UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange |
| Act of 1934 | |
| For the quarterly period ended April 30, 2001 | |
| or | |
| o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange |
| Act of 1934 |
Commission File No. 33-99834
DAKOTA GROWERS PASTA COMPANY
(Exact name of registrant as specified in its charter)
| North Dakota | 45-0423511 |
| (State of incorporation) | (IRS Employer Identification No.) |
One Pasta Avenue, P.O. Box 21, Carrington, ND 58421-0021
(Address of principal executive offices including zip code)
(701) 652-2855
(Registrant’s telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| Yes x No o |
The number of shares outstanding of the Registrant’s classes of common stock were 1,157 shares of membership stock, par value $125.00, and 11,253,121 of equity stock, par value $2.50, as of June 14, 2001.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAKOTA GROWERS PASTA COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Information)
| (Unaudited) April 30, 2001 | July 31, 2000 | |
| ASSETS | ||
| CURRENT ASSETS | ||
| Cash and cash equivalents | $ - | $1,725 |
| Short-term investments (restricted) | 1,974 | 1,974 |
| Trade accounts receivable, less allowance for cash discounts and doubtful accounts of $548 and $348, respectively | 12,600 | 12,890 |
| Other receivables | 626 | 593 |
| Inventories | 22,409 | 21,781 |
| Prepaid expenses | 1,328 | 1,603 |
| Total current assets | 38,937 | 40,566 |
| PROPERTY AND EQUIPMENT | ||
| In service | 115,933 | 110,021 |
| Construction in process | 531 | 2,560 |
| 116,464 | 112,581 | |
| Less accumulated depreciation | (32,222) | (27,009) |
| Net property and equipment | 84,242 | 85,572 |
| INVESTMENT IN COOPERATIVE BANKS | 2,211 | 2,037 |
| OTHER ASSETS | 7,816 | 3,682 |
| $133,206 | $131,857 |
DAKOTA GROWERS PASTA COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Information)
| (Unaudited) April 30, 2001 | July 31, 2000 | |
| LIABILITIES AND MEMBERS’ INVESTMENT | ||
| CURRENT LIABILITIES | ||
| Notes payable and current portion of long-term debt | $15,998 | $4,979 |
| Excess outstanding checks over cash on deposit | 1,906 | 0 |
| Accounts payable | 5,516 | 4,104 |
| Accrued grower payments | 298 | 1,287 |
| Accrued liabilities | 4,999 | 5,107 |
| Total current liabilities | 28,717 | 15,477 |
| COMMITMENTS AND CONTINGENCIES | ||
| LONG-TERM DEBT, net of current portion | 48,360 | 51,626 |
| DEFERRED INCOME TAXES | 3,856 | 4,095 |
| Total liabilities | 80,933 | 71,198 |
| REDEEMABLE PREFERRED STOCK | ||
| Series A, 6% non-cumulative, $100 par value, issued 633 and 733 shares, respectively | 63 | 73 |
| Series B, 2% non-cumulative, $100 par value, issued 525 shares | 53 | 53 |
| Total preferred stock | 116 | 126 |
| MEMBERS’ INVESTMENT | ||
| Convertible preferred stock Series C, 6% non-cumulative, $100 par value, issued 924 shares | 92 | 92 |
| Membership stock, $125 par value, issued 1,157 and 1,158 shares, respectively | 145 | 145 |
| Equity stock, $2.50 par value, issued 11,253,121 shares | 28,133 | 28,133 |
| Additional paid-in capital | 22,876 | 22,876 |
| Accumulated allocated earnings | 4,596 | 1,931 |
| Accumulated unallocated earnings (deficit) | (3,685) | 7,356 |
| Total members’ investment | 52,157 | 60,533 |
| Total liabilities and members’ investment | $133,206 | $131,857 |
| See Notes to Consolidated Financial Statements |
DAKOTA GROWERS PASTA COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)(Unaudited)
| Three Months Ended April 30, | ||
| 2001 | 2000 | |
| Net revenues (net of discounts and allowances of $4,072 and $3,927, respectively) | $34,100 | $35,209 |
| Cost of product sold | 32,122 | 30,185 |
| Gross proceeds | 1,978 | 5,024 |
| Marketing, general and administrative expenses | 2,258 | 2,827 |
| Operating proceeds (loss) | (280) | 2,197 |
| Other income (expense) | ||
