Diamond Foods (DMND) 10-Q 2008 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended April 30, 2008

OR

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

For the transition period from                    to                    

Commission File Number: 000-51439

DIAMOND FOODS, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State of Incorporation) 20-2556965
(IRS Employer Identification No.)

1050 South Diamond Street
Stockton, California	95205-7087
(Address of Principal Executive Offices)	(Zip Code)

209-467-6000
(Telephone No.)

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. Yesþ Noo

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 filero	Accelerated filerþ	Non-accelerated filero	Smaller reporting companyo
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yeso Noþ

Number of shares of common stock outstanding as of April 30, 2008: 16,177,304

TABLE OF CONTENTS

	Page
Part I. FINANCIAL INFORMATION		4
Item 1. Financial Statements		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3. Quantitative and Qualitative Disclosures About Market Risk		18
Item 4. Controls and Procedures		18
Part II.OTHER INFORMATION		19
Item 1. Legal Proceedings		19
Item 1A. Risk Factors		19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		19
Item 3. Defaults Upon Senior Securities		19
Item 4. Submission of Matters to a Vote of Security Holders		20
Item 5. Other Information		20
Item 6. Exhibits		20
SIGNATURE		21
EXHIBIT 31.01
EXHIBIT 31.02
EXHIBIT 32.01

2

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     The statements contained in this Quarterly Report regarding our future financial and operating performance and results, business strategy, market prices, future commodity prices, plans and forecasts and other statements that are not historical facts are forward-looking statements. We use the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “seek,” and other similar expressions to identify forward-looking statements; many of which discuss our future expectations, contain projections of our results of operations or financial condition or state other “forward-looking” information. We have based these forward-looking statements on our assumptions, expectations, and projections about future events only as of the date of this Quarterly Report.

     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 Quarterly Report and in other documents we file from time to time with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K and other Quarterly Reports on Form 10-Q filed by us during our 2008 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.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

DIAMOND FOODS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share information)
(Unaudited)

	April 30,			July 31,
	2008			2007
ASSETS
Current assets:
Cash and cash equivalents	$	25,631		$	33,755
Trade receivables, net		46,346			50,662
Inventories		130,038			90,619
Deferred income taxes		3,617			4,805
Prepaid income taxes		—			1,854
Prepaid expenses and other current assets		2,759			2,417
Total current assets		208,391			184,112
Property, plant and equipment, net		34,774			33,936
Investment in CoBank		1,480			1,774
Deferred income taxes		5,092			4,922
Goodwill		5,432			5,432
Other intangible assets, net		3,531			3,707
Other assets		2,718			2,520
Total assets	$	261,418		$	236,403
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	33,891		$	26,468
Payable to growers		57,191			57,117
Total current liabilities		91,082			83,585
Long-term obligations		20,233			20,345
Other liabilities		7,271			7,132
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; 16,273,240 and 15,848,717 shares issued and 16,177,304 and 15,764,647 shares outstanding at April 30, 2008 and July 31, 2007, respectively		16			16
Treasury stock, at cost: 95,936 and 84,070 shares at April 30, 2008 and July 31, 2007, respectively		(1,652	)		(1,436	)
Additional paid-in capital		108,862			101,106
Accumulated other comprehensive income		2,230			2,233
Retained earnings		33,376			23,422
Total stockholders’ equity		142,832			125,341
Total liabilities and stockholders’ equity	$	261,418		$	236,403

See notes to condensed consolidated financial statements

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DIAMOND FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share information)
(Unaudited)

	Three Months					Nine Months
	Ended April 30,					Ended April 30,
	2008		2007			2008		2007
Net sales	$	100,009	$	97,016		$	418,344	$	410,150
Cost of sales		82,685		83,310			349,044		348,163
Gross profit		17,324		13,706			69,300		61,987
Operating expenses:
Selling, general and administrative		9,931		9,282			31,760		32,327
Advertising		5,306		7,273			17,101		15,627
Restructuring and other costs, net		—		532			—		(322	)
Loss on termination of defined benefit plan		—		4,679			—		1,640
Total operating expenses		15,237		21,766			48,861		49,272
Income (loss) from operations		2,087		(8,060	)		20,439		12,715
Interest expense, net		196		498			780		1,069
Other expense (income)		—		(10	)		—		72
Income (loss) before income taxes		1,891		(8,548	)		19,659		11,574
Income taxes (tax benefit)		785		(4,536	)		7,537		3,915
Net income (loss)	$	1,106	$	(4,012	)	$	12,122	$	7,659
Earnings (loss) per share:
Basic	$	0.07	$	(0.25	)	$	0.76	$	0.49
Diluted	$	0.07	$	(0.25	)	$	0.75	$	0.49
Shares used to compute earnings (loss) per share:
Basic		16,111		15,808			16,050		15,773
Diluted		16,120		15,808			16,072		15,773

