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 period ended: March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-13403
American Italian Pasta Company
(Exact name of Registrant as specified in its charter)
Delaware 84-1032638
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4100 N. Mulberry Drive, Suite 200, Kansas City, Missouri 64116
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (816) 584-5000
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the Registrant has (1) filed all
documents and 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 [ ]
The number of shares outstanding as of May 4, 2001 of the Registrant's
Class A Convertible Common Stock was 17,495,715 and there were no shares
outstanding of the Class B Common Stock.
Page 1
American Italian Pasta Company
Form 10-Q
Quarter Ended March 31, 2001
Table of Contents
Part I - Financial Information Page
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets at March 31, 2001 and
September 30, 2000. 3
Consolidated Statements of Income for the three
months ended March 31, 2001 and 2000. 4
Consolidated Statements of Income for the six
months ended March 31, 2001 and 2000. 5
Consolidated Statements of Stockholders' Equity
for the six months ended March 31, 2001 and 2000. 6
Consolidated Statements of Cash Flows for the
six months ended March 31, 2001 and 2000. 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
Part II - Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature Page 17
Page 2
AMERICAN ITALIAN PASTA COMPANY
Consolidated Balance Sheets
March 31, September 30,
2001 2000
---- ----
(In thousands)
(Unaudited)
Assets
Current assets:
Cash and temporary investments $ 11,502 $ 6,677
Trade and other receivables 27,287 27,479
Prepaid expenses and deposits 6,484 4,424
Inventory 31,029 28,390
Deferred income taxes 2,874 2,989
--------- ---------
Total current assets 79,176 69,959
Property, plant and equipment:
Land and improvements 8,123 7,159
Buildings 92,521 85,157
Plant and mill equipment 261,539 230,383
Furniture, fixtures and equipment 12,503 10,011
--------- ---------
374,686 332,710
Accumulated depreciation (71,975) (64,769)
--------- ---------
302,711 267,941
Construction in progress 17,772 43,727
--------- ---------
Total property, plant and equipment 320,483 311,668
Goodwill and other intangibles, net 47,074 --
Other assets 2,652 2,144
--------- ---------
Total assets $ 449,385 $ 383,771
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 16,374 $ 12,261
Accrued expenses 13,713 8,352
Income tax payable 1,452 841
Current maturities of long-term debt 1,493 1,564
--------- ---------
Total current liabilities 33,032 23,018
Long-term debt 158,419 138,502
Deferred income taxes 28,845 23,847
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares - 10,000,000 -- --
Class A common stock, $.001 par value:
Authorized shares - 75,000,000 19 18
Class B common stock, $.001 par value:
Authorized shares - 25,000,000 -- --
Additional paid-in capital 200,797 177,725
Treasury stock (34,394) (31,362)
Notes receivable from officers (61) (61)
Retained earnings 67,172 54,233
Accumulated other comprehensive income (loss) (4,444) (2,149)
--------- ---------
Total stockholders' equity 229,089 198,404
--------- ---------
Total liabilities and stockholders' equity $ 449,385 $ 383,771
========= =========
See accompanying notes to consolidated financial statements.
Page 3
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Income
Three Months Ended
March 31,
2001 2000
---- ----
(In thousands)
(Unaudited)
Revenues $75,030 $63,965
Cost of goods sold 51,642 45,899
------ ------
Gross profit 23,388 18,066
Selling and marketing expense 7,247 4,387
General and administrative expense 2,337 1,688
----- -----
Operating profit 13,804 11,991
Interest expense, net 2,073 1,101
----- -----
Income before income tax expense 11,731 10,890
Income tax expense 4,041 3,975
Net income $7,690 $6,915
====== ======
Earnings Per Common Share:
Net income per common share $.44 $.38
==== ====
Weighted-average common shares outstanding 17,453 18,303
====== ======
Earnings Per Common Share - Assuming Dilution:
Net income per common share assuming dilution $.42 $.37
==== ====
Weighted-average common shares outstanding 18,161 18,738
====== ======
See accompanying notes to consolidated financial statements.
