company transacts business in foreign currencies and has international sales denominated in foreign currencies, subjecting the Company to foreign currency risk. The Company may enter into foreign currency forward contracts, generally with monthly maturities over twelve months or less, to reduce the volatility of cash flows primarily related to forecasted revenue denominated in certain foreign currencies. The Company does not use foreign currency contracts for speculative or trading purposes. On the date a foreign currency forward contract is entered into, the Company designates the contract as a hedge, for a forecasted transaction, of the variability of cash flows to be received (“cash flow hedge”). The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow hedges to anticipated transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. Effective changes in derivative contracts designated and qualifying as cash flow hedges of forecasted revenue are reported in other comprehensive income. These gains and losses are reclassified into interest income or expense, as a component of revenue, in the same period as the hedged revenue is recognized. The Company includes time value in the assessment of effectiveness of the foreign currency derivatives. The ineffective portion of the hedge is recorded in interest expense or income. No hedge ineffectiveness for foreign currency derivatives was recorded for the year ended July 31, 2011 . The maximum length of time over which the Company is hedging its exposure to the variability in future cash flows associated with forecasted foreign currency transactions is less than twelve months. Within the next twelve months, amounts expected to be reclassified from other comprehensive income to revenue for foreign currency derivatives are nil.

In the three months ended July 31, 2010, the Company entered into three interest rate swap agreements in accordance with Company policy to mitigate the impact of LIBOR based interest expense fluctuations on Company profitability. These swap agreements, with a total hedged notional amount of $100 million were entered into to hedge future cash interest payments associated with a portion of the Company’s variable rate bank debt. The Company has designated these swaps as cash flow hedges of future cash flows associated with its variable rate debt. All effective changes in the fair value of the designated swaps are recorded in other comprehensive income (loss) and are released to interest income or expense on a monthly basis as the hedged debt payments are accrued. Ineffective changes, if any, are recognized in interest income or expense immediately. For the year ended July 31, 2011, the Company recognized other comprehensive income of $84 based on the change in fair value of the swap agreements; no hedge ineffectiveness for these swap agreements was recognized in interest income or expense over the same period. Other comprehensive loss of $581 is expected to be reclassified to interest expense within the next twelve months.

The fair values of the Company’s derivative instruments as of July 31 were as follows:


Liability Derivatives	Balance Sheet Location	Fair Value
		2011			2010
Derivatives designated as hedging instruments under ASC 815:
Interest rate contracts	Other current liabilities	$	(581	)	$	(668	)
Interest rate contracts	Other non-current liabilities		(4	)		—
Foreign currency contracts	Accounts payable and accrued liabilities		—			(12	)

Total derivatives designated as hedging instruments under ASC 815		$	(585	)	$	(680	)

Derivatives not designated as hedging instruments under ASC 815:
Foreign currency contracts	Accounts payable and accrued liabilities	$	(11	)	$	—

Total derivatives not designated as hedging instrument under ASC 815		$	(11	)	$	—

Total derivatives		$	(596	)	$	(680	)

The effects of the Company’s derivative instruments on the Consolidated Statements of Operations for the years ended July 31 were as follows:


Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Loss Recognized in OCI on Derivative (Effective Portion)						Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)						Location of Loss Recognized in Income on Derivative (Ineffective Portion)	Amount of Loss Recognized in Income on Derivative (Ineffective Portion)
	2011			2010				2011			2010				2011		2010
Interest rate contracts	$	(643	)	$	(479	)	Interest expense	$	(728	)	$	(52	)	Interest expense	$	—	$	—
Foreign currency contracts		(182	)		(12	)	Net sales		(194	)		—		Net sales		—		—

Total	$	(825	)	$	(491	)		$	(922	)	$	(52	)		$	—	$	—


Derivatives Not Designated as Hedging Instruments under ASC 815	Location of Loss Recognized in Income on Derivative	Amount of Loss Recognized in Income on Derivative
		2011			2010
Foreign currency contracts	Interest expense	$	(145	)	$	—

Total		$	(145	)	$	—

ASC 820 requires that assets and liabilities carried at fair value be measured using the following three levels of inputs:

Level 1: Quoted market prices in active markets for identical assets or liabilities

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data

Level 3: Unobservable inputs that are not corroborated by market data

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company’s cash equivalents measured at fair value on a recurring basis was $586 as of July 31, 2010. These investments were classified as Level 1 based on quoted prices in active markets for identical assets, to value the cash equivalents. There were no cash equivalents as of July 31, 2011.

The Company’s derivative liabilities measured at fair value on a recurring basis were $596 and $680 as of July 31, 2011 and 2010. The Company has elected to use the income approach to value the derivative liabilities, using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated, but not compelled to transact. Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR for the first two years) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates). Mid-market pricing is used as a practical expedient for fair value measurements. Under Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” the fair value measurement of an asset or liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the impact of the counterparty’s creditworthiness when in an asset position and the Company’s creditworthiness when in a liability position has also been factored into the fair value measurement of the derivative instruments.

(3) Equity Offering and Stock-Based Compensation

In March 2010, the Company issued and sold 5,175,000 shares of its common stock for $37.00 per share. After deducting the underwriting discount and other related expenses, the Company received total net proceeds from the sale of its common stock of approximately $179.7 million. The proceeds from the equity offering were used to fund a portion of the purchase price for the Kettle Foods acquisition.

The Company uses a broad based equity incentive plan to help align employee and director incentives with stockholders’ interests. The 2005 Equity Incentive Plan (the “Plan”) was approved in March 2005 and provides for the awarding of options, restricted stock, stock bonuses, restricted stock units, and stock appreciation rights. The Compensation Committee of the Board of Directors administers the Plan. A total of 2,500,000 shares of common stock were initially reserved for issuance under the Plan, and the number of shares available for issuance under the Plan is increased by an amount equal to 2% of the Company’s total outstanding shares as of July 31 each year.