See notes to condensed consolidated financial statements

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DIAMOND FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Nine Months Ended April 30,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	12,122		$	7,659
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		4,760			5,429
Deferred income taxes		1,188			(621	)
Loss on termination of defined benefit plan		—			1,640
Tax benefit related to stock-based compensation		65			41
Excess tax benefit from ESPP and stock option transactions		(65	)		(41	)
Stock-based compensation		4,873			3,840
Gain on sale of property held for sale		—			(1,193	)
(Gain) loss on disposal of property, plant and equipment		9			(9	)
(Gain) loss on foreign currency		(3	)		36
CoBank patronage dividend		(5	)		—
Changes in assets and liabilities:
Trade receivables		4,316			7,407
Inventories		(39,419	)		(40,989	)
Prepaid expenses and other current assets		1,512			(880	)
Other assets		(198	)		1,617
Accounts payable and accrued liabilities		7,506			4,878
Payable to growers		74			(24,169	)
Other liabilities		(31	)		(424	)
Net cash used in operating activities		(3,296	)		(35,779	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital revolvement from CoBank		299			417
Net proceeds from sale of property, plant and equipment		12			2,941
Purchases of property, plant and equipment		(5,497	)		(5,224	)
Payment of Harmony acquisition costs		—			(197	)
Net cash used in investing activities		(5,186	)		(2,063	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable borrowing (repayment), net		(135	)		4,975
Issuance of common stock under stock plans		211			387
Dividends paid		(2,168	)		(1,421	)
Stock options exercised		2,601			544
Excess tax benefit from ESPP and stock option transactions		65			41
Purchase of treasury stock		(216	)		(238	)
Net cash provided by financing activities		358			4,288
Net decrease in cash and cash equivalents		(8,124	)		(33,554	)
Cash and cash equivalents:
Beginning of period		33,755			35,614
End of period	$	25,631		$	2,060
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	1,004		$	1,343
Income taxes		3,424			3,844
Non-cash investing activity:
Accrued capital expenditures		34			57

See notes to condensed consolidated financial statements

6

DIAMOND FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine month periods ended April 30, 2008 and 2007
(In thousands, except share and per share information)

(1) Organization and Basis of Presentation

     Diamond Foods, Inc. (the “Company” or “Diamond”) processes, markets and distributes culinary, in-shell and ingredient/food service nuts and snack products. The Company obtains its walnuts from growers who are located in California, and through July 26, 2005, were members of Diamond Walnut Growers, Inc., a cooperative association. The Company obtains its other nuts from independent suppliers. Diamond sells products to approximately 900 customers, including over 150 international customers. In general, the Company sells directly to retailers, particularly large, national grocery store and club stores, mass merchandisers, and drug store chains, and indirectly through wholesale distributors who serve independent and small regional retail grocery store chains and convenience stores.

     The accompanying unaudited condensed consolidated financial statements of Diamond have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements at and for the year ended July 31, 2007 and, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s financial condition at April 30, 2008, and the results of the Company’s operations for the three and nine month periods ended April 30, 2008 and 2007 and cash flows for the nine month periods ended April 30, 2008 and 2007. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s 2007 Annual Report on Form 10-K. Operating results for the nine month period ended April 30, 2008 are not necessarily indicative of the results that may be expected for the year ending July 31, 2008.

     Total comprehensive income (loss) was $1,106 and $12,119 for the three and nine month periods ended April 30, 2008 and $(4,012) and $7,695 for the three and nine month periods ended April 30, 2007.

(2) Recent Accounting Pronouncements

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.” SFAS No. 157 establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not believe that the adoption of SFAS No. 157 will have a material impact on its results of operations or financial condition.

     In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits companies to measure many financial instruments and certain other items at fair value at specified election dates. Unrealized gains and losses on these items will be reported in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument (with a few exceptions), is irrevocable and is applied only to entire instruments and not to portions of instruments. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company does not believe that the adoption of SFAS No. 159 will have a material impact on its results of operations or financial condition.

     In June 2007, the FASB approved the issuance of Emerging Issues Task Force (“EITF”) Issue No. 06-11 “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.”EITF 06-11 requires that tax benefits from dividends paid on unvested restricted shares be charged directly to stockholders’ equity instead of benefiting income tax expense. This EITF is effective for financial statements issued for fiscal years beginning after September 15, 2007. The Company does not believe that the adoption of EITF 06-11 will have a material impact on its results of operations or financial condition.

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   �� In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations,” and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51.” SFAS No. 141(R) will significantly change current practices regarding business combinations and would be applied prospectively by the Company to acquisitions after the effective date. SFAS No. 160 will change the accounting and reporting for minority interests, reporting them as equity separate from the parent entity’s equity, as well as requiring expanded disclosures. SFAS No. 141(R) and SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact that SFAS No. 141(R) and SFAS No. 160 will have on its results of operations and financial position.

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 with the intent to provide users of financial statements with an enhanced understanding of 1) how and why an entity uses derivative instruments; 2) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and 3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the impact, if any, that SFAS No. 161 will have on its consolidated financial statements.