Page 4
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Income
Six Months Ended
March 31,
2001 2000
---- ----
(In thousands)
(Unaudited)
Revenues $141,434 $123,106
Cost of goods sold 98,956 88,986
------ ------
Gross profit 42,478 34,120
Selling and marketing expense 13,062 8,265
General and administrative expense 4,244 3,172
Provision for acquisition expenses 1,827 --
----- --
Operating profit 23,345 22,683
Interest expense, net 3,601 2,329
----- -----
Income before income tax expense 19,744 20,354
Income tax expense 6,805 7,429
----- -----
Net income $12,939 $12,925
======= =======
Earnings Per Common Share:
Net income per common share $.75 $.71
==== ====
Weighted-average common shares outstanding 17,290 18,258
====== ======
Earnings Per Common Share - Assuming Dilution:
Net income per common share assuming dilution $.72 $.69
==== ====
Weighted-average common shares outstanding 17,857 18,756
====== ======
See accompanying notes to consolidated financial statements.
Page 5
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Stockholders' Equity
Six months ended
March 31, 2001
---------------------------
(In thousands)
(unaudited)
Class A Common Shares
Balance, beginning of period 18,363
Issuance of shares of Class A Common stock to option holders & other issuances 788
---------
Balance, end of period 19,151
=========
Class A Common Stock
Balance, beginning of period $ 18
Issuance of shares of Class A Common stock to option holders & other issuances 1
---------
Balance, end of period $ 19
=========
Additional Paid-in Capital
Balance, beginning of period $ 177,725
Issuance of shares of Class A Common stock to option holders & other issuances 23,072
---------
Balance, end of period $ 200,797
=========
Treasury Stock
Balance, beginning of period $ 31,362
Purchase of treasury stock 3,032
---------
Balance, end of period $ 34,394
=========
Notes Receivable from Officers
Balance, beginning of period $ (61)
Paydown of notes receivable from officers --
---------
Balance, end of period $ (61)
=========
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of period $ (2,149)
Foreign currency translation adjustment (917)
Interest rate swaps fair value adjustment (1,378)
---------
Balance, end of period $ (4,444)
=========
Retained Earnings
Balance, beginning of period $ 54,233
Net income 12,939
---------
Balance, end of period 67,172
---------
Total Stockholders' Equity $ 229,089
=========
See accompanying notes to consolidated financial statements.
Page 6
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Cash Flows
Six Months Ended
March 31,
2001 2000
---- ----
(In thousands)
(Unaudited)
Operating activities:
Net income $ 12,939 $ 12,925
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 8,052 8,401
Deferred income tax expense 4,998 3,892
Changes in operating assets and liabilities,
net of Mueller's Brand Acquisition:
Trade and other receivables (590) 2,002
Prepaid expenses and deposits (2,062) 7
Inventory 863 (6,644)
Accounts payable and accrued expenses 4,645 (257)
Income tax payable 1,296 1,930
Other (979) (766)
-------- --------
Net cash provided by operating activities 29,162 21,490
Investing activities:
Purchase of Mueller's brand pasta business (23,552) --
Additions to property, plant and equipment (17,020) (28,536)
-------- --------
Net cash used in investing activities (40,572) (28,536)
Financing activities:
Proceeds from issuance of debt 20,000 5,000
Principal payments on debt and capital lease
obligations (727) (699)
Proceeds from issuance of common stock, net of
issuance costs 1,718 749
Purchase of Treasury Stock (3,032) --
Other -- (177)
-------- --------
Net cash provided by financing activities 17,959 4,873
Effect of exchange rate changes on cash (1,724) --
-------- --------
Net increase (decrease) in cash and temporary 4,825 (2,173)
investments
Cash and temporary investments at beginning of period 6,677 3,088
-------- --------
Cash and temporary investments at end of period $ 11,502 $ 915
======== ========
See accompanying notes to consolidated financial statements.
Page 7
AMERICAN ITALIAN PASTA COMPANY
Notes to Consolidated Financial Statements
March 31, 2001
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. 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 six-month periods ended March
31, 2001 are not necessarily indicative of the results that may be expected for
the year ended September 30, 2001. These financial statements should be read in
conjunction with the consolidated financial statements and footnotes thereto and
management's discussion and analysis thereof included in the Company's Annual
Report on Form 10-K for the year ended September 29, 2000 and management's
discussion and analysis included in Item 2 hereof.
