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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: March 31, 2003
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 14, 2003 of the Registrant's
Class A Convertible Common Stock was 17,815,379 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, 2003
Table of Contents
Part I - Financial Information Page
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets at March 31, 2003 and
September 30, 2002. 3
Consolidated Statements of Income for the three
months ended March 31, 2003 and 2002. 4
Consolidated Statements of Income for the six
months ended March 31, 2003 and 2002. 5
Consolidated Statements of Stockholders' Equity
for the six months ended March 31, 2003. 6
Consolidated Statements of Comprehensive Income
for the three months ended March 31, 2003 and 2002. 7
Consolidated Statements of Comprehensive Income
for the six months ended March 31, 2003 and 2002. 8
Consolidated Statements of Cash Flows for the
six months ended March 31, 2003 and 2002. 9
Notes to Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 22
Item 4. Controls and Procedures 22
Part II - Other Information
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signature Page 24
Page 2
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements (Unaudited)
AMERICAN ITALIAN PASTA COMPANY
Consolidated Balance Sheets
March 31, September 30,
2003 2002
(In thousands)
(Unaudited)
Assets
Current assets:
Cash and temporary investments $ 5,396 $ 8,247
Trade and other receivables 43,070 46,463
Prepaid expenses and deposits 12,878 11,282
Inventory 60,605 49,720
Deferred income taxes 2,420 2,420
-------- --------
Total current assets 124,369 118,132
Property, plant and equipment:
Land and improvements 13,593 11,061
Buildings 130,457 111,041
Plant and mill equipment 351,397 312,092
Furniture, fixtures and equipment 24,894 15,509
-------- --------
520,341 449,703
Accumulated depreciation (110,748) (99,607)
-------- --------
409,593 350,096
Construction in progress 10,303 45,844
-------- --------
Total property, plant and equipment 419,896 395,940
Intangible assets 178,504 119,360
Other assets 8,652 7,177
-------- --------
Total assets $731,421 $640,609
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 39,114 $ 21,320
Accrued expenses 14,242 11,359
Income tax payable 1,150 1,585
Current maturities of long-term debt 4,627 4,279
-------- --------
Total current liabilities 59,133 38,543
Long-term debt 310,122 258,193
Deferred income taxes 52,043 46,767
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 20 20
Class B common stock, $.001 par value:
Authorized shares - 25,000,000 -- --
Additional paid-in capital 220,129 213,671
Treasury stock (46,513) (34,394)
Unearned compensation (677) (940)
Retained earnings 139,655 121,862
Accumulated other comprehensive loss (2,491) (3,113)
-------- --------
Total stockholders' equity 310,123 297,106
-------- --------
Total liabilities and stockholders' equity $731,421 $640,609
======== ========
See accompanying notes to consolidated financial statements.
Page 3
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Income
Three Months Ended
March 31,
2003 2002
(In thousands)
(Unaudited)
Revenues $110,652 $94,843
Cost of goods sold 75,371 61,126
-------- -------
Gross profit 35,281 33,717
Selling and marketing expense 12,743 12,845
General and administrative expense 3,545 3,209
Provision for acquisition expenses 3,511 --
-------- -------
Operating profit 15,482 17,663
Interest expense, net 2,249 2,422
-------- -------
Income before income tax expense 13,233 15,241
Income tax expense 4,363 5,182
-------- -------
Net income $ 8,870 $10,059
======== =======
Earnings Per Common Share:
Net income per common share $.50 $.56
======== =======
Weighted-average common shares outstanding 17,727 17,835
======== =======
Earnings Per Common Share - Assuming Dilution:
Net income per common share assuming dilution $.48 $.54
======== =======
Weighted-average common shares outstanding 18,421 18,653
======== =======
See accompanying notes to consolidated financial statements.
