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February 8, 2012

US: Diamond CEO, CFO exit after accounting probe

US snack maker Diamond Foods has replaced its CEO and CFO after an internal investigation found the company had incorrectly accounted for payments to walnut growers.

By Dean Best

US snack maker Diamond Foods has replaced its CEO and CFO after an internal investigation found the company had incorrectly accounted for payments to walnut growers.

Chairman and CEO Michael Mendes and CFO Steven Neil have been placed on “administrative leave”, Diamond said today (8 February).

Rick Wolford, a Diamond director and former chief executive of Del Monte Foods, has been named acting CEO. Michael Murphy, MD of financial consultants Alix Partners, is acting CFO. Robert Zollars, who had been Diamond’s lead independent director, has been appointed chairman. The company is looking for permanent replacements for Mendes and Neil.

The surprise announcements were made as Diamond reported the results of an internal investigation into its crop payments to walnut growers. Diamond launched the probe in November after it received an “external communication” about the payments. The investigation delayed Diamond’s planned acquisition of the Pringles snack brand from Procter & Gamble, a deal that has not still yet to be completed.

The company’s audit committee found two payments in August 2010 and September 2011 worth a combined $80m were not accounted for in the correct periods.

The committee said there were “material weaknesses” in Diamond’s internal control over financial reporting. Diamond’s financial results for 2010 and 2011 will have to be restated, it said.

“After an extensive and thorough investigation, the audit committee concluded that the company’s internal controls were inadequate and that certain grower payments for the 2011 and 2010 crops were not accounted for in the correct periods. As a result, the company will restate its fiscal years 2010 and 2011 financial statements,” Zollars said. “The board takes the company’s control and the integrity of its financial statements very seriously, and we are moving aggressively to implement corrective measures, including changes to the company’s leadership.”

Diamond said it would file the restated reports with the US Securities and Exchange Commission as soon as possible. In December, the SEC issued Diamond with a formal order of investigation in relation to the company’s inquiry into the payments. Such an order compels witnesses to testify and a company to produce books, records and other relevant documents. The current status of the SEC order is unclear.

The controversy surrounding Diamond has hit the company’s shares in recent months. The speculation around Diamond was exacerbated by the death of director and audit committee member Joseph Silveira days after the investigation was announced. Silveira recused himself from the investigation and his death was reported as suicide, although Diamond insisted it was not related to the probe.

Shares in Diamond closed down 2.66% at $36.66 at 16:00 ET, minutes before the company announced the audit committee’s findings.

In the last year, Diamond’s shares reached a high of $96.13 on 21 September, according to NYSE data.

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