(3) Stock Plan Information

     The Company uses a broad based equity incentive plan to help align employee and director incentives with stockholders’ interests, and accounts for stock-based compensation in accordance with SFAS No. 123 (revised 2004),“Share-Based Payment.”Beginning with the adoption of SFAS No. 123(R) in August 2005, the fair value of all stock options granted subsequent to July 20, 2005 is recognized as an expense in the Company’s statement of operations, typically over the related vesting period of the options. SFAS No. 123(R) 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. Stock options may be granted to officers, employees and directors. As required under SFAS No. 123(R), the Company continues to account for stock-based compensation for options granted prior to August 1, 2005 using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Since those options were granted at market price, no compensation expense is recognized. As required by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123,” the Company has provided fair value based pro-forma disclosures related to these options.

     If compensation expense had been determined based upon the projected fair values at the grant dates for all awards in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company’s pro-forma net income, basic and diluted earnings per common share would have been as follows:

	Three Months						Nine Months
	Ended April 30,						Ended April 30,
	2008			2007			2008			2007
Net income (loss), as reported	$	1,106		$	(4,012	)	$	12,122		$	7,659
Total stock-based compensation expense recorded in the statement of operations, net of related tax effects		1,039			576			3,007			2,543
Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		(1,246	)		(769	)		(3,740	)		(3,417	)
Pro forma net income (loss)	$	899		$	(4,205	)	$	11,389		$	6,785
Net income (loss) per common equivalent share:
Basic — as reported	$	0.07		$	(0.25	)	$	0.76		$	0.49
Basic — pro forma	$	0.06		$	(0.27	)	$	0.71		$	0.43
Diluted — as reported	$	0.07		$	(0.25	)	$	0.75		$	0.49
Diluted — pro forma	$	0.06		$	(0.27	)	$	0.71		$	0.43

     Stock Option Awards:The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model. Expected stock price volatilities are estimated based on the Company’s implied historical volatility. The expected term of options granted and forfeiture rates are based on assumptions and historical data to the extent it is available. The risk-free rates

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are based on U.S. Treasury yields, for notes with comparable terms as the option grants, 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:

	Three Months						Nine Months
	Ended April 30,						Ended April 30,
	2008			2007			2008			2007
Average expected life, in years		4			6			5			6
Expected volatility		32.00	%		30.00	%		31.20	%		30.00	%
Risk-free interest rate		3.16	%		4.65	%		3.74	%		4.68	%
Dividend rate		0.94	%		0.70	%		0.94	%		0.73	%

     The following table summarizes stock option activity during the nine months ended April 30, 2008:

						Weighted average
				Weighted average		remaining		Aggregate intrinsic
	Number of Shares			exercise price per		contractual life (in		value (in
	(in thousands)			share		years)		thousands)
Outstanding at July 31, 2007		1,621		$	17.37		—	$	—
Granted		70			17.99		—		—
Exercised		(150	)		17.31		—		—
Cancelled		(40	)		17.91		—		—
Outstanding at April 30, 2008		1,501			17.39		7.6		5,961
Exerciseable at April 30, 2008		1,090			17.33		7.3		4,393

     The weighted average fair value per share of stock options granted during the three and nine month periods ended April 30, 2008 was $5.13. The weighted average fair value per share of stock options granted during the three and nine month periods ended April 30, 2007 was $5.70 and $5.94, respectively. The fair value per share of options vested during the three and nine month periods ended April 30, 2008 was $5.37 and $5.70, respectively. The fair value per share of options vested during the three and nine month periods ended April 30, 2007 was $5.78 and $5.88, respectively.

     Changes in the Company’s nonvested stock options during the nine month period ended April 30, 2008 are summarized as follows:

				Weighted average
	Number of Shares			grant date fair
	(in thousands)			value per share
Nonvested at July 31, 2007		744		$	5.89
Granted		70			5.13
Vested		(375	)		5.71
Cancelled		(28	)		5.86
Nonvested at April 30, 2008		411			5.92

     As of April 30, 2008, there was approximately $1.3 million of total unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted average period of one year.

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     Restricted Stock Awards:As of April 30, 2008, there were 512,823 shares of restricted stock outstanding. Restricted stock activity during the nine month period ended April 30, 2008 is summarized as follows:

				Weighted average
	Number of Shares			grant date fair
	(in thousands)			value per share
Outstanding at July 31, 2007		310		$	17.50
Granted		318			17.73
Vested		(56	)		18.57
Cancelled		(59	)		17.25
Outstanding at April 30, 2008		513			17.46

     The weighted average fair value per share of restricted stock granted during the three and nine month periods ended April 30, 2008 was $18.57 and $17.73, respectively. The weighted average fair value per share of restricted stock granted during the three and nine month periods ended April 30, 2007 was $16.19 and $17.23, respectively. The fair value per share of restricted stock vested during the three and nine month periods ended April 30, 2008 was $17.02 and $18.57, respectively. The fair value per share of restricted stock vested during the three and nine month periods ended April 30, 2007 was $17.67 and $19.99, respectively.

     As of April 30, 2008, there was $5.6 million of unrecognized compensation expense related to nonvested restricted stock awards, which is expected to be recognized over a weighted average period of 2.1 years.