Page 4
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Income
Six Months Ended
March 31,
2003 2002
(In thousands)
(Unaudited)
Revenues $217,688 $186,846
Cost of goods sold 148,830 120,285
-------- --------
Gross profit 68,858 66,561
Selling and marketing expense 26,336 26,641
General and administrative expense 6,357 6,186
Provision for acquisition and plant start-up expenses 4,939 --
-------- --------
Operating profit 31,226 33,734
Interest expense, net 4,676 4,978
-------- --------
Income before income tax expense 26,550 28,756
Income tax expense 8,757 9,845
-------- --------
Net income $17,793 $18,911
======== ========
Earnings Per Common Share:
Net income per common share $1.00 $1.06
======== ========
Weighted-average common shares outstanding 17,781 17,764
======== ========
Earnings Per Common Share - Assuming Dilution:
Net income per common share assuming dilution $.97 $1.02
======== ========
Weighted-average common shares outstanding 18,423 18,605
======== ========
See accompanying notes to consolidated financial statements.
Page 5
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Stockholders' Equity
Six months ended March
31, 2003
---------------------------
(In thousands)
(unaudited)
Class A Common Shares
Balance, beginning of period 19,677
Issuance of shares of Class A Common stock to option holders
& other issuances, (net) 152
---------
Balance, end of period 19,829
=========
Class A Common Stock
Balance, beginning and end of period $ 20
=========
Additional Paid-in Capital
Balance, beginning of period $ 213,671
Issuance of shares of Class A Common stock to option holders
& other issuances 6,458
---------
Balance, end of period $ 220,129
=========
Treasury Stock
Balance, beginning of period $ (34,394)
Purchase of treasury stock (12,119)
---------
Balance, end of period $ (46,513)
=========
Unearned Compensation
Balance, beginning of period $ (940)
Cancellation of common stock 250
Earned compensation 133
Issuance of common stock (120)
---------
Balance, end of period $ (677)
=========
Other Comprehensive Income (Loss)
Foreign currency translation adjustment
Balance, beginning of period $ (1,611)
Change during the period 2,023
---------
Balance, end of period 412
Interest rate swaps fair value adjustment
Balance, beginning of period (1,502)
Change during the period (1,401)
---------
Balance, end of period (2,903)
---------
Total accumulated other comprehensive loss $ (2,491)
=========
Retained Earnings
Balance, beginning of period $ 121,862
Net income 17,793
---------
Balance, end of period $ 139,655
=========
Total Stockholders' Equity $ 310,123
=========
See accompanying notes to consolidated financial statements.
Page 6
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Comprehensive Income
Three months ended March 31,
2003 2002
(In thousands)
(unaudited)
Net income $8,870 $10,059
Other comprehensive income (loss)
Net unrealized gain (losses) on qualifying cash
flow hedges (net of income tax benefit (expense) of
$334 and ($107), respectively) (675) 336
Foreign currency translation adjustment
(net of income tax benefit (expense) of
($329) and $0, respectively) 668 (2)
------ -------
Total other comprehensive income (loss) (7) 334
------ -------
Comprehensive income $8,863 $10,393
====== =======
See accompanying notes to consolidated financial statements.
Page 7
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Comprehensive Income
Six months ended March 31,
2003 2002
(In thousands)
(unaudited)
Net income $17,793 $18,911
Other comprehensive income (loss)
Net unrealized losses on qualifying cash
flow hedges (net of income tax benefit of
$690 and $27, respectively) (1,401) (53)
Foreign currency translation adjustment
(net of income tax benefit (expense) of
($996) and $40, respectively) 2,023 (78)
------- -------
Total other comprehensive income (loss) 622 (131)
------- -------
Comprehensive income $18,415 $18,780
======= =======
See accompanying notes to consolidated financial statements.
Page 8
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Cash Flows
Six Months Ended
March 31,
2003 2002
(In thousands)
(Unaudited)
Operating activities:
Net income $17,793 $18,911
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 11,743 9,984
Deferred income tax expense 7,246 4,959
Changes in operating assets and liabilities:
Trade and other receivables 3,624 1,137
Prepaid expenses and deposits (1,987) 1,687
Inventory (7,563) (9,453)
Accounts payable and accrued expenses 14,048 (4,349)
Income tax payable (288) 4,132
Other (1,809) (551)
------- -------
Net cash provided by operating activities 42,807 26,457
Investing activities:
Purchase of pasta brands (54,234) (1,209)
Additions to property, plant and equipment (25,856) (29,593)
------- -------
Net cash used in investing activities (80,090) (30,802)
Financing activities:
Additions to deferred debt issuance costs (1,106) --
Proceeds from issuance of debt 62,988 979
Principal payments on debt and capital lease
Obligations (16,880) (789)
Proceeds from issuance of common stock, net of
issuance costs 1,229 3,668
Purchase of treasury stock (12,119) --
------- -------
Net cash provided by financing activities 34,112 3,858
Effect of exchange rate changes on cash 320 (71)
------- -------
Net decrease in cash and temporary investments (2,851) (558)
Cash and temporary investments at beginning of period 8,247 5,284
------- -------
Cash and temporary investments at end of period $ 5,396 $ 4,726
======= =======
See accompanying notes to consolidated financial statements.