American Italian Pasta Company (the "Company" or "AIPC") uses a 52/53 week
financial reporting cycle with a fiscal year which ends on the last Friday of
September or the first Friday of October. The Company's first three fiscal
quarters end on the Friday last preceding December 31, March 31, and June 30 or
the first Friday of the following month. For purposes of this Form 10-Q, the
second fiscal quarter of fiscal years 2001 and 2000 both included thirteen weeks
of activity and are described as the three month periods ended March 31, 2001
and 2000.
2. Earnings Per Share
Dilutive securities, consisting of options to purchase the Company's Class A
common stock, included in the calculation of diluted weighted average common
shares were 708,000 and 567,000 shares for the three-month and six-month periods
ended March 31, 2001, respectively, and 435,000 and 498,000 shares for the
three-month and six-month periods ended March 31, 2000, respectively.
A summary of the Company's stock option activity:
Number of Shares
Outstanding at September 30, 2000 2,588,524
Exercised (81,292)
Granted 68,500
Canceled/Expired (21,676)
---------
Outstanding at March 31, 2001 2,554,056
=========
3. 2000 Equity Incentive Plan
In December 2000, the Board of Directors adopted the 2000 Equity Incentive Plan
for all employees. The Plan was subsequently approved by shareholders at the
February 2001 Shareholder Meeting. Under the Plan, the Board or a committee
designated by the Board is authorized to grant nonqualified stock options,
incentive stock options, reload options, stock appreciation rights, shares of
restricted Common Stock, performance shares, performance units, and shares of
Common Stock awarded as a bonus. There are 1,000,000 shares of Common Stock
reserved for issuance under the Plan.
Page 8
4. Derivatives and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, and its amendments
Statements 137 and 138, in June 1999 and June 2000, respectively. The Statement
requires the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives are either offset against the change in
fair value of assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. No such amount was recorded for the six
months ended March 31, 2001. The adoption of Statement No. 133, as amended, on
October 1, 2000, resulted in a charge of $1,378,000 to other comprehensive
income (loss).
5. Stock Repurchase
During the six months ended March 31, 2001, the Company purchased 154,849 shares
of its common stock for $3,032,000. Total shares held in treasury as of March
31, 2001 were 1,654,981.
6. Purchase of Mueller's Brand Pasta Business
On November 13, 2000, the Company purchased the Mueller's brand pasta business
from Bestfoods. Mueller's is the largest single pasta brand in the United
States, with particularly strong distribution in the eastern part of the
country. The acquisition encompassed the trademarks and goodwill associated with
the brand, the customer accounts and relationships, and certain tangible assets,
primarily inventory.
Total consideration for the purchased assets, excluding approximately $5.2
million paid for tangible assets, was approximately $38.2 million, consisting of
$17.6 million in cash and 686,666 shares of common stock valued at $30 per
share.
The acquisition has been accounted for as a purchase. The proforma financial
results are not materially different than the reported results.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion set forth below, as well as other portions of this Quarterly
Report, contains statements concerning potential future events. Such
forward-looking statements are based upon assumptions by the Company's
management, as of the date of this Quarterly Report, including assumptions about
risks and uncertainties faced by AIPC. Readers can identify these
forward-looking statements by their use of such verbs as expects, anticipates,
believes or similar verbs or conjugations of such verbs. If any management
assumptions prove incorrect or should unanticipated circumstances arise, our
actual results could materially differ from those anticipated by such
forward-looking statements. The differences could be caused by a number of
factors, included but not limited to our dependence on a limited number of
customers for a substantial portion of our revenue, our ability to manage rapid
growth, 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, reliance exclusively on a single product category, our limited
personnel, our ability to cost-effectively transport our products and the
significant risks inherent in our recent international expansion. For additional
discussion of the principal factors that could cause actual results
Page 9
to be materially different, refer to our Current Report on Form 10-K dated
December 16, 2000, filed by the Company with the Securities and Exchange
Commission, any amendments thereto and other matters disclosed in the Company's
other public filings. This report has been filed with the Securities and
Exchange Commission (the "SEC" or the "Commission") in Washington, D.C. and can
be obtained by contacting the SEC's public reference operations or obtaining it
through the SEC's web site on the World Wide Web at http://www.sec.gov. Readers
are strongly encouraged to consider those factors when evaluating any such
forward-looking statement. We will not update any forward-looking statements in
this Quarterly Report to reflect future events or developments.