| Interest and other income | 89 | 109 |
| Loss on sale of property and equipment | - | (45) |
| Interest expense, net | (901) | (1,067) |
| Income (loss) before income taxes | (1,092) | 1,194 |
| Income tax benefit | 80 | 742 |
| Net income (loss) from patronage and non-patronage business | (1,012) | 1,936 |
| Dividends on preferred stock | 1 | 1 |
| Net earnings (loss) from patronage and non-patronage business available for members | $(1,013) | $1,935 |
| Average equity shares outstanding | 11,253 | 11,183 |
| Net earnings (loss) from patronage and non-patronagebusiness per average equity share outstanding | ||
| Basic | $(0.09) | $0.17 |
| See Notes to Consolidated Financial Statements | ||
DAKOTA GROWERS PASTA COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)(Unaudited)
| Nine Months Ended April 30, | ||
| 2001 | 2000 | |
| Net revenues (net of discounts and allowances of $13,473 and $13,507, respectively) | $99,015 | $104,873 |
| Cost of product sold | 93,079 | 88,416 |
| Gross proceeds | 5,936 | 16,457 |
| Marketing, general and administrative expenses | 7,329 | 7,781 |
| Operating proceeds (loss) | (1,393) | 8,676 |
| Other income (expense) | ||
| Interest and other income | 274 | 392 |
| Loss on sale of property and equipment | - | (36) |
| Interest expense, net | (3,016) | (3,453) |
| Income (loss) before income taxes | (4,135) | 5,579 |
| Income tax benefit | 239 | 1,242 |
| Net income (loss) from patronage and non-patronage business | (3,896) | 000 |
| Dividends on preferred stock | 14 | 2 |
| Net earnings (loss) from patronage and non-patronage business available for members | $(3,910) | $6,819 |
| Average equity shares outstanding | 11,253 | 11,137 |
| Net earnings (loss) from patronage and non-patronage business per average equity share outstanding | ||
| Basic | $(0.35) | $0.61 |
| See Notes to Consolidated Financial Statements | ||
DAKOTA GROWERS PASTA COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)(Unaudited)
| Nine Months Ended April 30, | ||
| 2001 | 2000 | |
| OPERATING ACTIVITIES | ||
| Net income (loss) | $(3,896) | $6,821 |
| Add (deduct) non-cash items | ||
| Depreciation and amortization | 6,625 | 6,891 |
| Non-cash portion of patronage dividends | (204) | 18 |
| Cooperative bank stock valuation adjustment | - | 36 |
| Loss on sale of property and equipment | - | 36 |
| Deferred income taxes | (239) | (811) |
| Changes in assets and liabilities | ||
| Trade receivables | 290 | 2,725 |
| Other receivables | (33) | 1,267 |
| Inventories | (628) | (4,331) |
| Prepaid expenses | 59 | 793 |
| Other assets | - | (361) |
| Accounts payable | 1,412 | (1,205) |
| Excess outstanding checks over cash deposits | 1,906 | 1,193 |
| Growers payables | (989) | (819) |
| Other accrued liabilities | (108) | (904) |
| NET CASH FROM OPERATING ACTIVITIES | 4,195 | 11,349 |
| INVESTING ACTIVITIES | ||
| Purchases of property and equipment | (3,886) | (4,735) |
| Proceeds from sale of property and equipment | - | 127 |
| Receipts on note receivable | - | 1,884 |
| Net purchase of short-term investments | - | (1,461) |
| Payments for long-term prepaid marketing costs | (5,038) | (463) |
| Payments for package design costs | (259) | (427) |
| NET CASH USED IN INVESTING ACTIVITIES | (9,183) | (5,075) |
| FINANCING ACTIVITIES | ||
| Net change in short-term debt | 12,165 | 3,875 |
| Payments on long-term debt | (4,412) | (7,518) |
| Preferred stock issued | - | 58 |
| Preferred stock retirements | (10) | (3) |
| Dividends paid on preferred stock | (14) | (2) |
| Memberships issued, net | - | 1 |
| Options exercised | - | 1,306 |
| Patronage distributions | (4,466) | (7,358) |
| NET CASH FROM (USED IN) FINANCING ACTIVITIES | 3,263 | (9,641) |
| Nine Months Ended April 30, | ||
| 2001 | 2000 | |
| NET CHANGE IN CASH AND CASH EQUIVALENTS | (1,725) | (3,367) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 1,725 | 3,425 |