     Employee Stock Purchase Plan:Under the Employee Stock Purchase Plan (“ESPP”), full-time employees are permitted to purchase a limited number of Diamond common shares with a look-back option that allows employees to purchase shares of common stock at the lower of 85% of the market price at either the date of enrollment or the date of purchase. There were nil and 14,924 shares sold under this plan during the three and nine month periods ended April 30, 2008 and nil and 32,273 shares sold under this plan during the three and nine month periods ended April 30, 2007. The fair value of employees’ purchase rights for compensation expense is calculated using the Black-Scholes model and the following weighted-average assumptions:

	Nine Months Ended April 30,
	2008			2007
Average expected life, in years		0.75			0.75
Expected volatility		30.00	%		29.17	%
Risk-free interest rate		4.63	%		4.80	%
Dividend rate		0.76	%		0.68	%

     Suspension of the ESPP Program:During the quarter ended April 30, 2008, the Company decided to suspend the ESPP program. For most employees, the final purchase date will be May 30, 2008, and for the remainder, the program will cease on November 30, 2008.

(4) Earnings Per Share

     Options to purchase 1,501,319 and 1,547,405 shares of common stock were outstanding at April 30, 2008 and 2007, respectively. Basic earnings per share is calculated using the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using the weighted average number of common shares and includes the dilutive effect of common shares issuable upon the exercise of outstanding options, calculated using the treasury stock method. Options to purchase 182,761 and 201,222 shares of common stock were not included in the computation of diluted earnings per share because their exercise prices were greater than the average market price of Diamond’s common stock of $18.85 and $19.02 for the three and nine month periods ended April 30, 2008, respectively, and therefore their effect would be antidilutive. Options to purchase 1,107,716 shares of common stock were not included in the computation of diluted earnings per share because their exercise prices were greater than the average market price of Diamond’s common stock of $16.64 for the nine month period ended April 30, 2007, and therefore their effect would be antidilutive. As the Company was in a loss position in the three month period ended April 30, 2007, all stock options outstanding were excluded in the computation of diluted earnings per share as their effect would be antidulutive.

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(5) Balance Sheet Items

     Inventories consisted of the following (in thousands):

	April 30,		July 31,
	2008		2007
Raw materials and supplies	$	71,508	$	19,653
Work in process		20,139		14,043
Finished goods		38,391		56,923
Total	$	130,038	$	90,619

Accounts payable and accrued liabilities consisted of the following (in thousands):

	April 30,		July 31,
	2008		2007
Accounts payable	$	21,698	$	15,151
Accrued salaries and benefits		5,506		4,082
Accrued promotion		4,740		5,882
Accrued other		1,947		1,353
Total	$	33,891	$	26,468

(6) Credit Facilities

     As of April 30, 2008, the Company had a total of $20.0 million of senior notes outstanding with two institutional investors. The Company is required to make annual principal repayments on these notes in the amount of $4.0 million starting in December 2009. The notes mature in December 2013 and bear interest at a rate of 7.35% per annum.

     The Company has an unsecured master loan agreement with CoBank, which provides for both a revolving line of credit in an aggregate principal amount of $77.5 million that bears interest at a rate of LIBOR plus 0.65% per annum, and a long-term revolver that provides an aggregate principal amount of $20.0 million that bears interest at a rate of LIBOR plus 0.70% per annum. The expiration of the revolving line of credit agreement is April 1, 2009. The expiration of the long-term revolver agreement is April 1, 2013. As of April 30, 2008 and July 31, 2007, there were no borrowings outstanding on either facility.

     The Company has a credit agreement with Bank of the West that provides for an unsecured revolving line of credit in an aggregate principal amount of $52.5 million and a $3.0 million letter of credit facility. The revolving line of credit expires on January 15, 2011 and bears interest at a rate of LIBOR plus 0.65% per annum. There was no balance outstanding on this line of credit as of April 30, 2008 and July 31, 2007.

     All credit facilities subject the Company to financial and other covenants, including debt-to-EBITDA and interest coverage ratios, and contain customary events of default. Further, the Bank of the West credit agreement limits the amount of dividends declared or paid to 3% of the Company’s market capitalization. Certain of the terms in the credit agreements were amended in January 2008, including extending to the Company a less restrictive debt-to-EBITDA financial ratio during the Company’s first and second fiscal quarters in recognition of the Company’s seasonal borrowing needs. As of April 30, 2008 and July 31, 2007, the Company was in compliance with all covenants in its credit facilities.

(7) Retirement Plans

     Diamond provides retiree medical benefits and sponsors two defined benefit pension plans. One plan is a qualified plan covering all bargaining unit employees and the other is a nonqualified plan for certain salaried employees. A third plan covering all salaried employees was terminated in 2007. The amounts shown for pension benefits are combined amounts for all plans. Diamond uses an

11

August 1 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 following January 15, 1999 is not entitled to retiree medical benefits.

