SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 2, 1999
American Italian Pasta Company
(Exact name of registrant as specified in its charter)
Delaware 001-13403 84-1032638
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
Address of principal executive offices: 1000 Italian Way, Excelsior Springs,
MO 64024
Registrant's telephone number, including area code: (816) 502-6000
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
Not applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Not applicable.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
Not applicable.
ITEM 5. OTHER EVENTS.
In accordance with provisions included in the Private Securities
Litigation Reform Act of 1995, American Italian Pasta Company (the "Company")
is filing this Current Report on Form 8-K, which sets forth on Exhibit 99
cautionary statements identifying significant factors that could cause the
Company's actual operating results or management's plans to materially differ
from those projected in any forward-looking statements, whether oral or
written, made by or on behalf of the Company.
This 8-K amends and restates the Company's 8-K dated October 29, 1997.
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS.
Not applicable.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Exhibit No. Document 99 Certain cautionary statements for purposes of
the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995 is attached hereto as Exhibit 99.
ITEM 8. CHANGE IN FISCAL YEAR.
Not applicable.
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S.
Not applicable.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN ITALIAN PASTA COMPANY
Date: November 2, 1999 By /s/ Warren B. Schmidgall
-----------------------------------------
Warren B. Schmidgall,
Senior Vice President and
Chief Financial Officer
INDEX OF EXHIBITS
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Exhibit No. Description
- ----------- -----------
99 Cautionary Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements when such statements are
accompanied by meaningful cautionary statements. The management of American
Italian Pasta Company ("Company" or "AIPC") may occasionally make forward-
looking statements and estimates (such as forecasts and projections) of the
Company's future financial performance or statements of management's plans
and objectives. These forward-looking statements may be contained in, among
other things, filings with the Securities and Exchange Commission and press
releases made by the Company, or may be made orally by the officers of the
Company. THE COMPANY IS, HOWEVER, UNDER NO DUTY TO UPDATE ANY FORWARD-
LOOKING STATEMENT.
Actual results of the Company's operations could materially differ from
those indicated in the forward-looking statements. Therefore, no assurances
can be given that the matters indicated in such forward-looking statements
will be realized. Significant factors that could cause the Company's actual
results to differ from those indicated in the forward-looking statements
include, but are not limited to, the factors discussed below. PERSONS
EVALUATING SUCH FORWARD-LOOKING COMMENTS SHOULD CAREFULLY CONSIDER THESE
FACTORS, AND ANY AMENDMENTS OR SUPPLEMENTS HERETO, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THE COMPANY'S PUBLIC DOCUMENTS.
DEPENDENCE ON MAJOR CUSTOMERS
Historically, a limited number of customers have accounted for a
substantial portion of the Company's revenues. The Company expects it will
continue to rely on a limited number of major customers for a substantial
portion of its revenues in the future. The Company has an exclusive supply
contract with Sysco (the "Sysco Agreement") effective through June 2003, with
a renewal option by Sysco for one additional three-year period. The Company
has a long-term manufacturing and distribution agreement with Bestfoods,
formerly known as CPC International Inc. (the "Bestfoods Agreement") that
requires Bestfoods to purchase a minimum of 175 million pounds of pasta
annually for nine years. The Company does not have supply contracts with a
substantial number of its customers, including Sam's Club. Accordingly, the
Company is dependent upon its customers to sell the Company's products and to
assist the Company in promoting market acceptance of, and creating demand
for, the Company's products. An adverse change in, or termination or
expiration without renewal of, the Company's relationships with or the
financial viability of one or more of its major customers could have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition, certain exclusivity provisions of the Sysco Agreement and
Bestfoods Agreement prevent AIPC from producing and supplying competitors of
Sysco and Bestfoods with certain pasta products. Under the Sysco Agreement,
the Company is restricted from supplying pasta products to food service
businesses other than Sysco without Sysco's consent. Without Bestfoods'
consent, AIPC may not produce branded retail pasta for Borden, New World
Pasta, LLC or Barilla Alimentare S.p.A. ("Barilla"), and is limited to the
production of an aggregate of 12 million pounds of branded pasta products
annually for other producers.