In 2005, the Company began granting shares of restricted stock and stock options under the Plan. The shares of restricted stock vest over three, four or five-year periods. The stock options expire in ten years and vest over three, four or five years. As of July 31, 2011, options to purchase 1,771,253 shares of common stock were outstanding, of which 1,235,297 were exercisable. At July 31, 2011, the Company had 685,187 shares available for future grant under the Plan.

ASC 718, “Compensation — Stock Compensation,” requires the recognition of compensation expense in an amount equal to the fair value of share-based awards. Beginning with the Company’s adoption of ASC 718 in August 2005, the fair value of all stock options granted subsequent to August 1, 2005 is recognized as an expense in the Company’s statement of operations, typically over the related vesting period of the options. The guidance requires use of fair value computed at the date of grant to measure share-based awards. The fair value of restricted stock awards is recognized as stock-based compensation expense over the vesting period, generally three, four or five years from date of grant or award. The Company recorded total stock-based compensation expense of $6,974, $3,231, and $3,901 for the years ended July 31, 2011, 2010, and 2009, respectively.

Stock Option Awards: The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option valuation model. Expected stock price volatilities were estimated based on the Company’s implied historical volatility. The expected term of options granted and forfeiture rates were based on assumptions and historical data to the extent it is available. The risk-free rates were based on U.S. Treasury yields in effect at the time of the grant. For purposes of this valuation model, dividends are based on the historical rate. Assumptions used in the Black-Scholes model are presented below (for the year ended July 31):


	2011			2010			2009
Average expected life, in years		6			6			6
Expected volatility		35.25	%		46.00	%		38.50	%
Risk-free interest rate		2.10	%		3.04	%		3.23	%
Dividend rate		0.34	%		0.50	%		0.70	%

The following table summarizes option activity during the years ended July 31, 2011, 2010 and 2009:


	Number of Shares			Weighted Average Exercise Price Per Share		Average Remaining Contractual Life		Aggregate Intrinsic Value
	(In thousands)					(In years)		(In thousands)
Outstanding at July 31, 2008		1,510			17.74		7.5	$	9,979
Granted		128			26.06
Exercised		(294	)		17.78
Cancelled		(12	)		17.24

Outstanding at July 31, 2009		1,332			18.54		6.9	$	12,871
Granted		191			40.79
Exercised		(45	)		18.35
Cancelled		(26	)		38.64

Outstanding at July 31, 2010		1,452			21.11		6.4	$	34,027
Granted		442			46.59
Exercised		(97	)		18.61
Cancelled		(26	)		38.61

Outstanding at July 31, 2011		1,771			27.34		6.3	$	78,551

Exercisable at July 31, 2009		1,107			17.76		6.6	$	11,562
Exercisable at July 31, 2010		1,218			18.32		5.9	$	31,939
Exercisable at July 31, 2011		1,235			19.98		5.1	$	63,756

The weighted average fair value of options granted during 2011, 2010 and 2009 was $16.37, $18.18 and $10.67, respectively. The total intrinsic value of options exercised during 2011, 2010 and 2009 was $3,035, $829 and $2,816, respectively. The total fair value of options vested during 2011, 2010 and 2009 was $2,004, $1,378 and $1,402, respectively.

Changes in the Company’s nonvested options during 2011 are summarized as follows:


	Number of Shares			Weighted Average Grant Date Fair Value
	(In thousands)
Nonvested at July 31, 2010		234		$	15.28
Granted		442			16.37
Vested		(130	)		15.36
Cancelled		(10	)		18.18

Nonvested at July 31, 2011		536			16.08

As of July 31, 2011, there was $7.2 million of total unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over a weighted average period of 2.2 years.

Restricted Stock Awards: Restricted stock activity during 2011, 2010 and 2009 is summarized as follows:


	Number of Shares			Weighted Average Grant Date Fair Value Per Share
	(In thousands)
Outstanding at July 31, 2008		332		$	17.74
Granted		194			25.80
Vested		(111	)		18.02
Cancelled		(79	)		19.94

Outstanding at July 31, 2009		336			21.79
Granted		193			34.29
Vested		(76	)		20.92
Cancelled		(45	)		31.60

Outstanding at July 31, 2010		408			26.78
Granted		115			47.04
Vested		(115	)		24.51
Cancelled		(15	)		38.44

Outstanding at July 31, 2011		393			32.96

The total intrinsic value of restricted stock vested in 2011, 2010 and 2009 was $5,482, $2,192 and $2,771, respectively.

As of July 31, 2011, there was $9.9 million of unrecognized compensation cost related to nonvested restricted stock awards, which is expected to be recognized over a weighted average period of 2.2 years.

(4) Earnings Per Share

ASC 260-10, “Earnings Per Share” impacted the determination and reporting of earnings per share by requiring the inclusion of restricted stock as participating securities, since they have the right to share in dividends, if declared, equally with common shareholders. Participating securities are allocated a proportional share of net income determined by dividing total weighted average participating securities by the sum of total weighted average common shares and participating securities (“the two-class method”). Including these shares in the Company’s earnings per share calculation during periods of net income has the effect of diluting both basic and diluted earnings per share.

The computations for basic and diluted earnings per share are as follows:


	Year Ended July 31,
	2011			2010			2009
Numerator:
Net income	$	50,211		$	26,211		$	23,743
Less: income allocated to participating securities		(912	)		(520	)		(486	)

Income attributable to common shareholders — basic		49,299			25,691			23,257
Add: undistributed income attributable to participating securities		843			505			469
Less: undistributed income reallocated to participating securities		(818	)		(490	)		(460	)

Income attributable to common shareholders — diluted	$	49,324		$	25,706		$	23,266

Denominator:
Weighted average shares outstanding — basic		21,577			18,313			16,073
Dilutive shares — stock options		665			530			318

Weighted average shares outstanding — diluted		22,242			18,843			16,391

Income per share attributable to common shareholders (1):
Basic	$	2.28		$	1.40		$	1.45
Diluted	$	2.22		$	1.36		$	1.42

(1)	Computations may reflect rounding adjustments.

