An internal audit by Diamond Foods Inc., found discrepancies in crop payments, prompting the company to replace their top two executives.
On Wednesday Diamond Foods announced Chief Executive Officer Michael Mendes and Chief Financial Officer Steven Neil were placed on administrative leave based on information turned up during a three-month long probe into the company’s accounts.
The audit was carried out by a committee from the company’s board of directors.
According to Diamond Foods, the audit committee concluded that a $20 million payment to walnut growers in August 2010 and one for $460 million in September 2011 were “not accounted for in the correct periods.”
The audit was prompted in part by lawsuits filed by stockholders claiming the company misled investors and overstated its finances.
The lawsuits filed in San Francisco Superior Court and the U.S. District Court in San Francisco accuse Diamond Foods of delaying payments to its walnut growers past the end of its fiscal year in an effort to bolster its finances. The lawsuits allege this practice misled investors to believe Diamond Foods had higher profits and lower expenses.
In the wake of the committee’s findings, the board has appointed Director Rick Wolford to serve as acting president and chief executive officer and Michael Murphy, of Alix Partners, LLP, to serve as acting chief financial officer. The company is commencing searches for permanent replacements for the CEO and CFO positions. The board has also appointed Robert J. Zollars, who previously served as lead independent director, to the position of chairman of the board.
Diamond Foods said it will be restating its earnings to the Securities and Exchange Commission.
"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."
The audit has put into question an acquisitions deal between Diamond Foods and Proctor and Gamble for the Pringles brand. Part of the acquisition could have P&G shareholders exchanging some shares for Diamond Foods stock.
In a released statement, P&G said, “Pringles remains a valuable asset and it has attracted considerable interest from other outside parties. We need to evaluate next steps and we are currently keeping all our options open.”
Diamond Foods was once a nut grower cooperative. It became a publicly traded corporation in 2005. Its brands include Diamond Culinary Nuts, Emerald Premium Snacks, Kettle Brand Potato Chips and Pop Secret popcorn.
Diamond Foods is not affiliated with Blue Diamond Growers, which recently announced plans to open a facility in Turlock.