Page 9
AMERICAN ITALIAN PASTA COMPANY
Notes to Consolidated Financial Statements
March 31, 2003
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 six-month period ended March 31, 2003
are not necessarily indicative of the results that may be expected for the year
ended September 30, 2003. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended September 27, 2002.
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
first fiscal quarter of fiscal year 2003 included 14 weeks of activity and
fiscal 2002 included thirteen weeks of activity and are included in the
six-month periods ended March 31, 2003 and 2002.
Reclassifications
Certain amounts within the prior period financial statements have been
reclassified to conform to the current period presentation.
Inventories
Inventories are stated using product specific standard costs which approximate
the lower of cost or market determined on a first-in, first-out (FIFO) basis.
Inventories consist of the following:
March 31, September 30,
2003 2002
(In thousands)
Finished goods $46,107 $38,881
Raw materials, packaging materials and
work-in-process 14,498 10,839
------- -------
$60,605 $49,720
======= =======
2. Stock Options/Earnings Per Share
A summary of the Company's stock option activity:
Number of Shares
Outstanding at September 30, 2002 2,665,821
Exercised (45,521)
Granted 392,000
Canceled/Expired (45,952)
---------
Outstanding at March 31, 2003 2,966,348
=========
Page 10
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 694,000 and 642,000 shares for the three-month and six-month periods
ended March 31, 2003, respectively, and 818,000 and 841,000 shares for the
three-month and six-month periods ended March 31, 2002, respectively.
Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its employee stock options under
the fair value method of Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation".
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
Six months ended March 31
2003 2002
Net income, as reported $ 17,793 $ 18,911
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects (3,250) (1,385)
-------- --------
Pro forma net income $ 14,543 $ 17,526
======== ========
Earnings per share:
Basic - as reported $ 1.00 $ 1.06
======== ========
Basic - pro forma $ .82 $ .99
======== ========
Diluted - as reported $ .97 $ 1.02
======== ========
Diluted - pro forma $ .79 $ .94
======== ========
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 December 2002 and 2001, AIPC received payments from the Department of
Commerce in the amounts of $2.4 million and $7.6 million, respectively, as the
Company's calculated share, based on tariffs liquidated by the government from
October 1, 2000 to September 30, 2002 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 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 brand building
activities (for example, slotting to expand or recapture distribution and
consumer promotion reinforcing the long-term quality tradition of the Company's
brands), and continued strengthening of the Company's organization.
Page 11
The Company recognizes the receipts from the Department of Commerce ratably over
the related fiscal year, which patterns the program year under which the
payments were received. Accordingly, the Company expects to recognize an
additional 25% or $.6 million, in each of the next two quarters of the current
fiscal year.
It is the Company's understanding that overpayments under this program 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. For this reason
and to match the revenue received with the incremental expenditures made under
the program in 2002, the Company recognizes the receipt ratably over the current
fiscal year.
The legislation creating the dumping and subsidy offset payment (referred to as
the Byrd Amendment) provides for annual payments from the U.S. government.
However, it is not possible to reasonably estimate the potential amount, if any,
to be received in future periods.
4. Brand Acquisitions
On October 2, 2002, the Company announced the purchase of the Martha Gooch and
LaRosa pasta brands from ADM in the United States and the Lensi pasta brand from
Pastificio Lensi of Vinci, Italy for an approximate total of $9.5 million,
including trade liabilities. The Pastificio Lensi transaction was completed
prior to the fiscal year ended September 27, 2002, and the Martha Gooch and
LaRosa transactions were completed in early October 2002. No manufacturing
assets were included in the transactions.
On January 31, 2003, the Company purchased the Golden Grain/Mission pasta brand
plus inventory from PepsiCo for approximately $46 million. No significant
manufacturing assets were included in the transaction. Additional costs
associated with this acquisition may be incurred.
