Posted: Tuesday, October 30, 2012 12:14 PM
By MATEUSZ PERKOWSKI
Accounting problems for walnut payments at Diamond Foods have prompted the company to revise more of its financial statements.
The company has told the U.S. Securities and Exchange Commission that investors can’t rely on two quarterly financial reports from its 2010 fiscal year, in addition to previously disclosed erroneous filings.
Earlier this year, Diamond Foods said it would change its contracting method for walnut purchases to pay farmers earlier for deliveries of the crop.
The company’s board of directors conducted an internal review after shareholders complained that walnut payments were reported in an untimely manner to artificially boost profit statements.
The review found that about $80 million in payments weren’t accounted for in the correct periods, which doomed Diamond Foods’ attempt to buy the Pringles potato chip brand from the Procter & Gamble Co.
The recent restatement announcement didn’t indicate whether the amount of wrongly reported payments will now have to be adjusted upward.
Aside from problems with investors, the company acknowledged earlier this year that farmers have been abandoning the company for more “lucrative alternatives,” which cut short its walnut supplies.
Diamond Foods once operated as a farmer-owned cooperative but converted to a publicly traded company in 2005.
Michael Mendes, who oversaw the transition, was removed from his position as president and CEO earlier this year.
The company has come under fire from shareholders who are pursuing a class action lawsuit to get compensated for the drop in Diamond Foods’ stock price.
Its shares have been trading below $20 during the past month, down from more than $80 per share before the controversy erupted in autumn 2011.
Diamond Foods has asked a federal judge in California to dismiss the shareholder lawsuit.
Though the company doesn’t dispute that its own review revealed incorrect accounting, it claims such “errors and mistakes” don’t amount to securities fraud, according to a court filing.
Top company officials did not sell off shares during the time they were allegedly committing fraud, undermining the motive for such conduct, the court filings said.
It also “defies logic” that Diamond Foods was trying to inflate its stock price to help pay for the Pringles deal with Procter & Gamble and “then invite a sophisticated corporation and its investment bankers, accountants and lawyers to conduct due diligence,” the filing said.
A hearing on the motion to dismiss is scheduled for Nov. 15 before U.S. District Judge William Alsup in San Francisco.
An earlier version of this article said that accounting problems at Diamond Foods stretch back a half-year longer than previously expected, to early 2010. In fact, the company already said its 2010 fiscal year would have to be restated, but recently announced that two additional financial reports from within that year will also need to be restated.