Options to purchase 1,771,253, 1,451,963 and 1,331,737 shares of common stock were outstanding at July 31, 2011, 2010 and 2009, respectively. Options to purchase 87,500, 156,000 and 48,000 shares of common stock were not included in the computation of diluted earnings per share for 2011, 2010 and 2009 because their exercise prices were greater than the average market price of Diamond’s common stock of $54.62, $36.43 and $25.87, and therefore their effect would be antidilutive.

(5) Acquisition and Pending Transaction

Pending Pringles Merger

On April 5, 2011, Diamond entered into a definitive agreement with P&G to merge P&G’s Pringles business into the Company. The value of the proposed transaction at April 5, 2011 was approximately $2.35 billion, consisting of $1.5 billion in Diamond common stock and the assumption of $850 million of Pringles debt. The parties have also agreed to a collar mechanism that would adjust the amount of debt assumed by Diamond based upon Diamond’s stock price during a trading period prior to the commencement of the Exchange Offer. The amount of debt to be assumed by Diamond could increase by up to $200 million or decrease by up to $150 million based on this adjustment mechanism. The purchase price will be represented by approximately 29.1 million shares of Diamond common stock.

The transaction, which is expected to be completed by the end of calendar 2011, is subject to approval by Diamond’s stockholders and satisfaction of customary closing conditions and regulatory approvals. The merger will be accounted for as a purchase business combination and for accounting purposes, Diamond will be treated as the acquiring entity.

Kettle Foods

In March 2010, Diamond completed its acquisition of Kettle Foods for a purchase price of approximately $616 million in cash. The acquisition was accounted for under the purchase method of accounting in accordance with ASC 805, “Business Combinations.”

The total purchase price has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:


Accounts receivable	$	29,188
Inventory		12,526
Deferred tax asset		2,119
Prepaid expenses and other assets		3,617
Property, plant and equipment		66,289
Brand intangibles		235,000
Customer relationships		120,000
Goodwill		321,545
Assumed liabilities		(39,211	)
Deferred tax liabilities		(134,851	)

Purchase price	$	616,222

Goodwill associated with the Kettle Foods acquisition is not amortized and is not deductible for tax purposes.

Customer relationships of Kettle Foods will be amortized on a straight-line basis over an estimated life of 20 years. Brand intangibles relate to the “Kettle Foods” brand name, which has an indefinite life, and therefore is not amortizable.

Pro Forma — Financial Information

The following reflects the unaudited pro forma combined results of operations of the Company and Kettle Foods as if the acquisition had taken place at the beginning of the fiscal years presented:


	Year Ended July 31,
	2010		2009
Net sales	$	854,579	$	828,863
Net income	$	36,474	$	28,643
Diluted earnings per share	$	1.63	$	1.31

The Company incurred a loss on extinguishment of debt of $1.8 million when Diamond replaced an existing credit facility with a new secured credit facility to fund the Kettle Foods acquisition. Additionally, the Company incurred acquisition and integration costs of $11.5 million during the year ended July 31, 2010. These amounts are included in the above pro forma results of operations for the twelve month periods for fiscal years 2010 and 2009.

The net sales and associated earnings Kettle Foods has contributed to Diamond’s results of operations are not determinable as certain operational and go-to-market activities of Kettle Foods have been integrated into Diamond.

(6) Intangible Assets and Goodwill

The changes in the carrying amount of goodwill were as follows:


Balance as of July 31, 2009:	$	76,076
Pop Secret purchase price allocation changes		(833	)
Acquisition of Kettle Foods		321,545

Balance as of July 31, 2010:		396,788
Translation adjustments		10,799

Balance as of July 31, 2011:	$	407,587

Other intangible assets consisted of the following at July 31:


	2011			2010
Brand intangibles (not subject to amortization)	$	301,148		$	297,500
Intangible assets subject to amortization:
Customer contracts and related relationships		163,786			157,300

Total other intangible assets, gross		464,934			454,800

Less accumulated amortization on intangible assets:
Customer contracts and related relationships		(14,079	)		(5,782	)

Total other intangible assets, net	$	450,855		$	449,018

During the quarter ended July 31, 2009, the Company recorded a $1.2 million non-cash impairment charge to write off the unamortized balance of the Harmony/Homa trademark and trade names, since we no longer utilize them as primary trade dress and concluded that they have no future value. This amount was included in selling, general and administrative expenses on the Consolidated Statements of Operations.

Identifiable intangible asset amortization expense in each of the five succeeding years will amount to approximately $8,189.

For the years ended July 31, 2011, 2010 and 2009, the amortization period for identifiable intangible assets was approximately 20 years with amortization expense of approximately $7,865 , $3,865 and $1,761 recognized, respectively.

The Company also performed its 2011 annual impairment test of goodwill and non-amortizing intangible assets required by ASC 350 as of June 30, 2011. There were no goodwill impairments during 2011, 2010 and 2009.

(7) Notes Payable and Long-Term Obligations

In February 2010, Diamond entered into an agreement to replace an existing credit facility with a new five-year $600 million secured credit facility (the “Secured Credit Facility”) with a syndicate of lenders. The Company used the borrowings under the Secured Credit Facility to fund a portion of the Kettle Foods acquisition and to fund ongoing operations.