Results of Operations
Second quarter fiscal 2001 compared to second quarter fiscal 2000.
Revenues. Total revenues increased $11.1 million, or 17.3%, to $75.0
million for the three-month period ended March 31, 2001, from $64.0 million for
the three-month period ended March 31, 2000. The increase for the three-month
period ended March 31, 2001 was primarily due to higher per unit selling prices
associated with the Mueller's brand pasta business acquisition (Mueller's
acquisition). Volumes were up 7.4% over the prior year. Volume growth was led by
private label (+24.7%) and ingredient (+10.0%). For the remainder of the 2001
year, in addition to volume growth, average prices will be higher due to the
Mueller's acquisition and higher durum prices resulting in cost pass-throughs.
Volume associated with the Mueller's brand was down 15.7% from the
year-ago quarter. During the year-ago quarter, the Mueller's brand was produced
by AIPC for Bestfoods. As a result, year-ago revenues are based on production,
while current year revenues are based on shipments to retail now that Mueller's
is owned by AIPC. On a shipments to retail basis for the second quarter of both
years, volumes were down by less than 6%. During the second quarter we honored
Bestfoods marketing commitments as we transitioned the brand into AIPC.
Excluding the Mueller's brand, volumes were 14.6% higher than the
second quarter of last year.
Revenues for the Retail market increased $8.0 million, or 18.0%, to
$52.4 million for the three-month period ended March 31, 2001, from $44.4
million for the three-month period ended March 31, 2000. The increase primarily
reflects volume growth of 5.8% and higher per unit selling prices, primarily due
to the Mueller's acquisition. Year over year, excluding Mueller's, our volume
was up 18.2%.
Revenues for the Institutional market increased $3.1 million, or 15.6%,
to $22.6 million for the three-month period ended March 31, 2001, from $19.6
million for the three-month period ended March 31, 2000. This increase was
primarily a result of ingredient volume growth of 10.0%, along with 7.5% volume
growth in our foodservice business, partially offset by lower contract volumes.
Gross Profit. Gross profit increased $5.3 million, or 29.5%, to $23.4
million for the three-month period ended March 31, 2001, from $18.1 million for
the three-month period ended March 31, 2000. This increase was primarily
attributable to revenue growth associated with increased volumes and the higher
per unit selling prices of Mueller's products. These increases were partially
offset by higher raw material and packaging costs. Gross profit as a percentage
of revenues increased to 31.2% for the three-month period ended March 31, 2001
from 28.2% for the three-month period ended March 31, 2000. The increase
Page 10
in gross profit as a percentage of revenues relates to incremental gross profit
on Mueller's products subsequent to the acquisition. For the remainder of the
2001 year, we expect increases in gross profit to continue as a result of the
Mueller's acquisition, partially offset by the negative impact on gross margin
percentages of higher durum wheat costs.
Selling and Marketing Expense. Selling and marketing expense increased
$2.9 million, or 65.2%, to $7.2 million for the three-month period ended March
31, 2001, from $4.4 million for the three-month period ended March 31, 2000.
This increase was primarily due to higher marketing costs associated with higher
retail revenues, as well as the incremental marketing and personnel costs
associated with the Mueller's acquisition. Selling and marketing expense as a
percentage of revenues increased to 9.7% for the three-month period ended March
31, 2001, from 6.9% for the comparable prior year period. Going forward, we
expect selling and marketing expenses to exceed 10% of net revenues due to the
additional promotional expenses dedicated to the Mueller's business.
General and Administrative Expense. General and administrative expense
increased between periods, and as a result increased as a percentage of revenues
from 2.6% to 3.1%. The majority of the increase relates to personnel and
goodwill amortization costs associated with the Mueller's acquisition.
Operating Profit. Operating profit for the three-month period ended
March 31, 2001, was $13.8 million, an increase of $1.8 million or 15.1% over the
$12.0 million reported for the three-month period ended March 31, 2000, and
decreased as a percentage of revenues to 18.4% for the three-month period ended
March 31, 2001, from 18.7% for the three-month period ended March 31, 2000 as a
result of the factors discussed above.