     Components of net periodic benefit cost for the three and nine month periods ended April 30 were as follows:

	Pension Benefits												Other Benefits
	Three Months ended						Nine Months ended						Three Months ended						Nine Months ended
	April 30,						April 30,						April 30,						April 30,
	2008			2007			2008			2007			2008			2007			2008			2007
Service cost	$	155		$	190		$	483		$	998		$	25		$	29		$	76		$	86
Interest cost		239			412			720			1,331			70			77			209			232
Expected return on plan assets		(286	)		(533	)		(860	)		(1,677	)		—			—			—			—
Amortization of prior service cost		7			5			20			(62	)		—			—			—			—
Amortization of net loss		1			100			4			358			(132	)		(113	)		(397	)		(340	)
Net periodic benefit cost / (income)		116			174			367			948			(37	)		(7	)		(112	)		(22	)
Gain on curtailment of defined benefit plan		—			—			—			(3,039	)		—			—			—			—
Loss on settlement of defined benefit plan					4,545						4,545						—						—
Total benefit cost / (income)	$	116		$	4,719		$	367		$	2,454		$	(37	)	$	(7	)	$	(112	)	$	(22	)

     Termination of Defined Benefit Plan

     On July 25, 2006, the Company determined it would terminate the qualified defined benefit pension plan covering all salaried employees. During the first fiscal quarter of 2007, the Company recognized a non-cash gain on curtailment of this plan of approximately $3.0 million. The Company recognized a non-cash pension settlement charge of approximately $4.5 million for the three month period ended April 30, 2007 and completed termination of the plan during the fiscal year ended July 31, 2007.

     Defined Contribution Plan

     The Company recognized defined contribution plan expenses of $178 and $411 for the three and nine month periods ended April 30, 2008. The Company recognized defined contribution plan expenses of $105 and $288 for the three and nine month periods ended April 30, 2007, respectively.

(8) Restructuring and Other Costs, Net

     Restructuring activities were completed during the fiscal year ended July 31, 2007. Restructuring and other costs for the three and nine month periods ended April 30, 2007 of $0.5 million and $(0.3) million, respectively, were related principally to 1) costs of closing the Lemont facility and the consolidation of operations in the Fishers facility; 2) contract termination costs and certain professional fees; and 3) gain on the sale of the Lemont facility.

(9) Income Taxes

     On August 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes.” FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with FASB No. 109, “Accounting for Income Taxes.” Specifically, the pronouncement prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition of uncertain tax positions.

     Upon the adoption of FIN No. 48, the Company recorded a non-current liability of $0.2 million and a non-current deferred tax asset for unrecognized tax benefits of approximately $0.2 million. The total amount of unrecognized tax liability net of the unrecognized tax benefits that, if recognized, would affect the effective tax rate was nil at the date of adoption and at April 30, 2008. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. As of April 30, 2008, the Company had $45 accrued for interest and penalties.

     As of April 30, 2008, tax years 2002 through 2007 were open under various federal and state tax jurisdictions.

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(10) Contingencies

     On February 3, 2006, PG&E filed suit in San Francisco County Superior Court claiming, among other things, breach of contract as a result of Diamond’s decision to cease operating its cogeneration facility. PG&E’s complaint seeks payment of approximately $1.4 million from Diamond plus interest under the contract’s termination provisions as well as PG&E’s costs for the lawsuit. Diamond believes that the termination payment provision constitutes an unenforceable penalty and intends to vigorously defend itself against PG&E’s lawsuit. Diamond believes that any additional liability, in excess of amounts recorded, resulting from the eventual outcome of this matter, will not be material to the Company’s financial condition or operating results.

     In March 2008, a former grower and an organization named Walnut Producers of California filed suit against Diamond in San Joaquin County Superior Court claiming, among other things, breach of contract relating to alleged underpayment for walnut deliveries for the 2005 and 2006 crop years. The plaintiffs purport to represent a class of walnut growers who entered into contracts with Diamond. Diamond believes that it has complied with its contracts with growers and that the claims are without merit. Accordingly, Diamond intends to defend itself vigorously against these allegations.

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

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

     We are a branded food company specializing in processing, marketing and distributing culinary, in-shell and ingredient nuts and snack products. Our company was founded in 1912 and has a strong heritage in the walnut market under the Diamond of California brand. On July 26, 2005 we converted from an agricultural cooperative association to a Delaware corporation and completed the initial public offering of our common stock. As a public company, our focus is on building stockholder value. We intend to expand our existing business, and to continue to introduce higher-value branded products in our culinary and snack businesses, including snack products marketed under our Emerald and Harmony brand names. Our products are sold in over 60,000 retail locations in the United States and in over 100 countries. We sell products to approximately 900 customers, including over 150 international customers. In general, we sell directly to retailers, particularly large, national grocery store and drug store chains, and indirectly through wholesale distributors who serve independent and small regional retail grocery store chains and convenience stores. We also sell our products to mass merchandisers, club stores, convenience stores and through 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 our principal raw material, walnuts, during the period from September to November and process it 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.

     A disproportionate amount of our net sales and related net income are recognized in the first half of our fiscal year. For example, net sales in the first half of 2007 and 2006 were 59.9% and 63.3% of net sales for each full fiscal year. In the near term, we expect a higher percentage of our net income to be earned in the first half of our fiscal year because many of our operating costs are fixed and cannot be reduced when net sales are lower quarter to quarter. However, as we continue to introduce new products, such as snack products, we expect net sales, and related net income, to be less seasonal.

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. Customers have the right to return certain products. Product returns are estimated based upon historical results and are reflected as a reduction in net sales.