Diamond’s Secured Credit Facility consists of a $235 million revolving credit facility, of which $161 million was outstanding as of July 31, 2011, and a $400 million term loan facility, of which $350 million was outstanding as of July 31, 2011. Scheduled principal payments on the term loan are $40 million for fiscal year 2011 and each of the succeeding three years (due quarterly), and $10 million for each of the first two quarters in fiscal year 2015, with the remaining principal balance and any outstanding loans under the revolving credit facility to be repaid on the fifth anniversary of initial funding. In March 2011, the syndicate of lenders approved Diamond’s request for an increase in its revolving credit facility by $35 million from $200 million, under the same terms. In August 2011, the syndicate of lenders approved Diamond’s request for an increase in its revolving credit facility by $50 million from $235 million to $285 million, under the same terms. Borrowings under the Secured Credit Facility will bear interest, at Diamond’s option, at either the agent’s base rate or the LIBOR rate, plus a margin for LIBOR loans ranging from 2.25% to 3.50%, based on the consolidated leverage ratio which is defined as the ratio of total debt to EBITDA. For the year ended July 31, 2011, the blended interest rate was 3.92% for the Company’s consolidated borrowings. Substantially all of the Company’s tangible and intangible assets are considered collateral security under the Secured Credit Facility.

The Secured Credit Facility also provides for customary affirmative and negative covenants, including a debt to EBITDA ratio and minimum fixed charge coverage ratio. As of July 31, 2011, the Company was in compliance with all applicable financial covenants under the Secured Credit Facility.

On December 20, 2010, Kettle Foods obtained, and Diamond guaranteed, a 10-year fixed rate loan (the “Guaranteed Loan”) in the principal amount of $21 million, of which $20 million was outstanding as of July 31, 2011. The principal and interest payments are due monthly throughout the term of the loan. The Guaranteed Loan will be used to purchase equipment for the Beloit, Wisconsin plant expansion. Borrowed funds have been placed in an interest-bearing escrow account and will be made available as expenditures are approved for reimbursement. As the cash will be used to purchase non-current assets, such restricted cash has been classified as non-current on the balance sheet. The Guaranteed Loan also provides for customary affirmative and negative covenants, which are similar to the covenants under the Secured Credit Facility.

(8) Balance Sheet Items

Inventories consisted of the following at July 31:


	2011		2010
Raw materials and supplies	$	63,775	$	64,660
Work in process		20,798		23,768
Finished goods		61,002		54,977

Total	$	145,575	$	143,405

Accounts payable and accrued liabilities consisted of the following at July 31:


	2011		2010
Accounts payable	$	66,245	$	42,784
Payable to growers		15,186		35,755
Accrued salaries and benefits		17,050		17,587
Accrued promotion		29,360		22,787
Accrued taxes		8,703		1,482
Other		7,516		7,526

Total	$	144,060	$	127,921

(9) Property, Plant and Equipment

Property, plant and equipment consisted of the following at July 31:


	2011			2010
Land and improvements	$	10,822		$	10,012
Buildings and improvements		41,303			38,231
Machinery, equipment and software		168,974			164,926
Construction in progress		26,546			7,214

Total		247,645			220,383
Less accumulated depreciation		(120,238	)		(102,567	)

Property, plant and equipment, net	$	127,407		$	117,816

(10) Income Taxes

Income tax expense consisted of the following for the year ended July 31:


	2011			2010			2009
Current
Federal	$	18,477		$	5,895		$	14,831
State		2,459			(665	)		2,913
Foreign		5,527			1,688			—

Total current		26,463			6,918			17,744

Deferred
Federal		(3,018	)		7,324			(2,830	)
State		(237	)		1,216			30
Foreign		(4,279	)		(1,468	)		—

Total deferred		(7,534	)		7,072			(2,800	)

Total tax provision	$	18,929		$	13,990		$	14,944

The components of earnings from continuing operations before income taxes, by tax jurisdiction, are as follows for the fiscal years ended July 31:


	2011			2010			2009
United States	$	81,924		$	42,235		$	38,687
Foreign		(12,784	)		(2,034	)		—

Total	$	69,140		$	40,201		$	38,687

A reconciliation of the statutory federal income tax rate of 35% to Diamond’s effective income tax rate is as follows for the year ended July 31:


	2011			2010			2009
Federal tax computed at the statutory rate	$	24,199		$	14,071		$	13,540
Stock-based compensation		162			(16	)		3
Domestic production activities deduction		(1,685	)		(371	)		(894	)
State taxes, net of federal impact		1,476			361			1,908
Acquisition costs		—			2,282			—
Foreign income tax rate differential		1,276			7			—
Changes in tax rates		(2,697	)		(1,271	)		—
Net benefit of certain interest		(4,404	)		(1,547	)		—
Other items, net		602			474			387

Income tax expense	$	18,929		$	13,990		$	14,944

Applicable U.S. income taxes have not been provided on approximately $19,803 of undistributed earnings of certain foreign subsidiaries at July 31, 2011, because these earnings are considered indefinitely reinvested. The net federal income tax liability that would arise if these earnings were not indefinitely reinvested is approximately $6,931. Applicable U.S. income taxes are provided on these earnings in the periods in which they are no longer considered indefinitely reinvested.

With respect to the Company’s stock option plans, realized tax benefits in excess of tax benefits recognized in net earnings are recorded as increases to additional paid-in capital. Excess tax benefits of approximately $2,274, $434, and $1,067, were realized and recorded to additional paid-in capital for the fiscal years 2011, 2010 and 2009, respectively.

The tax effect of temporary differences and net operating losses which give rise to deferred tax assets and liabilities consist of the following as of July 31:


	2011		2010
Deferred tax assets:
Current:
Inventories	$	2,136	$	940
Receivables		253		378
Accruals		6,465		4,974
Compensation		3,896		3,661
State tax		499		258
Other		—		380

Total current		13,249		10,591

Non-current:
State tax credits		5,674		5,524
Retirement benefits		3,938		4,341
Employee stock compensation benefits		3,345		2,025
Acquisition costs		4,848		—
Other		3,578		2,706

Total non-current		21,383		14,596


	2011			2010
Deferred tax liabilities:
Current		—			14
Non-current:
Property, plant and equipment		13,555			11,846
Intangibles		129,301			127,884
Other		6,527			6,076

Total non-current		149,383			145,806

Total deferred taxes, net	$	(114,751	)	$	(120,633	)

Composed of:
Net current deferred taxes	$	13,249		$	10,577
Net non-current deferred taxes		(128,000	)		(131,210	)

Total deferred taxes, net	$	(114,751	)	$	(120,633	)

Valuation allowances have been provided to reduce deferred tax assets to amounts considered recoverable. The Company’s valuation allowance was $613 as of July 31, 2011 and 2010.

