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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: June 28, 2002
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 August 5, 2002 of the
Registrant's Class A Convertible Common Stock was 17,954,952 and there were no
shares outstanding of the Class B Common Stock.
American Italian Pasta Company
Form 10-Q
Quarter Ended June 30, 2002
Table of Contents
Part I - Financial Information Page
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets at June 30, 2002 and
September 30, 2001. 3
Consolidated Statements of Income for the three
months ended June 30, 2002 and 2001. 4
Consolidated Statements of Income for the nine
months ended June 30, 2002 and 2001. 5
Consolidated Statement of Stockholders' Equity
for the nine months ended June 30, 2002. 6
Consolidated Statements of Cash Flows for the nine
months ended June 30, 2002 and 2001. 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 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 16
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements (Unaudited)
AMERICAN ITALIAN PASTA COMPANY
Consolidated Balance Sheets
June 30,2002 Sept. 30, 2001
(In thousands)
(Unaudited)
Assets
Current assets:
Cash and temporary investments $ 9,015 $ 5,284
Trade and other receivables 39,450 37,546
Prepaid expenses and deposits 8,059 8,024
Inventory 56,676 43,866
Deferred income taxes 4,057 3,565
--------- ---------
Total current assets 117,257 98,285
Property, plant and equipment:
Land and improvements 11,086 8,123
Buildings 103,269 99,548
Plant and mill equipment 309,402 269,751
Furniture, fixtures and equipment 14,071 10,957
--------- ---------
437,828 388,379
Accumulated depreciation (94,546) (80,453)
--------- ---------
343,282 307,926
Construction in progress 34,162 31,236
--------- ---------
Total property, plant and equipment 377,444 339,162
Intangible assets 117,042 116,707
Other assets 5,853 5,989
--------- ---------
Total assets $ 617,596 $ 560,143
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 18,021 $ 22,416
Accrued expenses 14,571 19,652
Income tax payable 1,711 877
Current maturities of long-term debt 4,879 1,559
--------- ---------
Total current liabilities 39,182 44,504
Long-term debt 249,392 236,783
Deferred income taxes 43,737 33,664
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares - 10,000,000 -- --
Issued and outstanding shares - none
Class A common stock, $.001 par value:
Authorized shares - 75,000,000 20 19
Issued and outstanding shares - 19,658,629 and
18,003,648 at June 30, 2002 and 19,217,694 and
17,562,713 at September 30, 2001 Class B common stock,
$.001 par value:
Authorized shares - 25,000,000 -- --
Issued and outstanding shares - none
Additional paid-in capital 212,958 202,674
Treasury stock (34,394) (34,394)
Notes receivable from officers (61) (61)
Unearned compensation (423) (223)
Retained earnings 110,481 80,563
Accumulated other comprehensive income (loss) (3,296) (3,386)
--------- ---------
Total stockholders' equity 285,285 245,192
--------- ---------
Total liabilities and stockholders' equity $ 617,596 $ 560,143
========= =========
See accompanying notes to consolidated financial statements.
3
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Income
Three Months Ended
June 30,
2002 2001
(In thousands)
(Unaudited)
Revenues $91,773 $77,300
Cost of goods sold 59,283 52,018
------- -------
Gross profit 32,490 25,282
Selling and marketing expense 10,841 7,413
General and administrative expense 2,811 2,735
------- -------
Operating profit 18,838 15,134
Interest expense, net 2,161 2,161
------- -------
Income before income tax expense 16,677 12,973
Income tax expense 5,670 4,482
------- -------
Net income $11,007 $ 8,491
======= =======
Earnings Per Common Share:
Net income per common share $ .61 $ .49
======= =======
Weighted-average common shares outstanding 17,969 17,498
======= =======
Earnings Per Common Share - Assuming Dilution:
Net income per common share assuming dilution $ .59 $ .46
======= =======
Weighted-average common shares outstanding 18,806 18,353
======= =======
See accompanying notes to consolidated financial statements.
