Dairymen take a massive hit; former CEO’s location in Arizona confirmed

$2 million immediate hit to community with dairymen’s “deferred” payment; Ghilarducci has no comment from his Scottsdale home

Originally published in the "3-5-09" issue.



Member owners of the Humboldt Creamery walk into a meeting Saturday morming at the fairground’s Turf Room to hear news of the cooperative’s status. Ninety minutes later members emerged after learning that they will only receive 25 percent of, or an average $40,000 producers payment that was due to them on March 1. In total, the members January milk payment was 45 percent of what was owed.

“We believe that we’re the victims of fraud.”

That was the assessment from Humboldt Creamery’s Interim Chief Executive Officer Len Mayer on Monday as outside auditors and lawyers continued poring over the creamery’s financial statements and books nine days after former CEO Rich Ghilarducci shocked Humboldt County with his sudden resignation and tip of possible “financial irregularities.”

“We believe he misrepresented the value of the company to creditors,” explained Mayer. “We think it’s related to inventory as well as other things. He controlled the information so closely.”

Three areas on the company’s balance sheet have shown problems, said Mayer. Along with inventories, payables and receivables have “apparent inaccuracies.” And the inaccuracies appear to be big.

“Big enough of a number to make an impact on the creamery,” said Mayer on Wednesday afternoon. “Big enough of a number that we’ve got to do some serious planning.”

On Saturday morning, the 50 members of the 80- year-old cooperative took a major hit as they gathered at the fairground’s Turf Room for a hastilycalledmeeting. Dairymen and women trickled into themeeting, somber faced, and spent 90 minutes behind a locked door with blinds drawn listening to creamery officials and board members tell them what they didn’t want to hear.

Their second-half Januarymilk payment, due to them March 1, would be “deferred.” In all, $2 million of a $2.7 million cash payment would have to wait. On average, each member check onMonday was $40,000 less than expected — only 25 percent of expected income.

The deferment will allow the creamery to “continue normal operations and pay its vendors and employees while discussions with the company’s lenders continue,” stated a news release from the company handed out moments after the meeting ended. Mayer toldThe Enterprise the $2 million deferment will allow the company to keep operating for three months.

“Today’s historic actions demonstrate that the dairy farmers ofHumboldt County understand the vital importance of the Humboldt Creamery to our local economy and that they are prepared to join with the creamery’s employees and our broader community to help ensure the survival of our business,” said Board Chair Jim Renner in the news release. “We now have one common task: to work with our lenders, business partners and customers to build upon the confident steps taken by our local dairymen and establish a workable plan for the creamery’s future.”

Mayer, on his way back to the creamery after meeting with members, toldThe Enterprise, “The meeting went as well as one could hope.

“They stepped up,” he said, referring both to the members and board officials. When askedwhy last week he told The Enterprise thatmembers would be receiving checks on the first and that the company did not appear to have a cash flow problem,Mayer explained that creamery officials were hopeful that they could acquire $2million from outside bankers and “equity partners.” However, those lenders needed more information that wasn’t available in time to cut member checks.

“Neither one of them has yet been able to say, ‘Yep, you’re good for it’,” explained Mayer. “They need more information. They didn’t say no, forever. They just aren’t willing to make a commitment yet.”

Outside the Saturday meeting, members dispersed quickly. Creamery Board Member Blake Alexandre called the situation “absolutely shocking.” When asked about the impact on dairymen of checks being only a quarter of what was expected, Alexandre said, “That’s a nightmare I’ll have to face on Monday.”

Like Alexandre, Ferndale dairyman Jim Regli was dealingwith the nightmare on Monday, borrowing on his line of credit to pay his bills.

“We were expecting $80,000 and we got $20,000,” he said, not wanting to think about what would happen if next month’s check is not issued.

“That’s the one we have to have,” he said. “If we don’t get that, we won’t be paying people and will be cutting back on employees.”

Creamery board member Dennis Leonardi echoed the sentiments of his fellow dairymen.

“But we’re fortunate the doors are open and the lights on at the creamery,” he said Monday. “Without that, the loss would be far deeper.”

Meanwhile, on Monday the creamery’s board of directors held yet another meeting. Mayer said along with the outside auditors and lawyers investigating the situation, the creamery has now hired a consultant, who gave the board a first report at 10 am on Monday, advising the board on “what’s the best path forward and the best structure for the business.”

With 25 percent of the Humboldt Creamery, LLC owned by Dairy Farmers of America — one of the nation’s largest milk marketing cooperatives — Mayer confirmed that discussions are being held with not only DFA but other competing entities, such as Horizon Organic.

“We’re looking at all relationships that make sense,” he said. “We may have had things off the table in the past, but the board is looking at them. We have the potential to do more business with DFA and at a very minimum we need to talk to them, since they have an equity stake in us. Beyond that, they are a natural potential future partner.”

Glenn Wallace, the chief operating officer for DFA’sWesternArea Council, issued a statement in response to inquiries from The Enterprise on Tuesday afternoon.

“As 25 percent owners of Humboldt Creamery LLC, DFA was surprised and saddened by the recent resignation of CEO Rich Ghilarducci. As a dairy farmer-owned cooperative, DFAhas an obligation to its members to ensure that our investments are sound. We currently are working closely with the management ofHumboldt Creamery and their advisers to fully understand this situation.We will continue to work collaboratively withHumboldt Creamery on themostmutually beneficial resolution.”

Reaction from other dairy industry organizations was similar.

Western United Dairymen’s CEO Michael Marsh said he “couldn’t believe it,” when he heard the news and added that the creamery’s “turmoil” comes at a very difficult time for the dairy industry but that he is confident the creamery will keep processing milk.

“I know those producers on the board and they are very committed to making sure they have a home for the milk,” said Marsh, who was getting ready for the WUD’s annual convention this week in Rohnert Park and predicted the creamery’s situationwould be the subject ofmuch discussion. “I have every confidence they (Humboldt Creamery) are going to pull out of this.”

Marsh said he has knownGhilarducci for ten years and called hima “fixture in the community.” Marsh said Ghilarducci often spoke before his organization's dairy leaders program and that the former CEO was always willing to “share his time and expertise.”

The US Attorney’s Office in San Francisco has been notified about the ongoing investigation, said Mayer. Attempts to reach the office by The Enterprise were unsuccessful.

As to the impact of the deferred $2million and the uncertainty about the future of the creamery, its members and its 160 employees, Humboldt County Farm Bureau ExecutiveDirector Katherine Ziemer called the situation “devastating.

“ . . . to not only our friends and families in Ferndale, but eventually it will affect everyone in Humboldt County,” she said. “I can not comprehend receiving a fraction of my income because of something totally out of my control especiallywhen the operational costs remaining constant. The entire community needs to pull together to do whatever it takes tomake these family farms strong again.”

Ghilarducci was located at his Scottsdale home by The Enterprise Monday morning.