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Warning: Diamond Foods Restatements May Contain Nutty Accounting

Tickers in this article: OAK BAC PG K DMND

NEW YORK ( TheStreet) -- After nearly a year of keeping investors in the dark, Diamond Foods (DMND) is set to report 2012 quarterly earnings and restatements to the company's 2010 and 2011 annual earnings in disclosures that will reveal just how deep an accounting scandal hits the popular snacks maker.

Already, findings of poor accounting controls by Diamond Foods's board led to the departure of senior management and nearly caused the company's shares to be delisted from Nasdaq(NDAQ) .

Meanwhile, Diamond Foods murky finances have prompted a Securities and Exchange Commission review, annulled its acquisition of chip maker Pringles and put the company in a tenuous position with its lenders, which includes a syndicate of banks led by Bank of America (BAC) and distressed debt specialist Oaktree Capital (OAK) .

While, shares in the San Francisco-based maker of Emerald Nuts, Pop Secret and Kettle Chips surged over 14% in Tuesday trading after the company said in a press release it will provide re-stated annual earnings and disclose financial results from first three quarters of 2012, large risks for investors remain.

Notably, Wednesday's earnings and restatements - expected after the bell -- will provide a full view of the depths of Diamond Food's accounting issues, and will give a clearer picture on how harsh lender agreements will be for the company and its shareholders.

In the restatement, analysts are keying in on how the accounting review will impact Diamond Foods bottom line, an in particular, walnut supply costs. Higher costs related to supplies and grower payments could depress restated annual earnings more than initial comments from the company's board suggest and cut at 2012 profitability, putting Diamond Foods in weak standing with its lenders and imperiling its shareholders.

Meanwhile, the firm's day-to-day management remains up in the air after the Securities and Exchange Commission opened an inquiry into the firm's practices in late 2011 and an internal board review uncovered flaws in reported financial statements that led to the departure of of its CEO and CFO in February.

Clarity on Diamond Food's accounting represents just one in a host of issues for the company.

Already, the Diamond Foods has lost a winning April 2011 bid to buy Pringles, which was pulled from the selling block by former owner Procter & Gamble (PG) in the wake of Diamond's accounting issues. In February, Kellogg(K) scooped up Pringles from P&G for $2.7 billion.

Compounding the fallout from Diamond Foods's Pringles play are the debts that the company took out for the acquisition. After arranging for over a billion dollars in bank loans from a syndicate led by Bank of America to make the deal, the company has had to repeatedly negotiate forbearance agreements with its lenders after breaching disclosure and leverage covenants.

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