On February 27, 2003, the Company purchased the Mrs. Leeper's specialty pasta
business for 100,000 shares of AIPC common stock plus a cash earn out tied to
sale and profit growth over the next three years.
5. Stock Repurchase Plan
In November 2002, the Company's Board of Directors authorized up to $20 million
to implement a common stock repurchase plan. The Company purchased 366,398
shares for $12,119,000, at prices ranging from $32.52 to $34.45 per share during
the six months ended March 31, 2003.
6. Amendment to Credit Facility
On December 13, 2002, the Company completed an amendment to its revolving credit
facility. The amendment provides the Company with an additional $100 million
term loan capacity. The terms of the original credit facility provide commitment
reductions of $110 million between October 1, 2002 and October 1, 2005. The
additional term loan capacity is nearly sufficient to offset the cumulative
annual reductions in credit availability required by the original credit
facility. The original terms of the facility remain generally the same.
Page 12
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 of our 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 or combination of factors
including, but not limited to, those factors identified in our Annual Report on
Form 10-K dated December 19, 2002. That 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
Overview
We are the largest producer and one of the fastest-growing major marketers of
dry pasta in North America. We began operations in 1988 with the introduction of
new, highly efficient durum wheat milling and pasta production technology. We
believe our singular focus on pasta, our vertically-integrated facilities and
highly efficient production facilities focused primarily on specific market
segments, and our highly skilled workforce make us a more efficient company and
enable us to produce high-quality pasta at very competitive costs. We believe
that the combination of our low cost structure, the addition of several new
brands to our portfolio of brands, our scalable production facilities, and our
key customer relationships create significant opportunity for continued growth.
We generate revenues in two customer markets: retail and institutional. Retail
market revenues include the revenues from sales of our pasta products to
customers who resell the pasta in retail channels. These revenues represented
75% and 76% of our total revenue for the six months ended March 31, 2003 and
2002, respectively, and include sales to club stores and grocery retailers, and
encompass sales of our private label and branded products. Institutional market
revenues include revenues from product sales to customers who use our pasta as
an ingredient in food products or who resell our pasta in the foodservice
market. It also includes revenues from opportunistic sales to government
agencies and other customers that we pursue periodically when capacity is
available to increase production volumes and thereby lower average unit costs.
The institutional market represented 25% and 24% of our total revenue for the
six months ended March 31, 2003 and 2002, respectively. Average sales prices in
the retail and institutional markets vary depending on customer-specific
packaging and raw material requirements, product manufacturing complexity and
other service requirements. Average retail and institutional prices will also
vary due to changes in the relative share of customer revenues and item specific
sales volumes (i.e., product sales mix). Generally, average retail sales prices
are higher than institutional sales prices. We anticipate continued changes to
historical income statement patterns as the branded portion of sales mix
continues to expand. Selling prices of our branded products are significantly
higher than selling prices in our other business units including private label.
This results in higher
Page 13
revenues, gross profits, and gross margin percentages than our non-branded
business. Revenues are reported net of cash discounts, pricing allowances and
product returns.
We seek to develop strategic customer relationships with food industry leaders
that have substantial pasta requirements. We have a supply agreement with Sysco,
which is set to renew this year, and other arrangements with food industry
leaders, such as Sam's Club, that provide for the "pass-through" of direct
material cost changes as pricing adjustments. The pass-throughs are generally
limited to actual changes in cost and, as a result, impact percentage
profitability in periods of changing costs and prices. The pass-throughs are
generally effective 30 to 90 days following such cost changes and thereby
significantly reduce the long-term exposure of our operating results to the
volatility of raw material costs. These pass-through arrangements also require
us to pass on the benefits of any price decrease in raw material costs.
Our cost of goods sold consists primarily of raw materials, packaging,
manufacturing (including depreciation) and distribution costs. A significant
portion of our cost of goods sold is durum wheat. We purchase durum wheat on the
open market and, consequently, those purchases are subject to fluctuations in
cost. We manage our durum wheat cost risk through durum wheat cost
"pass-through" agreements in long-term contracts and other noncontractual
arrangements with our customers and advance purchase contracts for durum wheat
which are generally less than twelve months' duration.
