Shares of Diamond Foods, Inc. (DMND) plunged 42 percent in extended trading on Wednesday after the snack maker replaced its President and Chief Executive Officer Michael Mendes and Chief Financial Officer Steven Neil following the completion of its three-month internal probe related to the accounting of payments to walnut growers. The company also said it will restate its results for the past two fiscal years 2010 and 2011.
The actions are the part of a number of remedial measures being taken by the company following the results of the probe related to the accounting treatment of certain payments to walnut growers.
The internal probe conducted by the company's audit committee concluded that a "continuity" payment made to growers in August 2010 of about $20 million and a "momentum" payment made to growers in September 2011 of about $60 million were not accounted for in the correct periods.
Diamond said it is working diligently to complete financial restatements, and will file all required reports with the U.S. Securities and Exchange Commission or SEC, as soon as possible.
"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," Chairman Robert Zollars said in a statement.
Critics have cast aspersions, saying that the payments to walnut growers at the end of summer may have been shifted into the current year's accounts to inflate last year's earnings, while Diamond Foods says the payments were made in advance for the 2011 crop.
Diamond Foods' audit committee began its probe into the matter in November, which has also led to the company deferring the scheduled closure of its $2.35 billion acquisition of the Pringles snack business from Procter & Gamble (PG) to the first half of calendar year 2012. Initially, it had expected to close the deal last month.
Diamond Foods has now placed Mendes and Neil on administrative leave from the company, and replaced them on an interim basis, effective immediately. The company said it is commencing searches for a permanent CEO and CFO.
The company appointed former CEO of Del Monte Foods and Director Rick Wolford as acting president and CEO and Michael Murphy, managing director of Alix Partners, LLP, as acting CFO. The board also appointed Lead Independent Director Robert Zollars as chairman of the board.
Wolford has served as a director of Diamond Foods since April 2011. He began his career in 1967 in the food industry at Dole Foods, where he held a variety of positions, including being President of Dole Packaged Foods.
"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," Zollars added.
San Francisco, California-based Diamond Foods, that sells Emerald nuts and Kettle potato chips, had confirmed in a regulatory filing in December that it received a formal order of investigation from the SEC related to the walnut payments.
On January 12, U.S. prosecutors also joined the probe along with the SEC, which began its probe in mid-December. Federal prosecutors are now coordinating with the SEC and are said to have launched a criminal inquiry to investigate how and when Diamond Foods paid its walnut growers.
Shares of Diamond Foods have declined by two-thirds since September 21, 2011, when it had hit a high of $96.13.
DMND closed Wednesday's regular trading session at $36.66, down $1.00 or 2.66% on a volume of 9.45 million shares. The stock plunged a further $15.28 or 41.68% in after-hours trading.
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