4
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Income
Nine Months Ended
June 30,
2002 2001
(In thousands)
(Unaudited)
Revenues $278,619 $218,734
Cost of goods sold 179,568 150,974
-------- --------
Gross profit 99,051 67,760
Selling and marketing expense 37,482 19,975
General and administrative expense 8,997 7,480
Provision for acquisition expenses -- 1,827
-------- --------
Operating profit 52,572 38,478
Interest expense, net 7,139 5,762
-------- --------
Income before income tax expense 45,433 32,716
Income tax expense 15,515 11,287
-------- --------
Net income $ 29,918 $ 21,429
======== ========
Earnings Per Common Share:
Net income per common share $ 1.68 $ 1.23
======== ========
Weighted-average common shares outstanding 17,824 17,360
======== ========
Earnings Per Common Share - Assuming Dilution:
Net income per common share assuming dilution $ 1.60 $ 1.19
======== ========
Weighted-average common shares outstanding 18,671 18,050
======== ========
See accompanying notes to consolidated financial statements.
5
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statement of Stockholders' Equity
Nine months
ended June 30,
2002
----------------------
(In thousands)
(unaudited)
Class A Common Shares
Balance, beginning of period 19,218
Issuance of shares of Class A Common stock to option holders
& other issuances 441
---------
Balance, end of period 19,659
=========
Class A Common Stock
Balance, beginning of period $ 19
Issuance of shares of Class A Common stock to option holders
& other issuances 1
---------
Balance, end of period $ 20
=========
Additional Paid-in Capital
Balance, beginning of period $ 202,674
Issuance of shares of Class A Common stock to option holders
& other issuances 5,910
Tax benefit from stock compensation 4,374
---------
Balance, end of period $ 212,958
=========
Treasury Stock
Balance, beginning and end of period $ (34,394)
=========
Notes Receivable from Officers
Balance, beginning and end of period $ (61)
=========
Unearned Compensation
Balance, beginning of period $ (223)
Issuance of common stock (284)
Earned compensation 84
---------
Balance, end of period $ (423)
=========
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of period $ (3,386)
Foreign currency translation adjustment 1,292
Interest rate swaps fair value adjustment (1,202)
---------
Balance, end of period $ (3,296)
=========
Retained Earnings
Balance, beginning of period $ 80,563
Net income 29,918
---------
Balance, end of period 110,481
---------
Total Stockholders' Equity $ 285,285
=========
See accompanying notes to consolidated financial statements.
6
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Cash Flows
Nine Months Ended
June 30,
2002 2001
(In thousands)
(Unaudited)
Operating activities:
Net income $ 29,918 $ 21,429
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 15,156 12,530
Deferred income tax 10,073 9,254
Changes in operating assets and liabilities,
net of Mueller's brand acquisition:
Trade and other receivables (2,153) (5,566)
Prepaid expenses and deposits 1,977 (3,604)
Inventory (12,634) (2,946)
Accounts payable and accrued expenses (9,302) 4,791
Income tax payable 4,951 719
Other (869) (1,445)
-------- --------
Net cash provided by operating activities 37,117 35,162
Investing activities:
Purchase of Mueller's pasta brand -- (23,816)
Additions to property, plant and equipment (48,979) (25,284)
Other (2,000) --
-------- --------
Net cash used in investing activities (50,979) (49,100)
Financing activities:
Proceeds from issuance of debt 39,473 24,000
Principal payments on debt and capital lease obligations (27,537) (3,114)
Proceeds from issuance of common stock, net of
issuance costs 5,628 1,809
Purchases of Treasury Stock -- (3,032)
-------- --------
Net cash provided by financing activities 17,564 19,663
Effect of exchange rate changes on cash 29 (2,121)
-------- --------
Net increase in cash and temporary investments 3,731 3,604
Cash and temporary investments at beginning of period 5,284 6,677
-------- --------
Cash and temporary investments at end of period $ 9,015 $ 10,281
======== ========
See accompanying notes to consolidated financial statements.
7
AMERICAN ITALIAN PASTA COMPANY
Notes to Consolidated Financial Statements
June 30, 2002
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
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 accounting principles generally accepted
in the United States 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 nine-month periods ended June 30, 2002 are not necessarily indicative
of the results that may be expected for the year ended September 30, 2002. 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, 2001 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
third fiscal quarter of fiscal years 2002 and 2001 both included thirteen weeks
of activity and are described as the three month periods ended June 30, 2002 and
2001.