Our capital asset strategy is to achieve low-cost production through vertical
integration and investment in the most current pasta-making assets and
technologies. The manufacturing- and distribution-related capital assets that
have been or will be acquired to support this strategy are depreciated over
their respective economic lives. Because of the capital-intensive nature of our
business and our current and future facilities expansion plans, we believe our
depreciation expense for production and distribution assets may be higher than
that of many of our competitors. Depreciation expense is a component of
inventory cost and cost of goods sold. Plant expansion costs include incremental
direct and indirect manufacturing and distribution costs that are incurred as a
result of construction, commissioning and start-up of new capital assets. These
costs are expensed as incurred but are unrelated to current production and,
therefore, reported as a separate line item in the statement of operations. By
locating our newest facility in Arizona closer to our western U.S. customers, we
believe we will generate significant logistical savings and provide superior
service to our west coast customers, while creating additional capacity to
support the continued rapid growth of our business sourced from our existing
plants. We believe adding this strategic location will further enhance our
low-cost producer position in the industry.
Selling and marketing costs increased substantially in both fiscal years 2002
and 2001, in line with the significant expansion of our retail business through
branded acquisitions. These costs constituted 11.5% and 12.1% of revenues for
the three and six months ended March 31, 2003, respectively. We do not expect
significant further growth in our selling and marketing expenditures because we
have substantially completed the development of the selling and marketing
infrastructure needed to support our branded businesses.
As noted, in November 2000, we purchased the Mueller's(R) pasta brand from
Bestfoods. In July 2001, we purchased seven pasta brands from Borden Foods. In
September 2002, we purchased the Lensi brand and in October 2002 we purchased
the Martha Gooch(R) and LaRosa(R) brands. In addition, we purchased the Golden
Grain/Mission pasta brand and Mrs. Leeper's pasta brand in January 2003 and
February 2003, respectively. As discussed below, the timing of these brand
acquisitions had an impact on the period-to-period comparisons.
Page 14
Critical Accounting Policies
This discussion and analysis discusses our results of operations and financial
condition as reflected in our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. As discussed in note 1 to our September 30, 2002 consolidated
financial statements, the preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires our
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues and
expenses during the reporting periods. On an ongoing basis, our management
evaluates its estimates and judgments, including those related to the impairment
of intangible assets, the method of accounting for stock options, the estimates
used to record product return reserves, accounts receivable and allowance for
doubtful accounts and derivatives. Our management bases its estimates and
judgments on its substantial historical experience and other relevant factors,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. See note 1 to our September 30, 2002 consolidated financial statements
for a complete listing of our significant accounting policies. Our most critical
accounting policies are described below.
Impairment Testing of Intangible Assets. In accordance with Statement of
Financial Accounting Standards, or SFAS, No. 142, "Goodwill and Other Intangible
Assets," we do not amortize the cost of intangible assets with indefinite lives.
SFAS No. 142 requires that we perform certain fair value based tests of the
carrying value of indefinite lived intangible assets at least annually and more
frequently should events or changes in circumstances indicate that the carrying
amount of an asset may not be fully recoverable. These impairment tests are
impacted by judgments as to future cash flows and brand performance. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Future events could cause
our management to conclude that impairment indicators exist and that the value
of intangible assets is impaired.
Stock Options. We have elected to follow Accounting Principles Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for our employee stock options and adopted the pro
forma disclosure requirements under SFAS No. 123 "Accounting for Stock-Based
Compensation." Under APB No. 25, because the exercise price of our employee
stock options is equal to or greater than the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123 and has been determined as if we had accounted for our employee
stock options under the fair value method of SFAS No. 123. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions: risk-free
interest rate of 2.0% for fiscal 2003; dividend yield of zero; a volatility
factor of the expected market price of our common stock of .408 for fiscal 2003;
and a weighted-average expected life of the options of one to five years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of
Page 15
highly subjective assumptions including the expected stock price volatility.
Because our employee stock options have characteristics significantly different
from those traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of our employee stock options.
Product Return Reserves. Revenue is recognized when our products are shipped to
our customers. It is our policy across all classes of customers that all sales
are final. As is common in the consumer products industry, customers
occasionally return products for a variety of reasons. Examples include product
damaged in transit, discontinuance of a particular size or form of product and
shipping errors. We record an estimate of products to be returned by customers
as a reserve against sales. We generally base this reserve on our historical
returns experience and sales volume. Significant judgment is required when
estimating the reserves for product returns and there is a risk that actual
product returns may differ from our estimates.