As of July 31, 2011, the Company had no cumulative federal tax loss carryforwards and $12,657 of cumulative state tax loss carryforwards. State tax loss carryforwards will expire beginning fiscal 2017 through fiscal 2023. The Company also has a foreign net operating loss carryforward of $7,956 with no expiration period.

The state tax credits of $9,801 are California Enterprise Zone Credits, which have no expiration date.

The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. The Company had $65, $49 and $40, net of tax benefit, accrued for interest and $64, $12, and $1 accrued for penalties related to unrecognized tax benefits as of July 31, 2011, 2010 and 2009, respectively.

A reconciliation of the beginning and ending amount of the gross unrecognized tax benefits is as follows:


	2011			2010			2009
Balance, beginning of year	$	2,611		$	313		$	233
Tax position related to current year:
Additions		7,348			2,586			—
Tax positions related to prior years:
Additions		2,575			10			227
Reductions		(11	)		—			—
Settlements		—			(269	)		(46	)
Statute of limitations closures		—			(29	)		(101	)

Balance, end of year	$	12,523		$	2,611		$	313

Included in the balance of unrecognized tax benefits at July 31, 2011, July 31, 2010 and July 31, 2009, respectively, are potential benefits of $9,759 $2,611, and $313 respectively, that if recognized, would affect the effective tax rate on earnings.

In the twelve months succeeding July 31, 2011, audit resolutions, lapse of statute of limitations, and filing the amended returns could potentially reduce total unrecognized tax benefits by up to $11,132.

The Company files income tax returns in the U.S. federal and various states, local and foreign jurisdictions. The Company’s income tax returns for fiscal year 2006 through fiscal year 2011 remain open to examination.

(11) Commitments and Contingencies

The Company is involved in various legal actions in the ordinary course of business. Such matters are subject to many uncertainties that make their ultimate outcomes unpredictable. However, in the opinion of management, resolution of all legal matters is not expected to have an adverse effect on the Company’s financial condition, operating results or cash flows.

At July 31, 2011, the Company had $2.6 million of letters of credit outstanding related to normal business transactions and commitments of $10.9 million to purchase new equipment.

Operating lease expense for the year ended July 31, 2011, 2010 and 2009 was $4.9 million, $3.2 million and $2.5 million, respectively.

At July 31, 2011, future minimum payments under non-cancelable operating leases (primarily for real property) were as follows:


2012	$	5,963
2013		4,248
2014		2,914
2015		2,694
2016		2,117
Thereafter		4,118

Total	$	22,054

(12) Segment Reporting

The Company operates in a single reportable segment: the processing, marketing, and distribution of culinary, in-shell and ingredient/food service nuts and snack products. The geographic presentation of net sales below is based on the destination of the sale. The “Europe” category consists primarily of United Kingdom, Germany, Netherlands, and Spain. The “Other” category consists primarily of Canada, South Korea, Japan, Turkey and China. The geographic distributions of the Company’s net sales were as follows for the year ended July 31:


	2011		2010		2009
United States	$	676,063	$	553,977	$	486,614
Europe		161,365		64,909		33,743
Other		128,494		61,276		50,583

Total	$	965,922	$	680,162	$	570,940


Net sales by channel:


	2011		2010		2009
Snack	$	553,165	$	321,422	$	188,900
Culinary and Retail In-shell		262,906		248,994		276,226

Total Retail		816,071		570,416		465,126

International Non-Retail		119,017		69,206		68,890
North American Ingredient/Food Service and Other		30,834		40,540		36,924

Total Non-Retail		149,851		109,746		105,814

Total Net Sales	$	965,922	$	680,162	$	570,940

The Company does not segregate long-lived assets between geographies for internal reporting. Therefore, asset-related information has not been presented.

(13) Valuation Reserves and Qualifying Accounts


	Beginning of Period		Charged to Expense		Charged to Reserve			End of Period
Allowance for Doubtful Accounts
Year ended July 31, 2009	$	441	$	269	$	(210	)	$	500
Year ended July 31, 2010		500		106		—			606
Year ended July 31, 2011		606		55		(19	)		642

(14) Retirement Plans

Diamond provides retiree medical benefits and sponsors two defined benefit pension plans. One of the defined benefit plans is a qualified plan covering all bargaining unit employees and the other is a nonqualified plan for certain salaried employees. The amounts shown for pension benefits are combined amounts for all plans. Diamond uses a July 31 measurement date for its plans. Plan assets are held in trust and primarily include mutual funds and money market accounts. Any employee who joined the Company after January 15, 1999 is not entitled to retiree medical benefits.

In March 2010, the Company determined that the defined benefit pension plan for the bargaining unit employees would be frozen at July 31, 2010 in conjunction with the execution of a new union contract. This amendment was accounted for in accordance with ASC 715, “Compensation — Retirement Benefits.”