Interest Expense. Interest expense for the three-month period ended
March 31, 2001, was $2.1 million, increasing $1.0 million or 88.3% from the $1.1
million reported for the three-month period ended March 31, 2000. The increase
related to borrowings associated with the Mueller's acquisition, the stock
repurchase program, and capital expenditures. These increases were partially
offset by cash flow from operations and an increase in capitalized interest.
Income Tax. Income tax expense for the three-month period ended March
31, 2001, was $4.0 million, comparable to the $4.0 million reported for the
three-month period ended March 31, 2000, and reflects effective income tax rates
of approximately 34.5% and 36.5%, respectively.
Net Income. Net income for the three-month period ended March 31, 2001,
was $7.7 million, increasing $.8 million or 11.2% from the $6.9 million reported
for the three-month period ended March 31, 2000. Diluted earnings per share was
$0.42 per share for the three-month period ended March 31, 2001 compared to
$0.37 per share in the comparable prior year period, an increase of 13.5% over
the prior year quarter.
Page 11
Six months fiscal 2001 compared to six months fiscal 2000.
Revenues. Revenues increased $18.3 million, or 14.9%, to $141.4 million
for six-month period ended March 31, 2001, from $123.1 million for the six-month
period ended March 31, 2000. The increase for the six-month period ended March
31, 2001 was primarily due to higher per unit selling prices associated with the
Mueller's acquisition. Volumes were up 7.6% over the prior year period, but were
up 18.3% when excluding Mueller's. Volume growth was led by private label
(26.7%) and ingredient (24.8%). For the remainder of the 2001 year, in addition
to volume growth, average prices will be higher due to the Mueller's acquisition
and higher durum prices resulting in cost pass-throughs.
Revenues for the Retail market increased $13.1 million, or 15.0%, to
$100.5 million for the six-month period ended March 31, 2001, from $87.3 million
for the six-month period ended March 31, 2000. The increase primarily reflects
volume growth of 1.4% and higher per unit selling prices, primarily due to the
Mueller's acquisition. Excluding Mueller's, our volume was up 16.4%.
Revenues for the Institutional market increased $5.2 million, or 14.5%,
to $41.0 million for the six-month period ended March 31, 2001, from $35.8
million for the six-month period ended March 31, 2000. This increase was
primarily due to volume growth in the Ingredient market of 24.8% offset by lower
contract volumes.
Gross Profit. Gross profit increased $8.4 million, or 24.5%, to $42.5
million for the six-month period ended March 31, 2001, from $34.1 million for
the six-month period ended March 31, 2000. This increase was primarily
attributable to revenue growth associated with increased volumes and the higher
per unit selling prices of Mueller's products. These increases were partially
offset by higher raw material and packaging costs. Gross profit as a percentage
of revenues increased to 30.0% for the six-month period ended March 31, 2001,
from 27.7% for the six-month period ended March 31, 2000. The increase in gross
profit as a percentage of revenues relates to incremental gross profit on
Mueller's products subsequent to the acquisition. For the remainder of the 2001
year, we expect increases in gross profit to continue as a result of the
Mueller's acquisition, partially offset by the negative impact on gross margin
percentages of higher durum wheat costs.
Selling and Marketing Expense. Selling and marketing expense increased
$4.8 million, or 58.0%, to $13.1 million for the six-month period ended March
31, 2001, from $8.3 million for the six-month period ended March 31, 2000.
Selling and marketing expense as a percentage of revenues increased to 9.2% for
the six-month period ended March 31, 2001, from 6.7% for the comparable prior
year period. This increase was primarily due to higher marketing costs
associated with higher retail revenues as well as incremental marketing and
personnel costs associated with the Mueller's acquisition. Going forward, we
expect selling and marketing expenses to exceed 10% of net revenues due to the
additional promotion expenses dedicated to the Mueller's business.
General and Administrative Expense. General and administrative expense
increased $1.1 million, or 33.8%, to $4.2 million for the six-month period ended
March 31, 2001, from $3.2 million for the comparable prior period, and increased
as a percentage of revenues from 2.6% to 3.0%. The majority of the increase
relates to personnel and goodwill amortization costs associated with the
Mueller's acquisition.
Provision for Acquisition Related Expenses. The provision for
acquisition related expenses of $1.8 million for the six-month period ended
March 31, 2001 consisted of one-time costs associated with the Mueller's
acquisition.