MANAGEMENT OF GROWTH
The Company has experienced rapid growth and management expects
significant additional growth in the future. Successful management of any
such future growth will require the Company to continue to invest in and
enhance its operational, financial and management information resources and
systems, attract and retain management personnel to manage such resources and
systems, accurately forecast sales demand and meet such demand, accurately
forecast retail sales, control its overhead, and attract, train, motivate and
manage its employees effectively. There can be no assurance that the Company
will continue to grow, or that it will be effective in managing its future
growth. Any failure to effectively manage growth could have a material
adverse effect on the Company's business, financial condition and results of
operations.
RAW MATERIALS
The principal raw material in the Company's products is durum wheat.
Durum wheat is used almost exclusively in pasta production and is a narrowly
traded, cash only commodity crop. The Company attempts to minimize the
effects of durum wheat cost fluctuations through forward purchase contracts
and raw material cost-based pricing agreements with many of its customers.
The Company's commodity procurement and pricing practices are intended to
reduce the risk of durum wheat cost increases on profitability, but also may
temporarily affect the Company's ability to benefit from possible durum wheat
cost decreases. The supply and price of durum wheat is subject to market
conditions and is influenced by numerous factors beyond the control of the
Company, including general economic conditions, natural disasters and weather
conditions, competition, and governmental programs and regulations. The
supply and cost of durum wheat may also be adversely affected by insects,
plant diseases and fungi, including the karnal bunt fungus. The Company also
relies on the supply of plastic, corrugated and other packaging materials.
Many of these items may fluctuate in price due to market conditions beyond
the Company's control. The costs of durum wheat and packaging materials have
varied widely in recent years and future changes in such costs may cause the
Company's results of operations and margins to fluctuate significantly. A
large, rapid increase in the cost of raw or packaging materials could have a
material adverse effect on the Company's operating profit and margins unless
and until the increased cost can be passed along to customers.
Historically, changes in prices of the Company's pasta products have lagged
changes in the Company's materials costs. Competitive pressures may also
limit the ability of the Company to raise prices in response to increased raw
or packaging material costs in the future. Accordingly, there can be no
assurance as to whether, or the extent to which, the Company will be able to
offset raw or packaging material cost increases with increased product
prices.
COMPETITION
The Company competes in a highly-competitive environment against
numerous well-established national, regional and foreign companies, and many
smaller companies in the procurement of raw materials, the development of new
pasta products and product lines, the improvement and expansion of previously
introduced pasta products and product lines and the production, marketing and
distribution of pasta products. Some of these companies have longer
operating histories, significantly greater brand recognition and financial
and other resources than the Company. The Company's direct competitors
include large multi-national companies such as Borden with brands such as
Prince(R), Creamette(R), and New World Pasta LLC with brands such as American
Beauty(R), San Giorgio(R), and Ronzoni(R) (which New World recently acquired
from Hershey), regional U.S. producers of retail and institutional pasta such
as Dakota Growers Pasta Company ("Dakota Growers"), a farmer-owned
cooperative in North Dakota, Philadelphia Macaroni Co. Inc. ("Philadelphia
Macaroni") and A. Zerega's Sons, Inc. ("Zerega's"), each an independent
producer, and foreign companies such as Italian pasta producers De Cecco ("De
Cecco") and Barilla.
The Company's competitive environment depends to a significant extent on
the aggregate industry capacity relative to aggregate demand for pasta
products. Several domestic pasta producers have recently completed increases
in domestic production capacity. In addition to AIPC's capital expansions,
management believes that these capacity additions represent more than 200
million pounds in aggregate. Dakota Growers recently increased the capacity
of its durum wheat mill. Barilla recently completed a pasta production plant
near Ames, Iowa with an estimated annual pasta capacity of over 150 to 200
million pounds. Two major pasta producers have also recently announced
planned reductions in pasta production capacity. Borden closed or sold five
of its ten North American pasta plants, and Bestfoods eliminated its capacity
of approximately 180 million pounds in 1997. Increases in industry capacity
levels above demand for pasta products could have a material adverse effect
on the Company's business, financial condition and results of operations.
Several foreign producers, based principally in Italy and Turkey, have
aggressively targeted the U.S. pasta market in recent years. In 1996, a U.S.