Obligations and funded status of the remaining benefit plans at July 31 were:


	Pension Benefits						Other Benefits
Change in Benefit Obligation	2011			2010			2011			2010
Benefit obligation at beginning of year	$	24,186		$	20,832		$	2,204		$	2,360
Service cost		79			728			65			63
Interest cost		1,258			1,198			107			133
Plan participants’ contributions		—			—			27			74
Plan amendments		—			(412	)		—			—
Actuarial loss (gain)		1,809			2,253			61			(267	)
Benefits paid		(464	)		(413	)		(195	)		(159	)

Benefit obligation at end of year	$	26,868		$	24,186		$	2,269		$	2,204


	Pension Benefits						Other Benefits
Change in Plan Assets	2011			2010			2011			2010
Fair value of plan assets at beginning of year	$	13,144		$	12,120		$	—		$	—
Actual return on plan assets		1,771			1,320			—			—
Employer contribution		—			117			168			85
Plan participants’ contributions		—			—			27			74
Benefits paid		(464	)		(413	)		(195	)		(159	)

Fair value of plan assets at end of year	$	14,451		$	13,144		$	—		$	—

Funded status at end of year	$	(12,417	)	$	(11,042	)	$	(2,269	)	$	(2,204	)

Assets (liabilities) recognized in the consolidated balance sheets at July 31 consisted of:


	Pension Benefits						Other Benefits
	2011			2010			2011			2010
Current liabilities	$	—		$	—		$	(114	)	$	(117	)
Noncurrent liabilities		(12,417	)		(11,042	)		(2,155	)		(2,087	)

Total	$	(12,417	)	$	(11,042	)	$	(2,269	)	$	(2,204	)

Amounts recognized in accumulated other comprehensive income (pre-tax) as of July 31 consisted of:


	Pension Benefits				Other Benefits
	2011		2010		2011			2010
Net loss (gain)	$	9,545	$	9,120	$	(5,086	)	$	(5,942	)
Prior service cost		87		102		—			—

Total	$	9,632	$	9,222	$	(5,086	)	$	(5,942	)

The accumulated benefit obligation for all defined benefit pension plans was $24,400 and $21,772 at July 31, 2011 and 2010.

Information for pension plans with an accumulated benefit obligation in excess of plan assets as of July 31 was as follows:


	2011		2010
Projected benefit obligation	$	26,868	$	24,186
Accumulated benefit obligation		24,400		21,772
Fair value of plan assets		14,451		13,144

Components of net periodic benefit cost for the year ended July 31 were as follows:


	Pension Benefits									Other Benefits
	2011			2010			2009			2011			2010			2009
Net Periodic Benefit Cost / (Income)
Service cost	$	79		$	728		$	475		$	65		$	63		$	103
Interest cost		1,258			1,198			1,062			107			133			284
Expected return on plan assets		(1,031	)		(952	)		(1,059	)		—			—			—
Amortization of prior service cost		16			26			26			—			—			—
Amortization of net (gain) loss		643			517			37			(795	)		(824	)		(539	)
Curtailment cost		—			3			—			—			—			—

Net periodic benefit cost / (income)	$	965		$	1,520		$	541		$	(623	)	$	(628	)	$	(152	)

The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $792 and $16, respectively. The estimated net gain and prior service cost for the other defined benefit postretirement plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $771 and nil, respectively.

For calculation of retiree medical benefit cost, prior service cost is amortized on a straight-line basis over the average remaining years of service to full eligibility for benefits of the active plan participants. For calculation of net periodic pension cost, prior service cost is amortized on a straight-line basis over the average remaining years of service of the active plan participants.

Assumptions

Weighted-average assumptions used to determine benefit obligations at July 31 were as follows:


	Pension Benefits									Other Benefits
	2011			2010			2009			2011			2010			2009
Discount rate		5.00	%		5.28	%		5.80	%		4.70	%		5.00	%		5.80	%
Rate of compensation increase		5.50			5.50			5.50			N/A			N/A			N/A

Weighted-average assumptions used to determine net periodic benefit cost for the year ended July 31 were as follows:


	Pension Benefits									Other Benefits
	2011			2010			2009			2011			2010			2009
Discount rate		5.28	%		5.80	%		7.00	%		5.00	%		5.80	%		7.00	%
Expected long-term return on plan assets		8.00			8.00			8.00			N/A			N/A			N/A
Rate of compensation increase		5.50			5.50			5.50			N/A			N/A			N/A

The expected long-term rate of return on plan assets is based on the established asset allocation.

Assumed trend rates for medical plans were as follows:


	2011			2010			2009
Health care cost trend rate assumed for next year		9.0	%		9.5	%		10.0	%
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		2028			2020			2020

Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:


	One Percentage Point Increase		One Percentage Point Decrease
Effect on total of service and interest cost	$	24	$	(20	)
Effect on post-retirement benefit obligation		250		(215	)

Plan Assets

Effective July 31, 2010, Diamond adopted the provisions of ASU No. 2010-06 on employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The fair values of the Company’s pension plan assets by asset category were as follows (see Note 2 for description of levels):


	Fair Value Measurements at July 31, 2011
	Total		Level 1		Level 2		Level 3
*Asset Category:*
Cash and cash equivalents	$	419	$	—	$	419	$	—
Mutual funds — equity:
Domestic		5,681		5,681		—		—
International		2,180		2,180		—		—
Mutual funds — debt:
Government		1,909		1,909		—		—
Corporate		3,547		3,547		—		—
Other		715		715		—		—

Total	$	14,451	$	14,032	$	419	$	—


	Fair Value Measurements at July 31, 2010
	Total		Level 1		Level 2		Level 3
*Asset Category:*
Cash and cash equivalents	$	178	$	—	$	178	$	—
Mutual funds — equity:
Domestic		5,445		—		5,445		—
International		1,456		—		1,456		—
Pooled Funds		6,065		—		6,065		—

Total	$	13,144	$	—	$	13,144	$	—

Pension obligations and expenses are most sensitive to the expected return on pension plan assets and discount rate assumptions. Other post retirement benefit obligations and expenses are most sensitive to discount rate assumptions and health care cost trend rate. Diamond determines the expected return on pension plan assets based on an expectation of the average annual returns over an extended period of time. This expectation is based, in part, on the actual returns achieved by the Company’s pension plan in prior periods. The Company also considers the weighted average historical rates of return on securities with similar characteristics to those in which the Company’s pension assets are invested.

