-------------------------------------------------------------------------
AMERICAN ITALIAN PASTA COMPANY -NEWS
-RELEASE
Contact:
George Shadid -
EVP & Chief Financial Officer
816-584-5621
gshadid@aipc.com
FOR IMMEDIATE RELEASE
|  |
American Italian Pasta Company
Outlines Strategic Decisions and Asset Divestiture Plans;
Liquidity Position Disclosed;
First Quarter Form 10-Q Not Filed;
Annual Meeting Postponed
KANSAS CITY, MO., February 14, 2006 --- American Italian Pasta Company
(NYSE:PLB) outlined today certain strategic decisions resulting from its recent
business assessment, including plans to divest certain assets. The Company also
disclosed its liquidity position, as well as reporting that its Form 10-Q was
not filed and that the Company's Annual Meeting of Shareholders has been
postponed.
BUSINESS ASSESSMENT AND ASSET DIVESTITURES
As announced in September 2005, the Company retained the management consulting
firm of Alvarez & Marsal (A&M). In conjunction with the Company's management
team, A&M assessed the Company's business and operating strategies, including an
evaluation of the Company's brand, marketing and sales strategies, capacity
utilization, supply chain and manufacturing initiatives, cost structure and
financial strategies.
Jim Fogarty, Chief Executive Officer, stated "Over the past few months, we have
been assessing key business and operating strategies, and we are now beginning
the implementation of our initiatives. I would also note that I am impressed by
our dedicated and talented AIPC team which is committed to delivering
outstanding products and services to our customers."
The strategic decisions reached as a result of the assessment include the
following:
Lines of Business: The Company will continue operating in its historical lines
of business within the retail and institutional markets. The Company's focus
will continue on the branded, private label, food service and industrial
segments.
-more-
AIPC
February 14, 2006
Page 2
The Company will also continue new product innovation, such as the recently
announced launch of the Company's new multi-grain products under the Mueller's,
Golden Grain-Mission and Heartland labels.
Divestment of Non-Strategic Brands: The Company's Eddie's and Mrs. Leeper's
pasta brands have been identified as non-strategic brands due to the sales
volume and complexity of the brands as compared to the Company's other lines of
business. Accordingly, the Company has decided to divest these brands. The
Company will continue to produce specialty products for its private label
customers and continue to support these brands while it undertakes divestiture
efforts.
As a result of the Company's decision to divest the brands, a non-cash
impairment charge on the brands in the range of $4.5 to $5.0 million will be
recorded (in addition to an impairment charge of approximately $4.6 million
included in the previously announced brand impairment charges resulting from
declines in projected future sales volume and related revenues).
Manufacturing Footprint Strategy and Plant Divestment: The Company has completed
the evaluation of its manufacturing footprint and expected future production
capacity requirements. Considering the Company's forecasted capacity
utilization, the Company has determined that its Kenosha, Wisconsin plant will
be permanently closed and divested. Since August 2004, the Kenosha plant has
operated on an as needed basis to meet ingredient customer demand. The Company
will begin efforts to divest the real estate and separately sell certain of the
plant's manufacturing equipment. The plant closure is scheduled in early April
2006.
In accordance with Statement of Financial Accounting Standards No. 144 -
"Accounting for the Impairment or Disposal of Long Lived Assets", the Company
will record a non-cash asset impairment charge relating to the disposition of
the Kenosha plant in the second quarter of fiscal year 2006. The impairment
charge is expected to be in the range of $25.0 to $29.0 million (excluding
related selling expenses and contract termination costs that may be incurred).
The Company will continue to operate its three other domestic manufacturing
plants (Excelsior Springs, Missouri; Columbia, South Carolina; and, Tolleson,
Arizona), as well as its Italian plant. As part of the Kenosha divestment plan,
the Company anticipates relocating certain pasta manufacturing lines from the
Kenosha plant to its Columbia plant to expand the Columbia plant manufacturing
capacity for retail and ingredient products. This ingredient capacity expansion
will allow the Company to continue to efficiently service its ingredient
customers.
Other Asset Divestments: The Company has identified certain other assets that
will be divested, including manufacturing equipment that will no longer be used
in its operations, the Company's fractional aircraft interest and a parcel of
undeveloped land. The Company will record non-cash asset impairment charges in
the second quarter of fiscal year 2006 relating to the divestment of these
assets totaling $3.3 million (in addition to previously announced asset
impairment charges that will be recorded in the third quarter of fiscal 2005).