Department of Commerce ("Commerce") investigation revealed that several
Italian and Turkish producers were engaging in unfair trade practices by
selling pasta at less than fair value in the U.S. markets and benefiting from
subsidies from their respective governments. Effective July 1996, Commerce
imposed anti-dumping and countervailing duties on Italian and Turkish imports
(the "1996 Anti-dumping Order"). In December 1998, Commerce announced the
final results of its review of 1996 Anti-dumping Order for three Turkish
producers. Commerce indicated that one of the producers had not had any
shipments during the review period (January 19, 1996 to June 30, 1997),
maintained the anti-dumping and countervailing duties for another Turkish
producer and repealed such duties for the third. In addition, Commerce
conducted an administrative review of its 1996 Anti-dumping Order relating to
8 Italian pasta producers, including Barilla and De Cecco. Commerce
maintained the anti-dumping duties for most of the Italian pasta producers,
including Barilla. While such duties may enable the Company and its domestic
competitors to compete more favorably against Italian and Turkish producers
in the U.S. pasta market, there can be no assurance that the duties will be
maintained for any length of time, or that these or other foreign producers
will not sell competing products in the United States at prices less than
those of the Company. Bulk imported pasta, and pasta produced in the U.S. by
foreign firms, are generally not subject to such anti-dumping and
countervailing duties. Foreign pasta producers generally may avoid such
duties by importing bulk pasta into the United States and repackaging it in
U.S. facilities for distribution.
RELIANCE ON PASTA; PRODUCT LINE CONCENTRATION
Since commencing operations in 1988, the Company has focused exclusively
on the dry pasta industry. For the foreseeable future, AIPC expects to
continue to receive substantially all of its revenues from the sale of pasta
and pasta-related products. Because of this product concentration, any
decline in the demand or pricing for dry pasta, any shift in consumer
preferences away from dry pasta, or any other factor that adversely affects
the pasta market, could have a more significant adverse effect on the
Company's business, financial condition and results of operations than on
pasta producers which also produce other products. In addition, the
Company's pasta production equipment is highly specialized and is not
adaptable to the production of non-pasta food products.
RELIANCE ON KEY PERSONNEL
The Company's operations and prospects depend in large part on the
performance of its senior management team. No assurance can be given that the
Company would be able to find qualified replacements for any of these
individuals if their services were no longer available. The loss of the
services of one or more members of the Company's senior management team could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company does not maintain key person life
insurance on any of its key employees. The Company has employment agreements
with certain members of senior management.
TRANSPORTATION
Durum wheat is shipped to the Company's production facility in Missouri
directly from North Dakota, Montana and Canada under a long-term rail
contract with its most significant rail carrier, the Canadian Pacific Rail
System. Under such agreement, the Company is obligated to transport
specified wheat volumes and, in the event such volumes are not met, the
Company must reimburse the carrier for certain of its costs. The Company
also has a rail contract to ship semolina, milled and processed at the
Missouri facility, to the South Carolina facility. An extended interruption
in the Company's ability to ship durum wheat by railroad to the Missouri
plant, or semolina to the Company's South Carolina facility, could have a
material adverse affect on the Company's business, financial condition and
results of operations. The Company experienced a significant interruption in
railroad shipments in 1994 due to a railroad strike. While the Company would
attempt to transport such materials by alternative means if it were to
experience another interruption due to strike, natural disasters or
otherwise, there can be no assurance that the Company would be able to do so
or be successful in doing so in a timely and cost-effective manner. The
Company's Kenosha, WI plant is supplied through a long-term supply agreement
with Amber Milling Company, a division of Harvest States Cooperative whose
wheat mill is adjacent to the Company's pasta production facility.
PRODUCTION AND INVENTORY MANAGEMENT
Most of the Company's customers use, to some extent, inventory
management systems which track sales of particular products and rely on
reorders being rapidly filled by suppliers to meet consumer demand rather
than on large inventories being maintained by retailers. Although these
systems reduce a retailer's investment in inventory, they increase pressure
on suppliers like the Company to fill orders promptly and thereby shift a
portion of the retailer's inventory management cost to the supplier. The
Company's production of excess inventory to meet anticipated retailer demand
could result in markdowns and increased inventory carrying costs for the
Company. In addition, if the Company underestimates the demand for its
products, it may be unable to provide adequate supplies of pasta products to
retailers in a timely fashion, and may consequently lose sales.
FLUCTUATIONS IN FUTURE QUARTERLY OPERATING RESULTS AND POTENTIAL NEGATIVE
IMPACT/VOLATILITY IN OUR STOCK PRICE
The Company's results of operations may fluctuate on a quarterly basis
and may be below expectations of analysts and investors, and, as a result,
the price of our common stock may fall or become volatile. Factors that
could cause quarterly fluctuations include total sales volumes, the timing
and scope of new customer volumes, the timing and amounts of price
adjustments due to durum wheat and other cost changes, the cost of raw
materials, including durum wheat (see the discussion under "Raw Materials"
above), plant expansion costs and interest expenses.