The investment objectives for the Diamond plans are to maximize total returns within reasonable and prudent levels of risk. The plan asset allocation is a key element in achieving the expected investment returns on plan assets. The current asset allocation strategy targets an allocation of 60% for equity securities and 40% for debt securities with adequate liquidity to meet expected cash flow needs. Actual asset allocation may fluctuate within acceptable ranges due to market value variability. If fluctuations cause an asset class to fall outside its strategic asset allocation range, the portfolio will be rebalanced as appropriate.

Cash Flows

Estimated future benefit payments, which reflect expected future service, as appropriate, expected to be paid are as follows:


	Pension Benefits		Other Benefits
2012	$	549	$	114
2013		4,515		126
2014		648		155
2015		738		162
2016		753		159
2017 — 2021		4,481		826

Defined Contribution Plan

The Company also recognized defined contribution plan expenses of $1,151, $720 and $524 for the years ended July 31, 2011, 2010 and 2009, respectively.

(15) Quarterly Financial Information (unaudited)


	First Quarter		Second Quarter		Third Quarter			Fourth Quarter
Year ended July 31, 2011
Net sales	$	252,566	$	257,592	$	222,991		$	232,773
Gross profit (1)		63,596		70,856		59,588			57,107
Operating expenses (2)		36,071		34,916		42,035			45,145
Net income		14,214		19,720		7,733			8,544
Basic earnings per share		0.65		0.90		0.35			0.39
Basic shares (in thousands)		21,489		21,565		21,604			21,652
Diluted earnings per share		0.64		0.87		0.34			0.37
Diluted shares (in thousands)		21,947		22,221		22,341			22,577
Year ended July 31, 2010
Net sales	$	180,641	$	184,169	$	138,734		$	176,618
Gross profit (3)		45,491		40,578		31,093			43,839
Operating expenses (4)		19,789		27,488		32,991			28,503
Net income (loss)		14,930		8,814		(4,273	)		6,740
Basic earnings (loss) per share		0.90		0.53		(0.22	)		0.31
Basic shares (in thousands)		16,269		16,280		19,313			21,503
Diluted earnings (loss) per share		0.88		0.52		(0.22	)		0.30
Diluted shares (in thousands)		16,685		16,764		19,313			22,097

(1)

Diamond revised its estimate for expected commodity costs to reflect change in market conditions. Accordingly, cost of sales resulted in a pre-tax decrease of approximately $1.5 million and a pre-tax increase of approximately $1.2 million, in the quarters ended April 30, 2011 and January 31, 2011, respectively, reflecting the impact on sales recognized during the previous quarters of fiscal year 2011. There was no change in the quarter ended July 31, 2011.

(2)	Includes acquisition and integration related expenses of $0.5 million, $0.9 million, $5.9 million and $9.5 million for the quarters ended October 30, 2010, January 31, 2011, April 30, 2011 and July 31, 2011, respectively.

(3)

Diamond revised its estimate for expected commodity costs to reflect change in market conditions. Accordingly, cost of sales resulted in a pre-tax decrease of approximately $1.1 million and $2.6 million in the quarters ended April 30, 2010 and January 31, 2010, respectively, reflecting the impact on sales recognized during the previous quarters of fiscal year 2010. There was no change in the quarter ended July 31, 2010.

(4)	Includes acquisition and integration related expenses of $10.2 million and $1.3 million for the quarters ended April 30, 2010 and July 31, 2010, respectively.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

We have established and currently maintain disclosure controls and procedures designed to provide reasonable assurance that material information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission and that any material information relating to the Company is recorded, processed, summarized and reported to our principal officers to allow timely decisions regarding required disclosures.

We acquired Kettle Foods on March 31, 2010, and as a result, we updated our internal control over financial reporting (as defined in Rule 13a-15(f) under the 1934 Act) during our fiscal year ended July 31, 2011, to include specific controls for Kettle Foods. Otherwise, there were no changes in our internal control over financial reporting during the year ended July 31, 2011 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In conjunction with the close of each fiscal quarter, we conduct a review and evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial and Administrative Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Our Chief Executive Officer and Chief Financial and Administrative Officer, based upon their evaluation as of July 31, 2011, the end of the fiscal quarter covered in this report, concluded that our disclosure controls and procedures were effective.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Diamond Foods, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control system is designed to provide reasonable assurance regarding the preparation and fair presentation of our financial statements in accordance with generally accepted accounting principles.

An internal control over financial reporting system has inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

We have used the framework set forth in the report entitled “Internal Control — Integrated Framework” published by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission to evaluate the effectiveness of our internal control over financial reporting as of July 31, 2011. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of July 31, 2011 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors.

Deloitte & Touche LLP, an independent registered public accounting firm, has issued an audit report on the effectiveness of the Company’s internal control over financial reporting.

/s/ Michael J. Mendes

/s/ Steven M. Neil

Chairman of the Board, President and

Chief Executive Officer

Chief Financial and Administrative

Officer

September 15, 2011

Item 9B. Other Information

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item is incorporated by reference to disclosure under the subheadings “Proposal No. 1 — Election of Directors — Directors/Nominees,” “Executive Compensation — Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance and Board of Directors Matters” of the Company’s Proxy Statement for the 2012 Annual Meeting of Stockholders (the “2012 Proxy Statement”).

Item 11. Executive Compensation

The information required by this item is incorporated by reference to disclosure under the headings “Executive Compensation” and “Corporate Governance and Board of Directors Matters” in the 2012 Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated by reference to disclosure under the subheadings “Executive Compensation — Equity Compensation Plan Information” and “Stock Ownership of Principal Stockholders and Management” in the 2012 Proxy Statement.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference to the subheadings “Certain Relationships and Related Party Transactions” section of the 2012 Proxy Statement.