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

     In connection with our July 2005 initial public offering, we entered into long-term Walnut Purchase Agreements with substantially all of our former member growers. Under these agreements, growers deliver their entire walnut crop to us during the Fall harvest season and we determine the purchase price for this inventory by March 31 of the following year. This purchase price will be a price determined by Diamond 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 each March subsequent to receiving the walnut crop, management must make an estimate of this price for the first and second quarter interim financial statements. We determined the purchase price for the 2007 crop in March 2008. In the three months ended April 30, 2008, we made an adjustment to cost of sales of approximately $1.0 million for walnut sales recognized during the first and second quarters of fiscal year 2008.

     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 Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for

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the Impairment or Disposal of Long-lived Assets.” Goodwill is periodically reviewed for impairment in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.”

     For assets to be held and used, including acquired intangibles, we initiate our review whenever events or changes in circumstances indicate that the carrying amount of intangible 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 market value. Significant management judgment is required in this process. We perform the annual goodwill impairment test required by SFAS No. 142 in the fourth quarter of each year. We cannot assure you 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 SFAS No. 109, “Accounting for 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. SFAS No. 109 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. Effective August 1, 2007, we adopted the provisions of FIN No. 48 which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with FASB No. 109, “Accounting for Income Taxes.” Upon adoption, we recorded a non-current liability of $0.2 million and a non-current deferred tax asset for unrecognized tax benefits of approximately $0.2 million.

     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 SFAS No. 123(R) “Share-Based Payment.” Under SFAS No. 123(R), 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

     Net sales were $100.0 million and $418.3 million for the three and nine months ended April 30, 2008. Net sales were $97.0 million and $410.2 million for the three and nine months ended April 30, 2007, respectively. For the three and nine months ended April 30, 2008, the increase in net sales was primarily due to higher pricing, partially offset by lower volume.

     Net sales by channel (in thousands):

	Three Months ended							Nine Months ended
	April 30,				% Change from			April 30,				% Change from
	2008		2007		2007 to 2008			2008		2007		2007 to 2008
North American Retail (1)	$	66,422	$	57,421		15.7	%	$	291,139	$	269,062		8.2	%
International		18,794		23,868		-21.3	%		83,133		84,116		-1.2	%
North American Ingredient/Food Service		14,221		14,943		-4.8	%		42,106		54,718		-23.0	%
Other		572		784		-27.0	%		1,966		2,254		-12.8	%
Total	$	100,009	$	97,016		3.1	%	$	418,344	$	410,150		2.0	%

(1) North American Retail represents sales of our culinary, snack and in-shell nuts in North America.

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     For the three months ended April 30, 2008, the increase in North American Retail sales resulted from higher sales of snack and culinary products, which increased by 39.4%, and 7.3%, respectively; offset in part by lower sales of in-shell products. International and ingredient sales for the three months ended April 30, 2008 decreased primarily as a result of lower volume, offset in part, by higher pricing. For the nine months ended April 30, 2008, the increase in North American Retail sales was primarily due to higher snack and culinary sales, which increased by 15.2% and 10.8%, respectively. This was offset in part, by lower sales of in-shell products. International and ingredient sales for the nine months ended April 30, 2008 declined due to fewer products available to sell.

     Sales of walnuts and other nuts as a percentage of net sales were:

	Three Months ended						Nine Months ended
	April 30,						April 30,
	2008			2007			2008			2007
Walnuts		60.4	%		63.2	%		61.1	%		59.9	%
Other nuts		39.6	%		36.8	%		38.9	%		40.1	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

     Sales to Wal-Mart Stores, Inc. represented approximately 24% and 22% of total net sales for the three and nine months ended April 30, 2008 and 21% and 20% of total net sales for the three and nine months ended April 30, 2007. Sales to Costco Wholesale Corporation represented approximately 16% and 12% of total net sales for the three and nine months ended April 30, 2008 and 13% and 10% for the three and nine months ended April 30, 2007.

     Gross profit.Gross profit as a percentage of net sales was 17.3% and 14.1% for the three months ended April 30, 2008 and 2007, respectively. Gross profit per pound shipped increased 67.4% to $0.625 in the three months ended April 30, 2008 from $0.374 in the same period of 2007. Gross profit as a percentage of net sales was 16.6% and 15.1% for the nine months ended April 30, 2008 and 2007, respectively. Gross profit per pound shipped increased 31.1% to $0.472 in the nine months ended April 30, 2008 from $0.360 in the same period of 2007. Gross profit for the three and nine months ended April 30, 2008 increased mainly due to product mix and the result of cost efficiency initiatives.

     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, facility costs and stock-based compensation. Selling, general and administrative expenses for the three and nine months ended April 30, 2008 included stock-based compensation charges of $1.8 million and $4.9 million. Selling, general and administrative expenses for the three and nine months ended April 30, 2007 included stock-based compensation charges of $1.2 million and $3.8 million. Selling, general and administrative expenses as a percentage of net sales were 9.9% and 7.6% for the three and nine months ended April 30, 2008 and were 9.6% and 7.9% for the three and nine months ended April 30, 2007. The increase in selling, general and administrative expenses for the three months ended April 30, 2008 was primarily due to non-cash stock-based compensation expense. The decrease in selling, general and administrative expenses for the nine months ended April 30, 2008 was primarily due to continued cost reduction efforts.