RISK OF PRODUCT LIABILITY
Although the Company has never been involved in a product liability
lawsuit, the sale of food products for human consumption involves the risk of
injury to consumers as a result of tampering by unauthorized third parties,
product contamination or spoilage, including the presence of foreign objects,
substances, chemicals, aflatoxin and other agents, or residues introduced
during the growing, storage, handling or transportation phases. While the
Company is subject to U.S. Food & Drug Administration inspection and
regulations and believes its facilities comply in all material respects with
all applicable laws and regulations, there can be no assurance that
consumption of the Company's products will not cause a health-related illness
in the future or that the Company will not be subject to claims or lawsuits
relating to such matters. The Company maintains product liability insurance
in an amount which the Company believes to be adequate. However, there can
be no assurance that the Company will not incur claims or liabilities for
which it is not insured or that exceed the amount of its insurance coverage.
TECHNOLOGICAL OBSOLESCENCE
The Company believes that one of its current competitive advantages is
the Company's state of the art production equipment, which reduces the
Company's production costs when compared with production facilities using
less advanced equipment. If other pasta producers acquire similar equipment
or acquire more advanced equipment that provide greater efficiencies, the
Company's current perceived competitive advantage might be diminished or
eliminated. This could have a material adverse effect on the Company's
business, financial condition and results of operations.
OUR INTERNATIONAL EXPANSION EFFORTS MAY NOT BE SUCCESSFUL.
The Company is in the process of building a pasta-producing facility in
Italy. To date, we have no experience in operating or distributing products
on an international basis. We cannot assure you that our international
efforts will be successful. We expect to incur significant costs in:
- establishing international distribution networks;
- complying with local regulations;
- overseeing the distribution of products in foreign markets; and
- modifying our business/accounting processing system for each
international market we enter.
If our international revenues are inadequate to offset the expense of
establishing and maintaining foreign operations, our business could be
harmed. In addition, there are several risks inherent in doing business on
an international level. These risks include:
- potentially complex regulatory requirements;
- export and import restrictions;
- tariffs and other trade barriers;
- difficulties in staffing and managing foreign operations;
- fluctuations in currency exchange rates and inflation risks;
- seasonal fluctuations in business activity in other parts of the
world;
- changes in a specific country's or region's political or economic
conditions, particularly in emerging markets; and
- potentially adverse tax consequences.
- difficulty in securing or transporting raw materials or
transporting finished product.
- competitive activity.
Any of these risks could adversely impact the success of our
international operations.
FINANCIAL LEVERAGE; SENSITIVITY TO INTEREST RATE FLUCTUATIONS; COVENANT
RESTRICTIONS
The Company's business requires a substantial capital investment, which
the Company has and may finance through third-party lenders. The degree to
which the Company is financially leveraged following such borrowings and the
terms of the Company's indebtedness could have important consequences to
stockholders, including: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, and
general corporate purposes may be impaired; (ii) a substantial portion of the
Company's cash flow from operations may have to be dedicated to the payment
of the principal of and interest on its indebtedness; (iii) the terms of such
indebtedness may restrict the Company's ability to pay dividends; and (iv)
the Company may be more highly leveraged than many of its competitors, which
may place the Company at a competitive disadvantage.
Although the Company used the net proceeds of its initial public
offering to substantially reduce the amount of the Company's indebtedness,
the Company may incur additional amounts of variable-rate indebtedness in the
future. If this were to occur, and if interest rates were to significantly
increase thereafter, the Company's operating results and its ability to
satisfy its debt service obligations may be materially and adversely
affected. The Company has and may use interest rate protection agreements
covering its variable rate indebtedness to limit the Company's exposure to
variable rates by fixing the Company's base interest rate. There can be no
assurance, however, that in the future the Company will be able to enter into
such agreements or that such agreements will not adversely affect the
Company's financial performance.
The limitations contained in the agreements relating to the Company's
credit facility, together with the leveraged position of the Company,
restrict the Company from paying dividends and could limit the ability of the
Company to effect future debt or equity financings and may otherwise restrict
corporate activities, including the ability to avoid defaults and to respond
to competitive market conditions, to provide for capital expenditures beyond
those permitted or to take advantage of business opportunities.