Item 14. Principal Accounting Fees and Services

The information required by this item is incorporated by reference from the “Proposal No. 2 — Ratification of Appointment of Independent Registered Public Accounting Firm — Audit Fees” section of the 2012 Proxy Statement.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Documents filed as part of this report:

1. Financial Statements.

(a) Report of Independent Registered Public Accounting Firm

(b) Consolidated Balance Sheets at July 31, 2011 and 2010

(d) Consolidated Statements of Stockholders’ Equity for the years ended July 31, 2011, 2010 and 2009

(e) Consolidated Statements of Cash Flows for the years ended July 31, 2011, 2010 and 2009

(f) Notes to the Consolidated Financial Statements

2. Financial Statement Schedules.

All schedules are omitted because the required information is included with the Consolidated Financial Statements, or notes thereto.

3. Exhibits.

The following exhibits are filed as part of this report or are incorporated by reference to exhibits previously filed with the SEC.


Number	Exhibit Title	Filed with This Report	Incorporated by Reference
Number	Exhibit Title	Filed with This Report	Form	File No.	Date Filed

2.01	Share Purchase Agreement, dated as of February 25, 2010, by and among Diamond Foods, Inc., DFKA Ltd and Lion/Stove Luxembourg Investment S.a.r.l.		8-K/A	000-51439	March 1, 2010

3.01	Certificate of Incorporation, as amended		S-1	333-123576	July 15, 2005

3.02	Restated Bylaws		S-1	333-123576	March 25, 2005

4.01	Form of Certificate for common stock		S-1	333-123576	July 18, 2005

10.01	Form of Indemnity Agreement between Registrant and each of its directors and executive officers		S-1	333-123576	March 25, 2005

10.02*	2005 Equity Incentive Plan and forms of stock option agreement, stock option exercise agreement and restricted stock purchase agreement		S-1	333-123576	March 25, 2005

10.03*	2005 Employee Stock Purchase Plan and form of subscription agreement		S-1	333-123576	March 25, 2005

10.04*	Diamond Walnut Growers, Inc. 401(k) Plan		S-1	333-123576	March 25, 2005

10.05*	Diamond Walnut Growers, Inc. Retirement Restoration Plan		S-1	333-123576	March 25, 2005

10.06*	Diamond of California Management Pension Plan		S-1	333-123576	March 25, 2005

10.07	Diamond Walnut Growers, Inc. Pension Plan, as restated		S-1	333-123576	March 25, 2005

10.08*	Employment Agreement, dated March 25, 1997, between Registrant and Michael J. Mendes		S-1	333-123576	March 25, 2005

10.10	Form of Walnut Purchase Agreement		S-1	333-123576	May 3, 2005

10.12	Rights Agreement, dated as of April 29, 2005, by and between Registrant and EquiServe Trust Company, N.A		S-1	333-123576	May 3, 2005

10.13*	Form of Change of Control and Retention Agreement between Registrant and each of its executive officers		S-1	333-123576	May 3, 2005

10.14

Amendment to Diamond Foods, Inc. Pension Plan

8-K

000-51439

September 20, 2006

10.15*

Form of Tax Withholding Agreement

8-K

000-51439

July 20, 2007

10.16*

Form of Stock Withholding Agreement

8-K

000-51439

January 10, 2007

10.17*

Offer Letter between Steven M. Neil and Diamond Foods, Inc.

10-Q

000-51439

March 11, 2008

10.18*

Offer Letter between Lloyd Johnson and Diamond Foods, Inc.

10-K

000-51439

July 31, 2008

10.19

Credit Agreement between Diamond Foods, Inc. and Bank of America, N.A., dated September 15, 2008

8-K

000-51439

September 17, 2008

10.20*

Offer Letter between Linda Segre and Diamond Foods, Inc.

10-K

000-51439

July 31, 2009

10.21

Credit Agreement, dated as of February 25, 2010, by and among Diamond Foods, Inc., the Lenders party thereto, Bank of America, N.A., Banc of America Securities LLC and Barclays Capital

8-K/A

000-51439

March 1, 2010

10.22

Transaction Agreement

8-K

000-51439

April 5, 2011

10.23

Separation Agreement

8-K

000-51439

April 5, 2011

21.01

List of Subsidiaries of Diamond Foods, Inc.

23.01

Consent of Independent Registered Public Accounting Firm

31.01

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.02

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32.01

Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer

*	Indicates management contract or compensatory plan or arrangement

All other schedules, which are included in the applicable accounting regulations of the Securities and Exchange Commission, are not required here because they are not applicable.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


DIAMOND FOODS, INC.

By:		/s/ Steven M. Neil
		Steven M. Neil Chief Financial and Administrative Officer

Date: September 15, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Name	Title	Signature Date

/s/ Michael J. Mendes Michael J. Mendes	Chairman of the Board, President and Chief Executive Officer and Director (principal executive officer)	September 15, 2011

/s/ Steven M. Neil Steven M. Neil	Chief Financial and Administrative Officer and Director (principal financial officer and principal accounting officer)	September 15, 2011

/s/ Laurence M. Baer Laurence M. Baer	Director	September 15, 2011

/s/ Edward A. Blechschmidt Edward A. Blechschmidt	Director	September 15, 2011

/s/ John J. Gilbert John J. Gilbert	Director	September 15, 2011

/s/ Robert M. Lea Robert M. Lea	Director	September 15, 2011

/s/ Joseph P. Silveira Joseph P. Silveira	Director	September 15, 2011

/s/ Glen C. Warren, Jr. Glen C. Warren, Jr.	Director	September 15, 2011

/s/ Richard Wolford Richard Wolford	Director	September 15, 2011

/s/ Robert J. Zollars Robert J. Zollars	Director	September 15, 2011

EXHIBIT INDEX


Exhibit Number		Exhibit Description

21.01		List of Subsidiaries of Diamond Foods, Inc.

23.01		Consent of Independent Registered Public Accounting Firm

31.01		Certification of Chief Executive Officer

31.02		Certification of Chief Financial Officer

32.01		Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer

Diamond Foods Inc - FORM 10-K - September 15, 2011

Attached files

Diamond Foods Inc Reports

Also read