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ - | $58 |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||
| Cash payments for | ||
| Interest | $3,816 | $3,007 |
| Income taxes | $9 | $546 |
| See Notes to Consolidated Financial Statements | ||
DAKOTA GROWERS PASTA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following notes should be read in conjunction with the notes to the financial statements for the year ended July 31, 2000 as filed in the Company’s Form 10-K.
NOTE 1 - ORGANIZATION
Dakota Growers Pasta Company (“Dakota Growers”, “the Company” or “the Cooperative”) is organized as a farmers’ cooperative for purposes of manufacturing food for human consumption from durum and other grain products. Net proceeds are allocated to patrons who are members on the basis of their participation in the Cooperative.
The ownership of membership stock, which signifies membership in the Cooperative, is restricted to producers of agricultural products. The ownership of equity stock is restricted to members of the Cooperative. Preferred stock may be held by persons who are not members of the Cooperative.
NOTE 2 – FINANCIAL STATEMENT PRESENTATION
The unaudited consolidated financial statements included herein as of April 30, 2001 and for the three and nine month periods ended April 30, 2001 and 2000, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended April 30, 2001 are not necessarily indicative of the results that may be expected for the year ended July 31, 2001. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis and the consolidated financial statements and footnotes included in the Company’s Form 10-K for the year ended July 31, 2000. The information contained in the balance sheet as of July 31, 2000 was derived from the Company’s audited annual report for fiscal 2000. Reclassifications have been made to facilitate comparability with current presentation. Such reclassifications have no effect on the net results of operations.
The financial information presented herein includes the consolidated balances and results of operations of Dakota Growers Pasta Company and its wholly owned subsidiary. All significant intercompany balances and transactions have been eliminated.
NOTE 3 – INVENTORIES
Inventories are valued at lower of cost or market. Inventories as of April 30, 2001 include raw materials of $6,095,000 and finished goods of $16,314,000. Inventories at July 31, 2000 include raw materials of $5,329,000 and finished goods of $16,452,000.
NOTE 4 – OTHER ASSETS
Other assets as of April 30, 2001 and July 31, 2000 consisted of the following:
| April 30, 2001 | July 31, 2000 | |
| Package design costs - net | $1,256 | $1,453 |
| Prepaid marketing costs | 6,302 | 1,979 |
| Debt issuance costs | 160 | 182 |
| Other | 98 | 68 |
| $7,816 | $3,682 |
NOTE 5 – LOAN AGREEMENTS
In December 2000, the Company renewed its $15 million seasonal line of credit with CoBank. The available credit on the seasonal line was increased to $19 million in January 2001. The seasonal loan has a variable interest rate and matures on December 31, 2001. It is secured by property, equipment, and current assets of the Company. The balance outstanding on the line of credit totaled $14,040,000 as of April 30, 2001.
As of April 30, 2001, the Company was not in compliance with the consolidated funded debt to consolidated cash flow ratio set forth in the first amendment to the note agreement with institutional investors. The first amendment to the note agreement requires that the ratio of consolidated funded debt to consolidated cash flow not exceed 3.00 to 1 for all periods after January 31, 2001, in each case determined as of the end of each fiscal quarter for the immediately preceding four fiscal quarters, treating such period of four fiscal quarters as a single accounting period.