Page 12
Operating Profit. Operating profit for the six-month period ended March
31, 2001, was $23.3 million, an increase of $0.7 million or 2.9% over the $22.7
million reported for the six-month period ended March 31, 2000, and decreased as
a percentage of revenues to 16.5% for the six-month period ended March 31, 2001,
from 18.4% for the six-month period ended March 31, 2000 as a result of the
factors discussed above. Excluding the $1.8 million charge for non-recurring
acquisition expenses, operating profit was $25.2 million, a $2.5 million or
11.0% increase over that reported in the prior year period. Operating profit as
a percentage of net revenues, excluding the non-recurring charge was 17.8%
versus 18.4% in the prior year.
Interest Expense. Interest expense for the six-month period ended March
31, 2001, was $3.6 million, increasing $1.3 million or 54.6% from the $2.3
million reported for the six-month period ended March 31, 2000. The increase
related to borrowings associated with the Mueller's acquisition, the stock
repurchase program, and capital expenditures. These increases were partially
offset by cash flow from operations and an increase in capitalized interest.
Income Tax. Income tax expense for the six-month period ended March 31,
2001, was $6.8 million, decreasing $0.6 million from the $7.4 million reported
for the six-month period ended March 31, 2000, and reflects effective income tax
rates of approximately 34.5% and 36.5%, respectively.
Net Income. Net income for the six-month period ended March 31, 2001,
and March 31, 2000, was $12.9 million. Excluding the impact of the $1.8 million
charge for non-recurring acquisition costs, net income for the six months
totaled $14.1 million, an increase of $1.2 million or 9.4% over the prior year
period. Diluted earnings per common share were $0.72 per share for the six-month
period ended March 31, 2001 compared to $0.69 per share for the six-month period
ended March 31, 2000. Excluding the impact of the $1.8 million charge for
non-recurring acquisition costs, diluted earnings per common share were $0.79,
and net income as a percentage of net revenue was 10.0% versus 10.5% in the
prior year.
Financial Condition and Liquidity
Our primary sources of liquidity are cash provided by operations and
borrowings under our credit facility. Cash and temporary investments totaled
$11.5 million, and working capital totaled $46.1 million at March 31, 2001.
Our net cash provided by operating activities totaled $29.2 million for
the six-month period ended March 31, 2001 compared to $21.5 million for the
six-month period ended March 31, 2000. The increase in the net cash provided by
operations is due to lower working capital requirements and final payments under
the Bestfoods Supply Agreement.
Cash used in investing activities principally relates to the purchase
of the Mueller's brand pasta business and our investments in manufacturing,
distribution and milling assets. Capital expenditures were $17.0 million for the
six-month period ended March 31, 2001 compared to $28.5 million in the
comparable prior year period. The primary decrease in such spending for the
six-month period ended March 31, 2001 was related to significant capital
expenditures a year ago for our new Italian manufacturing facility.
Additionally, we plan to spend approximately $15 million in the remainder of
fiscal year 2001, primarily for cost saving, maintenance projects, and capacity
expansion projects. We anticipate completion of these projects during the fiscal
year ending September 30, 2001.
Net cash provided by financing activities was $18.0 million for the
six-month period ended March 31, 2001 compared to $4.9 million for the six-month
period ended March 31, 2000. Borrowings under our revolver increased by $20.0
Page 13
million to fund the Mueller's brand pasta business purchase and the purchase of
treasury stock. We continue to use our available credit facility, as well as
cash from operations, to fund capital expansion programs as necessary.
We currently use cash to fund capital expenditures, repayments of debt
and working capital requirements. We expect that future cash requirements will
principally be for capital expenditures, repayments of indebtedness and working
capital requirements.
We have current commitments for $22.2 million in raw material purchases
for fiscal year 2001. Additionally, we have approximately $15.0 million in
expenditures remaining under the previously referenced capital programs. We
expect to fund these commitments from operations and borrowings under our credit
facility. The credit facility currently has available a credit of approximately
$47 million. At this time, the current and projected borrowings under the credit
facility do not exceed the facility's available commitment. The facility matures
at the end of fiscal year 2002. We anticipate that any borrowing outstanding at
that time will be satisfied with funds from operations or will be refinanced. We
currently have no other material commitments.