     Advertising.Advertising expenses as a percentage of net sales were 5.3% and 4.1% for the three and nine months ended April 30, 2008 and 7.5% and 3.8% for the three and nine months ended April 30, 2007, respectively. The decrease in advertising expenses for the three months ended April 30, 2008 related principally to the timing of certain advertising programs. The increase in advertising expenses for the nine months ended April 30, 2008 was mainly due to the earlier introduction of a new television commercial, which was launched during the Emerald Bowl in December 2007.

     Loss on termination of defined benefit plan.During the first fiscal quarter of 2007, we recorded a non-cash gain on curtailment of defined benefit plan of approximately $3.0 million resulting from our decision to terminate a defined benefit plan. During the three months ended April 30, 2007, we recorded a non-cash pension settlement charge of $4.5 million. Upon final plan termination during the three month period ended July 31, 2007, we recorded an additional $1.5 million charge on plan termination, resulting in a net charge for the year due to plan termination of $3.0 million. Both the $3.0 million gain on plan curtailment and $6.0 million charge on plan termination were substantially non-cash.

     Income Taxes.The effective tax rate for the three and nine months ended April 30, 2008 was 38%. The effect of discrete tax items recognized in the three months ended April 30, 2008 increased the actual tax rate for the three and nine months ended April 30, 2008 to 41.5% and 38.3%, respectively. During the three months ended April 30, 2007, we reduced our expected effective tax rate for the

16

year from 42% to 38%, and recognized the effect of discrete tax items in the quarter ended April 30, 2007, resulting in a tax rate for the three and nine months ended April 30, 2007 of 53.1% and 33.8%, respectively.

Liquidity and Capital Resources

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

     During the nine months ended April 30, 2008, cash used in operating activities was $3.3 million compared to $35.8 million used during the nine months ended April 30, 2007. The decrease in cash used in operating activities was primarily due to improved profitability and the timing of payments to growers and other vendors. Cash used in investing activities was $5.2 million in 2008 compared to $2.1 million in 2007. This change was mainly due to the sale of our Lemont facility in fiscal year 2007, resulting in proceeds of approximately $3.0 million. Cash provided by financing activities during 2008 was $0.4 million compared to $4.3 million in 2007. This change was mainly due to lower borrowings in 2008, partially offset by higher dividend payments and cash received from option exercises.

     As of April 30, 2008, we had a total of $20.0 million of senior notes outstanding with two institutional investors. We are required to make annual principal repayments on these notes in the amount of $4.0 million starting in December 2009. The notes mature in December 2013 and bear interest at a rate of 7.35% per annum.

     We have an unsecured master loan agreement with CoBank, which provides for both a revolving line of credit in an aggregate principal amount of $77.5 million that bears interest at a rate of LIBOR plus 0.65% per annum, and a long-term revolver that provides an aggregate principal amount of $20.0 million that bears interest at a rate of LIBOR plus 0.70% per annum. The expiration of the revolving line of credit is April 1, 2009. The expiration of the long-term revolver agreement is April 1, 2013. As of April 30, 2008 and July 31, 2007, we had no borrowings outstanding on either facility.

     We have a credit agreement with Bank of the West that provides for an unsecured revolving line of credit in an aggregate principal amount of $52.5 million and a $3.0 million letter of credit facility. The revolving line of credit expires on January 15, 2011 and bears interest at a rate of LIBOR plus 0.65% per annum. As of April 30, 2008 and July 31, 2007, we had no balance outstanding on this line of credit.

     All credit facilities subject us to financial and other covenants, including debt-to-EBITDA and interest coverage ratios, and contain customary events of default. Further, the Bank of the West credit agreement limits the amount of dividends declared or paid to 3% of our market capitalization. Certain of the terms in the credit agreements were amended in January 2008, including extending to us a less restrictive debt-to-EBITDA financial ratio during our first and second fiscal quarters in recognition of our seasonal borrowing needs. As of April 30, 2008 and July 31, 2007, we were in compliance with all covenants in our credit facilities.

     Our investment in CoBank represents our cost basis in its stock. We are required to maintain this investment to comply with our borrowing agreements with CoBank. This investment cannot be readily converted to cash because we cannot dispose of it without the prior approval of CoBank and only in the event of termination of our borrowing agreements with CoBank.

     Working capital and stockholders’ equity were $117.3 million and $142.8 million at April 30, 2008 compared to $100.5 million and $125.3 million at July 31, 2007.

     We believe cash on hand and cash equivalents as of April 30, 2008 and cash expected to be provided from our operations during the remainder of the fiscal year, in addition to borrowings available under our existing credit facilities, will be sufficient to fund our contractual commitments, repay obligations as required, and meet our operational requirements through the fiscal year ending July 31, 2008.