The Company is currently in discussions with its lenders regarding a waiver and second amendment to the note agreement.
NOTE 6 – INCOME TAXES
The Company is a non-exempt cooperative as defined by Section 1381(a)(2) of the Internal Revenue Code (“Code”). Accordingly, net margins from business transacted with its member patrons which are allocated, qualified, and paid as prescribed in Section 1382 of the Code will be taxable to the members and not to the Company. Net margins and member allocations are determined on the basis of accounting used for financial reporting purposes. To the extent that net margins are not allocated and paid as stated above or arise from business done with non-members, the Company shall have taxable income subject to corporate income tax rates. Cooperative organizations have 8 ½ months after their fiscal year end to make such allocations in the form of written notices of allocation or cash.
The Company has recorded an income tax benefit of $80,000 for the three months ending April 30, 2001 and $239,000 for the nine months ending April 30, 2001 resulting from reductions in deferred tax liabilities associated with differences between the book and tax basis of property and equipment.
An income tax benefit of $742,000 was recorded for the three months ending April 30, 2000 and $1,242,000 for the nine months ended April 30, 2000. The $1,242,000 benefit for the nine months ended April 30, 2000 consisted of a current benefit of $431,000 related to the reclassification of approximately $2,000,000 of income from nonpatronage to patronage for the year ended July 31, 1999. The reclassification was based on cooperative income tax developments taking place in the second quarter of fiscal year 2000. The remaining $811,000 of the income tax benefit for the nine months ended April 30, 2000 related to reductions in deferred tax liabilities associated with differences between the book and tax basis of property and equipment.
NOTE 7 – PATRONAGE BUSINESS
The Company’s business is conducted on a cooperative basis. The Company calculates income from patronage sources based on income derived from bushels of durum delivered by members. Non-patronage income is derived from the resale of pasta purchased from non-members, the resale of semolina purchased from non-members, certain amounts of interest income, rental income from Company assets and any income taxes assessed on non-member business. The net loss allocable to patronage business totaled $3,539,000 for the nine months ended April 30, 2001.This compares to $6,317,000of net earnings allocable to patronage business for the nine months ended April 30, 2000.
NOTE 8 – EARNINGS (LOSS) PER SHARE
The Company allocates its earnings (loss) and patronage distributions based on patronage business (bushels of durum delivered, which approximates one bushel of durum per equity share). For presentation purposes, it has calculated basic net earnings (loss) per share by dividing earnings (loss) from patronage and non-patronage business available for members (net income (loss) less preferred dividends) by the weighted average number of equity shares effective and outstanding during the period.
The Company had convertible preferred stock and stock options for convertible preferred stock outstanding during the periods presented. Fully diluted earnings (loss) per share are calculated for the assumed conversion of these dilutive securities. As the Company’s stock is only traded in a small secondary market through private transactions, the Company has assumed the proceeds from the exercise of stock options would reduce debt and, thus, interest expense. Fully diluted earnings (loss) per share are not presented, as the dilutive effect of outstanding convertible preferred stock and stock options is not material for the periods presented.
NOTE 9 – DIVIDENDS
The Board of Directors authorized a qualified patronage allocation of $4,466,000 ($.4284 per bushel acquired or $.40 per average outstanding equity share) for fiscal year 2000 at its November 2000 meeting. The total qualified patronage allocation was paid in cash on November 30, 2000. The Board also voted to allocate, on a non-qualified basis, the remainder of the fiscal 2000 patronage earnings totaling $2,665,000. In taking these actions, the Board of Directors rescinded the patronage allocations authorized at the October 2000 meeting as reported in the Company’s Form 10-K for the year ended July 31, 2000.