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 837,000 and 847,000 shares for the three-month and nine-month
periods ended June 30, 2002, respectively, and 855,000 and 690,000 shares for
the three-month and nine-month periods ended June 30, 2001, respectively.
A summary of the Company's stock option activity:
Number of Shares
Outstanding at September 30, 2001 2,630,864
Exercised (426,396)
Granted 142,990
Canceled/Expired (58,567)
---------
Outstanding at June 30, 2002 2,288,891
=========
3. Continued Dumping and Subsidy Offset Act of 2000
On October 28, 2000, the U.S. government enacted the "Continued Dumping and
Subsidy Offset Act of 2000" (the "Act") which provides that assessed
anti-dumping and subsidy duties liquidated by the Department of Commerce after
October 1, 2000 will be distributed to affected domestic producers. Accordingly,
in late December, AIPC received payment from the Department of Commerce of $7.6
million as the Company's calculated share, based on tariffs liquidated by the
government from October 1, 2000 to September 30, 2001 on Italian and Turkish
imported pasta.
According to Congressional documents, these payments to affected U.S. producers
are for the purpose of maintaining jobs and investments that might
8
be affected through unfair trade practices, and to offset revenues lost through
foreign companies' dumping practices and foreign governments' subsidy practices.
There are no specific requirements on how the funds are to be used by the
Company other than the funds are intended to benefit future periods. As such,
the Company used a significant portion to increase investment in long-term brand
building activities (for example, slotting to expand or recapture distribution;
cooperative advertising and consumer promotion reinforcing the long-term quality
tradition of the Company's brands), and continued strengthening of the Company's
organization.
The Company is recognizing the receipt ratably over the current fiscal year
which patterns the program year under which the payment was received.
Accordingly, during the first nine months of 2002, the Company recognized $5.7
million of retail revenue, which equals 75% of the $7.6 million payment
received. The Company expects to recognize an additional 25%, or $1.9 million,
in the last quarter of the fiscal year.
It is the Company's understanding that procedures will be established by U.S.
Customs to recover potential overpayments under this program to U.S. producers.
Overpayments may be recovered by U.S. Customs for a number of reasons up to one
year after payment is made. The Company has not received any claims of
overpayment.
At this time, indications are that the Company may receive additional payments
under this Act in subsequent years, along with others in the industry. It is not
possible to reasonably estimate the potential amount to be received in future
periods, or to state with certainty whether any payment will be received at all.
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 our 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, including 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 experience in the branded retail pasta
business, our ability to attract and retain key 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 to be materially different, refer to our
Annual Report on Form 10-K filed by the Company on December 26, 2001 with the
Securities and Exchange Commission (Commission File No. 001-13403), 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.
9
Results of Operations
General
Markets. We are the largest producer and one of the fastest-growing
marketers of dry pasta in North America. We produce and sell our pasta products
from three plants in the United States and one plant in Italy.
Our customers are generally separated into two groups: Retail, which
includes our own product brands (e.g. Mueller's, Anthony's, Globe/A-1, Luxury,
Mrs. Grass, Pennsylvania Dutch, R & F, and Ronco), and our private label
business and comprised 73.1% and 74.4% of revenue for the three and nine month
periods ended June 30, 2002, respectively; and Institutional, which includes
ingredient, foodservice and government contracts, and comprised 26.9% and 25.6%
of revenue for the three and nine month periods ended June 30, 2002,
respectively.
Costs. Our primary costs are durum wheat, packaging materials, labor, and
selling and marketing. Durum wheat is a cash crop, the average monthly market
price of which fluctuates. We manage our durum wheat cost risk through cost
pass-through mechanisms and other arrangements with our customers and advance
purchase contracts which are generally less than twelve months' duration. Our
labor costs remain relatively stable, but are declining as a percentage of
revenue.
Selling and marketing costs have increased substantially over the last two
years in line with the significant expansion of our Retail business. These costs
increased 114.4% from our 1999 fiscal year through our 2001 fiscal year,
increasing from $14.9 million to $31.8 million over this three-year period, and
constituted 13.5% of revenues for the nine months ended June 30, 2002. We expect
selling and marketing expense to continue in excess of 12% of revenues for the
foreseeable future.