We believe that net cash provided by operating and financing activities
will be sufficient to meet our expected capital and liquidity needs for the
foreseeable future.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our principal exposure to market risk associated with financial
instruments relate to interest rate risk associated with variable rate
borrowings and foreign currency exchange rate risk associated with borrowings
denominated in foreign currency. We occasionally utilize simple derivative
instruments such as interest rate swaps to manage our mix of fixed and floating
rate debt. We had various fixed interest rate swap agreements with notional
amounts of $34 million and 40 million Euros outstanding at March 31, 2001. The
estimated fair value of the interest rate swap agreements of $(1,378,000) is the
amount we would be required to pay to terminate the swap agreements at March 31,
2001. We hedge our net investment in our foreign subsidiaries with euro
borrowings under our credit facility. Changes in the U.S. dollar equivalent of
euro-based borrowings is recorded as a component of the net translation
adjustment in the consolidated statement of stockholder's equity.
We have operations in Italy. The functional currency for this operation
is the Euro. At March 31, 2001, long-term debt includes foreign subsidiary
obligations of 53.7 million Euros ($49.4 million) under a credit facility which
bears interest at a variable rate based upon the Euribor rate.
Page 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------------
Not applicable
Item 2. Changes in Securities
- -------------------------------
Not applicable
Item 3. Defaults Upon Senior Securities
- -------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------
The Annual Meeting of Shareholders was held on February 8,
2001.
There were three matters submitted to a vote of security
holders. The first matter was for the election of directors.
Each of the persons named in the Proxy Statement as a nominee
for director was elected. Following are the voting results on
each of the nominees for director:
Election of Directors Votes For Votes Withheld
David Y. Howe 14,531,437 1,277,058
John P. O'Brien 15,589,352 229,143
William R. Patterson 15,590,552 227,943
The following directors continued in office:
Serving Until 2002 Serving Until 2003
Jonathan E. Baum Horst W. Schroeder
Robert H. Niehaus Mark C. Demetree
Richard C. Thompson Timothy S. Webster
James A. Heeter
The second matter was for the ratification of the Board of
Directors' selection of Ernst & Young LLP to serve as the
Company's independent auditors for the fiscal year 2001. The
shareholders cast 15,804,778 votes in the affirmative and
12,706 votes in the negative and shareholders holding 1,011
votes abstained from voting on the ratification of Ernst &
Young LLP as the Company's independent auditors for the fiscal
year 2001.
The third matter was for approval of the American Italian
Pasta Company 2000 Equity Incentive Plan. The shareholders
cast 10,310,159 votes in the affirmative and 2,748,361 votes
in the negative and shareholders holding 9,820 votes abstained
from voting on the approval of the AIPC 2000 Equity Incentive
Plan.
Page 15
Item 5. Other Information
- -------------------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
- -------------------------
(a) Exhibits.
10.1 Separation Agreement, Full Release and Waiver of Claims
and Non-Competition Agreement between the Company and
Norman F. Abreo dated February 28, 2001.
(b) Reports on Form 8-K.
We filed a Form 8-K on January 5, 2001 announcing the
closing of our acquisition of the Mueller's pasta brand from
Bestfoods.
We filed a Form 8-K on January 16, 2001 announcing the
filing of a registration statement on Form S-3 covering the
686,666 shares issued to Bestfoods as part of the purchase
price.
We filed a Form 8-K on January 24, 2001 publishing guidance
on forecasted 2001 earnings and cash flow.
Page 16
SIGNATURES
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 thereunto duly authorized.
American Italian Pasta Company
May 11, 2001 /s/ Timothy S. Webster
- --------------------------- -----------------------------------
Date Timothy S. Webster
President and Chief Executive Officer
(Principal Executive Officer)
May 11, 2001 /s/ Warren B. Schmidgall
- --------------------------- -----------------------------------
Date Warren B. Schmidgall
Executive Vice President and Chief Financial
Officer
(Principal Financial and Accounting Officer)
Page 17
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------------------------------------------------
10.1 Separation Agreement, Full Release
and Waiver of Claims and
Non-Competition Agreement between
the Company and Norman F. Abreo
dated February 28, 2001.
Page 18