NOTE 10 – COMMITMENTS
The Company forward contracts for a certain portion of its future durum wheat requirements. The Company had outstanding commitments for grain purchases totaling $1,644,000 at April 30, 2001.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The following discussion contains forward-looking statements. Such forward-looking statements include, among others, those statements including the words “expect”, “anticipate”, “believe”, “may” and similar expressions. Such statements are based on assumptions by the Company’s management, as of the date of this Quarterly Report, and are subject to risks and uncertainties, including those discussed in the Company’s 2000 Form 10-K under “Risk Factors”, that could cause actual results to differ materially from those anticipated. The Company cautions readers not to place undue reliance on such forward-looking statements. The Company will not update any forward-looking statements in the Quarterly Report to reflect future events or developments.
Summary
Dakota Growers incurred a net loss of $3.9 million for the nine months ended April 30, 2001, compared to net earnings of $6.8 million for the corresponding period of the prior year. The net loss resulted from lower sales volumes and competitive pricing within the dry pasta industry combined with increased raw material, packaging, freight, and utility costs.
The Company has increased prices, where possible, to cover higher input costs. With excess capacity available in the pasta industry, the Company was unable to implement price increases to fully cover the higher costs that have been incurred. There have also been instances whereby a major competitor has offered pricing below the Cooperative’s current cost of production, which has resulted in the loss of customers in certain instances. As a result of the loss of certain customers, the Company has reduced its labor force where necessary to match product demand levels. Although the Company has experienced adverse operating results due to industry overcapacity and competitive pricing, a favorable development occurred in late February 2001 when the Company began shipping to a significant new retail customer. Annualized volumes relating to this customer are expected to exceed 25 million pounds.
The Company continues to explore cost reduction opportunities as well. The lasagna line installed at the New Hope, Minnesota plant became operational in February 2001. This, combined with the closure of the Minneapolis, Minnesota production facility in February 2001, has reduced lasagna production costs. The Company is also implementing rail freight programs and consolidating product in certain forward warehouse locations to reduce logistics costs.
Results of Operations
Comparison of the Three Months Ended April 30, 2001 and 2000
Net Revenues. Net revenues totaled $34.1 million for the quarter ended April 30, 2001, a decrease of $1.1 million, or 3.1%, from the third quarter of fiscal 2000. The decrease was primarily due to lower sales volumes, which were down 2.2% from the corresponding period of the prior year.
Revenues from the retail segment, including co-pack operations, increased 4.9% on volume growth of 5.9%. Foodservice revenues increased by 7.0%, mainly due to volume growth of 5.1% resulting from increased product demand due to expansions and acquisitions made by the Company’s current customers. Ingredient revenues decreased 26.5% resulting primarily from volume declines.
The Company markets semolina production in excess of its own requirements as well as by-products of durum milling. Revenues from semolina and by-product sales were relatively stable.
Cost of Product Sold. Cost of product sold increased 6.4% to $32.1 million. The $1.9 million increase resulted mainly from higher input costs including raw materials, packaging, and utilities. Gross margin as a percentage of net revenues decreased from 14.3% to 5.8% as a result of increased input costs combined with lower revenues.
Marketing, General, and Administrative (“MG&A”) Expenses. MG&A expenses decreased $569,000, or 20.1%, from the prior year mainly due to decreases in internal marketing costs as well as consulting expenses. MG&A as a percentage of net revenues decreased from 8.0% for the three months ended April 30, 2000 to 6.6% for the three months ended April 30, 2001.
Interest Expense. Interest expense decreased by $166,000 primarily due to patronage refunds received from CoBank totaling $248,000 in cash and patronage equity credited against interest expense for the three months ending April 30, 2001. The patronage refunds were partially offset by higher interest costs resulting from increases in average outstanding debt levels.
Income Taxes. The Company has recorded an income tax benefit of $80,000 and $742,000 for the quarters ended April 30, 2001 and 2000, respectively, relating to the reduction in deferred tax liabilities associated with differences between the book and tax basis of property and equipment.