Brand Acquisitions. In November 2000, we purchased the Mueller's pasta
brand from Bestfoods. In July 2001, we purchased seven pasta brands from Borden
Foods. As discussed below, the timing of these brand acquisitions had an impact
on the period-to-period comparisons.
Third quarter fiscal 2002 compared to third quarter fiscal 2001.
Revenues. Total revenues increased $14.5 million, or 18.7%, to $91.8
million for the three-month period ended June 30, 2002, from $77.3 million for
the three-month period ended June 30, 2001. The increase for the three-month
period ended June 30, 2002 was due primarily to organic volume growth and volume
growth from acquisitions. In addition, we benefited from a U.S. government
dumping and subsidy offset payment (see Note 3 to the Consolidated Financial
Statements), with $1.9 million recorded as gross revenue in the current quarter.
There was little change to average prices during the quarter, compared to a year
ago.
Revenues for the Retail market increased $11.9 million, or 21.6%, to $67.1
million in the current period, compared to $55.2 million for the three-month
period ended June 30, 2001. The increase primarily reflects volume growth of
20.1%, much of which came from the brand acquisitions, and Retail revenue of
$1.9 million, which represents 25% of the $7.6 million U.S. government payment
received in December 2001. (See Note 3 to the Consolidated Financial
Statements.) There was little change to average prices during the quarter,
compared to a year ago.
Revenues for the Institutional market increased $2.6 million, or 11.5%, to
$24.7 million for the three-month period ended June 30, 2002, from $22.1
10
million for the three-month period ended June 30, 2001. This increase was
primarily a result of higher volumes in all Institutional businesses.
Gross Profit. Gross profit increased $7.2 million, or 28.5%, to $32.5
million for the three-month period ended June 30, 2002, from $25.3 million for
the three-month period ended June 30, 2001. This increase was primarily
attributable to revenue growth associated with increased volumes and the higher
per unit selling prices of our branded products. Additionally, gross margin
benefited from lower manufacturing and logistics costs. Gross profit as a
percentage of revenues increased to 35.4% for the three-month period ended June
30, 2002, from 32.7% for the three-month period ended June 30, 2001. The
increase in gross profit as a percentage of revenues relates to incremental
gross profit on branded products subsequent to the acquisitions. For the
remainder of the 2002 year, we expect year over year increases in gross profit
percentage to continue as a result of the brand acquisitions.
Selling and Marketing Expense. Selling and marketing expense increased $3.4
million, or 46.2%, to $10.8 million for the three-month period ended June 30,
2002, from $7.4 million for the three-month period ended June 30, 2001. Selling
and marketing expense as a percentage of revenues increased to 11.8% for the
three-month period ended June 30, 2002, from 9.6% for the comparable prior year
period. 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 our branded business. Going forward, we expect selling and
marketing expenses to exceed 12% of net revenues due to the additional
promotional expenses associated with the branded retail business.
General and Administrative Expense. General and administrative expense
increased $0.1 million, or 2.8%, to $2.8 million for the three-month period
ended June 30, 2002, from $2.7 million for the comparable prior year period.
General and administrative expense as a percentage of revenues decreased to 3.1%
from 3.5%.
Operating Profit. Operating profit for the three-month period ended June
30, 2002, was $18.8 million, an increase of $3.7 million or 24.5% over the $15.1
million reported for the three-month period ended June 30, 2001. Operating
profit increased as a percentage of revenues to 20.5% for the three-month period
ended June 30, 2002, from 19.6% for the three-month period ended June 30, 2001,
as a result of the factors discussed above.
Interest Expense. Interest expense was $2.2 million for the three-month
periods ended June 30, 2002 and June 30, 2001. The effect of higher borrowings
to fund acquisitions and capital expenditures was offset by lower interest rates
in the current period.
Income Tax. Income tax expense for the three-month period ended June 30,
2002, was $5.7 million, increasing $1.2 million from the $4.5 million reported
for the three-month period ended June 30, 2001, and reflects an effective income
tax rate of approximately 34.0% and 34.5%, respectively.