The dispositions of the non-strategic brands, Kenosha plant and the other asset
divestments outlined above result in additional asset impairment charges
totaling $32.8 to $37.3 million and are expected to generate net cash proceeds
in the range of $7.5 to $11.0 million (excluding selling expenses and contract
termination costs that may be incurred relating to the Kenosha plant
divestiture).
-more-
AIPC
February 14, 2006
Page 3
Inventory Management: The Company disclosed in August 2005 that non-cash charges
would be recorded in the third fiscal quarter of 2005 to increase reserves for
slow moving, damaged and obsolete inventories and for other inventory
write-downs. Since that time, the Company has continued to review its inventory
composition, required inventory levels and related disposition strategies and
has now determined that additional non-cash charges of approximately $4.0
million are necessary to reflect the anticipated recoverability of certain
inventories. The Company is reducing its current level of slow moving, damaged
and obsolete inventories and expects to generate approximately $2.0 million of
cash in the 2006 fiscal year from such sales.
OVERVIEW OF COMPANY LIQUIDITY
As of February 13, 2006, the Company's total debt was approximately $280.0
million, including $278.0 million under its bank credit facility. Total debt,
less cash, stood at $256.0 million. As of February 13, 2006, the Company had
liquidity resources totaling approximately $34.0 million, reflecting
availability of approximately $10.0 million under its revolving credit agreement
and cash of approximately $24.0 million (reflecting the reduction resulting from
scheduled debt payments of $1.9 million in January 2006). In addition, the
Company continues to expect that net cash flow to be generated from operations
will be sufficient to meet its expected operating needs for the current fiscal
year. The Company also noted that amounts owed to its suppliers and vendors are
currently within established credit terms.
As reported earlier, in December 2005 the Company received a third waiver from
its bank group for non-compliance with certain covenants contained in its bank
credit agreement. During the waiver period, which expires on March 16, 2006, the
Company is pursuing refinancing alternatives for its bank credit facility, which
expires on October 2, 2006.
LATE FILING OF FORM 10-Q AND POSTPONEMENT OF ANNUAL MEETING
The Company did not file its Form 10-Q for the first fiscal quarter ended
December 30, 2005 on the due date of February 8, 2006. As previously disclosed,
the Company has also not filed its Form 10-Q for the third fiscal quarter of
fiscal 2005 and its Form 10-K for the fiscal year ended September 30, 2005. In
addition, the Company announced that its Annual Meeting of Shareholders,
normally scheduled for February, has been postponed indefinitely pending the
Company's completion of its previously announced restatement of certain
historical financial statements.
Founded in 1988 and based in Kansas City, Missouri, American Italian Pasta
Company is the largest producer and marketer of dry pasta in North America. The
Company currently has five plants that are located in Excelsior Springs,
Missouri; Columbia, South Carolina; Tolleson, Arizona; Kenosha, Wisconsin and
Verolanuova, Italy. The Company has approximately 600 employees located in the
United States and Italy.
The statements made above in "Business Assessment and Asset Divestitures" and
"Overview of Company Liquidity" are forward-looking and are based on current
expectations. Actual future results or events could differ materially from those
anticipated by such forward-looking statements. The differences could be caused
by a number of factors, including, but not limited to, the completion and
findings of the investigation being conducted by the Company's Audit
-more-
AIPC
February 14, 2006
Page 4
Committee, the Company's performance and the availability of financing
alternatives to provide refinancing of the Company's indebtedness. In addition,
future operating results are impacted by a number of factors, including but not
limited to, our dependence on a limited number of customers for a substantial
portion of our revenue, our ability to obtain necessary raw materials and
minimize fluctuations in raw material prices, the impact of the highly
competitive environment in which we operate, our reliance exclusively on a
single product category, our ability to attract and retain key personnel, and
our ability to cost-effectively transport our products. For additional
discussion of the principal factors that could cause actual results to be
materially different, refer to Item 7, Risk Factors, in our report on Form 10-K
dated December 10, 2004 filed by the Company with the Securities and Exchange
Commission. The Company will not update any forward-looking statements in this
press release to reflect future events.
###