Net Income (Loss). The net loss for the three months ended April 30, 2001 totaled $1.0 million, a decrease of $2.9 million from the $1.9 million net income reported for the three months ended April 30, 2000. The drop in earnings was due to the decreases in sales volumes combined with increases in input costs noted above.
Comparison of the Nine Months Ended April 30, 2001 and 2000
Net Revenues. Net revenues totaled $99.0 million for the nine months ended April 30, 2001. The decrease of $5.9 million, or 5.6%, from the nine months ended April 30, 2000 resulted from a decline in pasta sales volumes combined with lower average selling prices.
Revenues from the retail segment, including co-pack operations, decreased by 2.8%, primarily due to lower per unit selling prices, which were down 3.5%. Foodservice revenues increased by 12.7% due to a volume increase of 5.5% resulting from expansions by the Company’s current customer base combined with increases in per unit selling prices. Ingredient revenues decreased significantly, down 20.7% from the corresponding period of the prior year, as a result of lower sales volumes.
Revenues from semolina sales were down $1.0 million from the same period of the prior year primarily due to a significant decline in sales volume. By-product sales were comparable to the prior year on relatively steady volumes and per unit prices.
Cost of Product Sold. Cost of product sold for the nine months ended April 30, 2001 totaled $93.1 million, an increase of 5.3% from the corresponding period of the prior year. The $4.7 million increase resulted mainly from higher input costs including raw materials, packaging, freight and utilities. Gross margin as a percentage of net revenues decreased from 15.7% to 6.0% resulting from increased input costs combined with lower revenues.
Marketing, General, and Administrative (“MG&A”) Expenses. MG&A expenses decreased $452,000, or 5.8%, from the corresponding period of the prior year mainly due to decreases in internal marketing costs as well as consulting expenses. MG&A as a percentage of net revenues remained steady at 7.4%.
Interest Expense. Interest expense decreased by $437,000, primarily due to patronage refunds received from CoBank totaling $248,000 in cash and patronage equity credited against interest expense during the third quarter of fiscal 2001. The remainder of the decrease resulted from lower average outstanding debt levels.
Income Taxes. The Company has recorded an income tax benefit of $239,000 for the nine months ending April 30, 2001 resulting from reductions in deferred tax liabilities associated with differences between the book and tax basis of property and equipment.
An income tax benefit of $1,242,000 for the nine months ended April 30, 2000 consisted of a current benefit of $431,000 related to a reclassification of approximately $2,000,000 of income from nonpatronage to patronage for the year ended July 31, 1999. The reclassification was based on cooperative income tax developments taking place in the second quarter of fiscal year 2000. The remaining $811,000 of the income tax benefit for the nine months ended April 30, 2000 related to reductions in deferred tax liabilities associated with differences between the book and tax basis of property and equipment.
Net Income (Loss). The net loss for the nine months ended April 30, 2001 totaled $3.9 million compared to net income of $6.8 million reported for the nine months ended April 30, 2000. The $10.7 million decrease in earnings was mainly due to the decreases in sales volumes and prices combined with increases in input costs noted above.
Liquidity and Capital Resources
The Company’s primary sources of liquidity are cash provided by operations and short-term borrowings under its line of credit.
The Company renewed its seasonal line of credit for $15 million with CoBank (“the Bank”) in December 2000. The available credit on the seasonal line was increased to $19 million in January 2001. The balance outstanding on the line of credit totaled $14,040,000 as of April 30, 2001. Property, equipment, and current assets of the Company secure borrowings against the line of credit.
The Company’s long-term financing is provided through various secured term loans and secured notes from both the Bank and certain institutional investors. Variable interest rates on term and seasonal loans are based on the lender’s cost of funds, and are subject to an adjustment (increase or decrease) depending on the Company’s financial condition. The CoBank loan agreement, which covers the seasonal line of credit and various term loans, was renewed in December 2000.