Net Income. Net income for the three-month period ended June 30, 2002, was
$11.0 million, increasing $2.5 million or 29.6% from the $8.5 million reported
for the three-month period ended June 30, 2001. Net income as a percentage of
revenues was 12.0% compared with 11.0% for the same period of 2001. Diluted
earnings per share were $0.59 per share for the three-month period ended June
30, 2002 compared to $0.46 per share in the comparable prior year period,
representing an increase of 28.3%.
11
Nine months fiscal 2002 compared to nine months fiscal 2001.
Revenues. Revenues increased $59.9 million, or 27.4%, to $278.6 million for
the nine-month period ended June 30, 2002, from $218.7 million for the
nine-month period ended June 30, 2001. The increase for the nine-month period
ended June 30, 2002 was primarily due to higher volumes (up 22.5%) from the
brand acquisitions and organic growth (up 12.1%). In addition to volume growth,
average prices were higher primarily due to the brand acquisitions. Also
included in Retail revenue is $5.7 million, which represents 75% of the $7.6
million Department of Commerce payment received in December 2001. (See Note 3 to
the Consolidated Financial Statements.)
Revenues for the Retail market increased $51.4 million, or 33.0%, to $207.3
million for the nine-month period ended June 30, 2002, from $155.8 million for
the nine-month period ended June 30, 2001. The increase primarily reflects
volume growth of 26.7%, much of which came from the brand acquisitions, and the
higher per unit selling prices of the acquired brands.
Revenues for the Institutional market increased $8.5 million, or 13.5%, to
$71.4 million for the nine-month period ended June 30, 2002, from $62.9 million
for the nine-month period ended June 30, 2001. This increase was primarily due
to volume growth in the ingredient market of 12.9%, and higher average selling
prices.
Gross Profit. Gross profit increased $31.3 million, or 46.2%, to $99.1
million for the nine-month period ended June 30, 2002, from $67.8 million for
the nine-month period ended June 30, 2001. This increase was primarily
attributable to revenue growth associated with increased volumes and the higher
per unit selling prices of our branded products. Additionally, gross margin
benefited from lower manufacturing and logistics costs. Gross profit as a
percentage of revenues increased to 35.6% for the nine-month period ended June
30, 2002 from 31.0% for the nine-month period ended June 30, 2001. The increase
in gross profit as a percentage of revenues relates primarily to incremental
gross profit on our branded products subsequent to the acquisitions. For the
remainder of the 2002 year, we expect year over year increases in gross profit
to continue as a result of our brand acquisitions.
Selling and Marketing Expense. Selling and marketing expense increased
$17.5 million, or 87.6%, to $37.5 million for the nine-month period ended June
30, 2002, from $20.0 million for the nine-month period ended June 30, 2001.
Selling and marketing expense as a percentage of revenues was 13.5% for the
nine-month period ended June 30, 2002, up from 9.1% 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 our branded business. Going forward, we expect
selling and marketing expenses to exceed 12% of net revenues due to the
additional promotional support dedicated to the branded business.
General and Administrative Expense. General and administrative expense
increased $1.5 million, or 20.3%, to $9.0 million for the nine-month period
ended June 30, 2002, from $7.5 million for the comparable prior year period.
General and administrative expense as a percentage of revenues was 3.2% for the
nine-month period ended June 30, 2002, down from 3.4% for the comparable prior
year period. The majority of the increase relates to personnel costs associated
with the brand acquisitions.
Provision for Acquisition Related Expenses. The provision for acquisition
related expense of $1.8 million for the nine-month period ended June 30, 2001
consisted of one-time costs associated with the Mueller's acquisition.
Operating Profit. Operating profit for the nine-month period ended June 30,
2002, was $52.6 million, an increase of $14.1 million or 36.6% over the
12
$38.5 million reported for the nine-month period ended June 30, 2001, and
increased as a percentage of revenues to 18.9% for the nine-month period ended
June 30, 2002, from 17.6% for the nine-month period ended June 30, 2001 as a
result of the factors discussed above.
Interest Expense. Interest expense for the nine-month period ended June 30,
2002, was $7.1 million, increasing $1.4 million from the $5.8 million reported
for the nine-month period ended June 30, 2001. The increase is related to
borrowings associated with the brand acquisitions and capital expenditures,
offset by lower interest rates in the current period.