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     Contractual Obligations and Commitments

     Contractual obligations and commitments at April 30, 2008 are as follows (in millions):

	Payments Due by Period
			Less than		1-3		3-5		More than
	Total		1 Year (c)		Years		Years		5 Years
Long-term obligation (a)	$	20.3	$	—	$	8.2	$	8.1	$	4.0
Interest on long-term obligations		5.4		0.4		3.8		1.1		0.1
Operating leases		12.4		0.5		3.9		3.7		4.3
Purchase commitments (b)		1.0		1.0		—		—		—
Other long-term liabilites (d)		6.7		0.1		0.5		0.6		5.5
Total	$	45.8	$	2.0	$	16.4	$	13.5	$	13.9

(a)	Excludes $2.1 million in letters of credit outstanding related to normal business transactions.
(b)	Commitments to purchase equipment. Excludes purchase commitments under Walnut Purchase Agreements.
(c)	Represents obligations and commitments for the remaining three months of fiscal 2008.
(d)	Excludes $0.4 million in deferred rent liabilities and $0.2 million of non-current FIN 48 tax liabilities.

Effects of Inflation

     There has been no material change in our exposure to inflation from that discussed in our 2007 Annual Report on Form 10-K.

Recent Accounting Pronouncements

     See Note 2 of the condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     There has been no material change in our exposure to market risk from that discussed in our 2007 Annual Report on Form 10-K.

Item 4. Controls and Procedures

     We have established and currently maintain disclosure controls and procedures designed to ensure 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. In designing and evaluating the disclosure controls and procedures, management recognizes that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

     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 April 30, 2008, the end of the fiscal quarter covered in this report, concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

     As of April 30, 2008, there has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

     We are the subject of various legal actions in the ordinary course of our business. All such matters are subject to many uncertainties that make their outcomes unpredictable. On February 3, 2006, PG&E filed suit in San Francisco County Superior Court claiming, among other things, breach of contract as a result of the our decision to cease operating our cogeneration facility. PG&E’s complaint seeks payment of approximately $1.4 million from us plus interest under the contract’s termination provisions as well as PG&E’s costs for the lawsuit. We believe that the termination payment provision constitutes an unenforceable penalty and intend to vigorously defend ourselves against PG&E’s lawsuit. We believe that any additional liability in excess of amounts recorded, resulting from the eventual outcome of this matter will not be material to our financial condition or operating results.

     In March 2008, a former grower and an organization named Walnut Producers of California filed suit against us in San Joaquin County Superior Court claiming, among other things, breach of contract relating to alleged underpayment for walnut deliveries for the 2005 and 2006 crop years. The plaintiffs purport to represent a class of walnut growers who entered into contracts with us. We believe that we have complied with our contracts with growers and that the claims are without merit. Accordingly, we intend to defend ourselves vigorously against these allegations.

Item 1A. Risk Factors

     There were no material changes to the Risk Factors disclosed in the Company’s Annual Report on Form 10-K for the year ended July 31, 2007.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     The following are details of repurchases of common stock during the three months ended April 30, 2008:

					Total number of		Approximate Dollar
	Total number		Average price		shares repurchased as		value of shares
	of shares		paid per		part of publicly		that may yet be purchased
Period	repurchased (1)		share		announced plans		under the plans
Repurchases from February 1 through February 29, 2008		286	$	19.12		—	$	—
Repurchases from March 1 through March 31, 2008		1,190		17.98		—		—
Repurchases from April 1 through April 30, 2008		1,909		19.21		—		—
Total		3,385	$	18.77		—	$	—

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

Item 3. Defaults Upon Senior Securities

     None.

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Item 4. Submission of Matters to a Vote of Security Holders

     We held our Annual Meeting of Stockholders on March 25, 2008. The shareholders voted on the following proposals, all of which were approved. A description of each and a tabulation of votes are as follows:

1. To elect three Class III directors, each to serve until our 2011 annual meeting of stockholders and until his successor has been elected and qualified or until his earlier resignation, death or removal.

          The stockholders’ votes with respect to the election of directors were as follows:

	Votes
	For		Withheld		Broker Non-Votes
John J. Gilbert		12,274,107		491,249		—
Steven M. Neil		12,264,142		501,214		—
Robert J. Zollars		12,340,843		424,513		—

2. To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending July 31, 2008

          The stockholders’ votes with respect to the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending July 31, 2008 were as follows:

Votes
For	Against		Abstentions		Broker Non-Votes
12,531,247		196,277		37,832		—

     The terms in office as directors of Joseph P. Silveira, Laurence M. Baer, Michael Mendes, Robert M. Lea, Dennis Mussell and Glen C. Warren continued after the Annual Meeting. Edward A. Blechschmidt was appointed as a new member of the Board of Directors on March 25, 2008.

Item 5. Other Information

     None.

Item 6. Exhibits

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

		Filed with this		Incorporated by reference
Number	Exhibit Title	10-Q	Form	File No.	Exhibit		Date Filed
10.01	Revolving Term Loan Supplement to Master Loan Agreement, effective as of March 31, 2008, between Diamond Foods, Inc. and CoBank, ACB		8-K	000-51439		99.01	4/3/2008
31.01	Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
31.02	Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32.01	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X

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SIGNATURES

Pursuant to the requirements 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.
Date: June 3, 2008	By:	/s/ Steven M. Neil
		Steven M. Neil
		Chief Financial and Administrative Officer and duly authorized officer

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