The various debt agreements with the Bank and institutional investors obligate the Company to maintain or achieve certain amounts of equity and certain financial ratios and impose certain restrictions on the Company. As of April 30, 2001, the Company was not in compliance with the consolidated funded debt to consolidated cash flow ratio set forth in the first amendment to the note agreement with institutional investors. The first amendment to the note agreement requires that the ratio of consolidated funded debt to consolidated cash flow not exceed 3.00 to 1 for all periods after January 31, 2001, in each case determined as of the end of each fiscal quarter for the immediately preceding four fiscal quarters, treating such period of four fiscal quarters as a single accounting period. The Company is currently in discussions with its lenders regarding a waiver and second amendment to the note agreement.
Operations generated $4.2 million of net cash flow for the nine months ended April 30, 2001, compared to $11.3 million generated for the corresponding period of the prior year. The decrease in net cash provided by operations is primarily due to a decrease in net income offset by lower working capital requirements for the corresponding periods.
Net cash used in investing activities relates primarily to the construction and installation of milling and pasta equipment and payments made under long-term marketing agreements. Net cash used in financing activities totaled $9.2 million and $5.1 million for the nine months ended April 30, 2001 and 2000, respectively. A majority of the pasta equipment expenditures for the nine months ended April 30, 2001 related to the installation of a lasagna line at the New Hope, Minnesota plant. The lasagna line was completed and became operational in February 2001.
Net cash from financing activities totaled $3.3 million for the nine months ended April 30, 2001, mainly from borrowings on the seasonal line of credit offset by payments on long-term debt and patronage distributions. The Board of Directors authorized a qualified patronage allocation of $4,466,000 ($.4284 per bushel acquired or $.40 per average outstanding equity share) for fiscal year 2000 at its November 2000 meeting. The total qualified patronage allocation was paid in cash on November 30, 2000. The Board also voted to allocate, on a non-qualified basis, the remainder of the fiscal 2000 patronage earnings totaling $2,665,000. In taking these actions, the Board of Directors rescinded the patronage allocations authorized at the October 2000 meeting as reported in the Company’s Form 10-K for the year ended July 31, 2000. Net cash used in financing activities of $9.6 million for the nine months ended April 30, 2000 resulted mainly from patronage distributions and long-term debt payments offset by amounts received upon the exercise of stock options and borrowings on the seasonal line of credit.
The Company has current commitments for $1.6 million in raw material purchases, primarily durum purchase commitments from its members. The Company anticipates capital expenditures to total $4.0 million in fiscal year 2001. These expenditures are primarily for pasta line upgrades and cost reduction projects. Commitments for monthly operating lease payments for technology and other assets total $0.9 million, of which $0.5 million is due within one year.
Since April 30, 2001 net cash provided by operating activities and the Company’s available line of credit have been sufficient to meet its capital and liquidity requirements. Management believes those resources will be sufficient to meet capital and liquidity requirements for the foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, commodity prices, exchange rates, equity prices, and other market changes. Market risk is attributed to all market-risk sensitive financial instruments, including long-term debt.
The Company does not believe it is subject to any material market risk exposure with respect to interest rates, commodity prices, exchange rates, equity prices, or other market changes that would require disclosure under this item.
PART II – OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
None.
Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DAKOTA GROWERS PASTA COMPANY | |
| By: /s/ Timothy J. Dodd | |
| Timothy J. Dodd, | |
| PRESIDENT AND GENERAL MANAGER, AND PRINCIPAL EXECUTIVE OFFICER | |
| Dated: June14, 2001 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | |
| /s/ Timothy J. Dodd | General Manager (Principal Executive Officer) | ||
| June14, 2001 | |||
| Timothy J. Dodd | |||
| /s/ Thomas P. Friezen | Chief Financial Officer (Principal Financial Officer) | ||
| June 14, 2001 | |||
| Thomas P. Friezen | |||
| /s/ Edward O. Irion | Vice President - Finance (Principal Accounting Officer) | ||
| June 14, 2001 | |||
| Edward O. Irion | |||