Income Tax. Income tax expense for the nine-month period ended June 30,
2002, was $15.5 million, increasing $4.2 million from the $11.3 million reported
for the nine-month period ended June 30, 2001, and reflects an effective income
tax rate of approximately 34.1% and 34.5%, respectively.
Net Income. Net income for the nine-month period ended June 30, 2002, was
$29.9 million, increasing $8.5 million or 39.6% from the $21.4 million reported
for the nine-month period ended June 30, 2001. Diluted earnings per common share
were $1.60 per share for the nine-month period ended June 30, 2002 compared to
$1.19 per share for the nine-month period ended June 30, 2001.
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
$9.0 million, and net working capital totaled $78.1 million at June 30, 2002.
Our net cash provided by operating activities totaled $37.1 million for the
nine-month period ended June 30, 2002 compared to $35.2 million for the
nine-month period ended June 30, 2001. Improved operating results were offset by
increased working capital requirements, primarily related to an increase in
inventory.
Cash used in investing activities principally relates to our investments in
manufacturing, distribution and milling assets. Capital expenditures were $51.0
million for the nine-month period ended June 30, 2002 compared to $25.3 million
in the comparable prior fiscal year period. The primary increase in such
spending for the nine-month period ended June 30, 2002 was related to
significant capital expenditures for our new Arizona manufacturing facility. The
total cost of this facility is expected to be approximately $45 million, and
completion is expected in early fiscal year 2003. In addition to the new Arizona
facility, we plan to spend approximately $5.0 million in the remainder of fiscal
year 2002, primarily for cost saving projects, maintenance projects, and
capacity expansion projects. We anticipate completion of these projects during
the year ending September 30, 2002.
Net cash provided by financing activities was $17.6 million for the
nine-month period ended June 30, 2002 compared to net cash provided of $19.7
million for the nine-month period ended June 30, 2001. The increase is primarily
the result of borrowings to fund the new Arizona facility.
We currently use cash from operations and borrowings to fund capital
expenditures, repayments of debt, and working capital requirements. We expect
that future cash requirements will continue to be principally for capital
expenditures, repayments of indebtedness, and working capital requirements.
13
We have current commitments for $19.3 million in raw material purchases for
fiscal year 2002 and 2003. Additionally, we have approximately $24.0 million in
expenditures remaining under the previously referenced capital programs.
Included in this total is $20.0 million for the Arizona facility, which is
expected to be spent over the remainder of 2002 and early in fiscal 2003. We
expect to fund these commitments from operations and borrowings under our credit
facility. The credit facility currently has available capacity of approximately
$69 million. At this time, the current and projected borrowings under the credit
facility do not exceed the facility's available commitment. The facility matures
on October 2, 2006. 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 relates 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 $145 million outstanding at June 30, 2002. The estimated fair value
of the interest rate swap agreements of $(1,631,000) is the amount we would be
required to pay to terminate the swap agreements at June 30, 2002. If interest
rates for our long-term debt under our credit facility had averaged 10% more and
the full amount available under our credit facility had been outstanding for the
entire year, our interest expense would have increased, and income before taxes
would have decreased by $0.5 million for the quarter ended June 30, 2002. 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 are recorded as a component of the net translation adjustment in the
consolidated statement of stockholders' equity.
The functional currency for our Italy operation is the Euro. At June 30,
2002, long-term debt includes obligations of 37.5 million Euros ($35.8 million)
under a credit facility which bears interest at a variable rate based upon the
Euribor rate.
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
- ---------------------------------------------------------------------
Not applicable
Item 5. Other Information
- -----------------------------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
- --------------------------------------------------
(a) Exhibits.
10. Employment Agreement with Timothy S. Webster dated May 30, 2002.
99. Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
(b) Reports on Form 8-K
None.
15
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
August 5, 2002 /s/ Timothy S. Webster
- ------------------------- --------------------------------------------
Date Timothy S. Webster
President and Chief Executive Officer
(Principal Executive Officer)
August 5, 2002 /s/ Warren B. Schmidgall
- ----------------------- --------------------------------------------
Date Warren B. Schmidgall
Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
16
EXHIBIT INDEX
Exhibit No. Description
- ----------- ----------------------------------------------------------------
10. Employment Agreement with Timothy S. Webster dated May 30, 2002.
99. Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002