When you're embroiled in an accounting scandal, haven't filed financial statements in over a year, and face a stock exchange delisting, is it really a wise move to tell one of your biggest customers you no longer want to be their exclusive supplier? Apparently, American Italian Pasta
On the one hand, it seems like a smart move. As Sysco's exclusive supplier, American Italian was not able to seek out other food service suppliers for business, such as the U.S.-based operations of Ahold
On the other hand, American Italian Pasta is giving up a steady, guaranteed stream of revenue from the largest food distributor in the country. While American Italian and Sysco will still maintain a relationship (one which has been in existence since the pasta maker was formed in 1988), it is going to be a much smaller one (though there was no estimate of how much Sysco will continue to buy from American Italian).
Which is probably just as well, since not only has American Italian not filed a financial report in over a year, but it has told Wall Street not to rely upon the financial statements it did file, going all the way back to 2000. The date of the contract expiration between American Italian and Sysco is Dec. 31, which also happens to be the drop-dead date the NYSE has given the pasta maker to file its financial reports. If it doesn't file them by that time, the exchange will delist the company's stock. Although it expects to make the new filing deadline, American Italian also expects to take a variety of one-time charges totaling about $153 million to $165 million.
Though the company indirectly competes against some large corporations like General Mills
Since the announcement of the accounting investigations last year, American Italian has sought to remake itself by selling off assets, including its specialty pasta brands and some pasta-producing facilities. It's hired a forensic accountant to look for outright fraud in its books, and new senior management is in place.
Perhaps getting out from the restrictive Sysco contract will enable it to generate more revenues -- sales were unofficially down 7% for the fiscal year ending last September -- but if it doesn't bring sales to a full boil, American Italian may have scalded itself with one of its most reliable customers.
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