Accounts Receivable - Significant Customers. We generate approximately 25% of
our revenues and corresponding accounts receivable from sales to two customers.
If our primary customers experience significant adverse conditions in their
industry or operations, our customers may not be able to meet their ongoing
financial obligations to us for prior sales or complete the purchase of
additional products from us under the terms of our existing purchase and sale
commitments.
Allowance for Doubtful Accounts - Methodology. We evaluate the collectibility of
our accounts receivable based on a combination of factors. In circumstances
where we are aware of a specific customer's inability to meet its financial
obligations to us (e.g. bankruptcy filings, substantial down-grading of credit
scores), we record a specific reserve for bad debts against amounts due to
reduce the net recognized receivable to the amount we reasonably believe will be
collected. For all other customers, we recognize reserves for bad debts based on
the length of time the receivables are past due, and our historical experience.
If circumstances change (i.e., higher than expected defaults or an unexpected
material adverse change in a major customer's ability to meet its financial
obligations to us), our estimates of the recoverability of amounts due us could
be reduced by a material amount.
Derivatives. We hold derivative financial instruments to hedge a variety of risk
exposures including interest rate risks associated with our long-term debt and
foreign currency fluctuations for transactions with our overseas subsidiary.
These derivatives qualify for hedge accounting as discussed in detail in note 1
to our September 30, 2002 consolidated financial statements. We do not
participate in speculative derivatives trading. Hedge accounting results when we
designate and document the hedging relationships involving these derivative
instruments. While we intend to continue to meet the conditions for hedge
accounting, if hedges did not qualify as highly effective or if we did not
believe that forecasted transactions would occur, the changes in the fair value
of the derivatives used as hedges would be reflected in earnings.
To hedge foreign currency risks, we use futures contracts. The fair values of
these instruments are determined from market quotes. In addition, we use some
over-the-counter forward contracts in hedging these risks. These forward
contracts are valued in a manner similar to that used by the market to value
exchange-traded contracts; that is, using standard valuation formulas with
assumptions about future foreign currency exchange rates derived from existing
exchange rates, and interest rates observed in the market. To hedge interest
rate risk, an interest rate swap is used in which we pay a variable rate and
receive a fixed rate. This instrument is valued using the market standard
methodology of netting the discounted future fixed cash receipts and the
Page 16
discounted expected variable cash payments. The variable cash payments are based
on an expectation of future interest rates derived from observed market interest
rate curves. We have not changed our methods of calculating these fair values or
developing the underlying assumptions. The values of these derivatives will
change over time as cash receipts and payments are made and as market conditions
change. Our derivative instruments are not subject to multiples or leverage on
the underlying commodity or price index. Information about the fair values,
notional amounts, and contractual terms of these instruments can be found in
note 1 to our September 30, 2002 consolidated financial statements and the
section titled "Quantitative and Qualitative Disclosures About Market Risk."
We consider our budgets and forecasts in determining the amounts of our foreign
currency denominated purchases to hedge. We combine the forecasts with
historical observations to establish the percentage of our forecast we are
assuming to be probable of occurring, and therefore eligible to be hedged. The
purchases are hedged for exposures to fluctuations in foreign currency exchange
rates.
We do not believe we are exposed to more than a nominal amount of credit risk in
our interest rate and foreign currency hedges as the counter parties are
established, well-capitalized financial institutions. Our exposure is in liquid
currency (Euros), so there is minimal risk that appropriate derivatives to
maintain our hedging program would not be available in the future.
Second quarter fiscal 2003 compared to second quarter fiscal 2002.
Revenues. Total revenues increased $15.8 million, or 16.7%, to $110.7
million for the three-month period ended March 31, 2003, from $94.8 million for
the three-month period ended March 31, 2002. The increase for the three-month
period ended March 31, 2003 was primarily due to volume growth of 14.7% over the
prior year period. Revenue growth exceeded volume growth due primarily to higher
selling prices related to durum pass throughs and recent brand acquisitions,
offset by a reduction in the payments received from the U.S. government under
the Continued Dumping and Subsidy Offset Act of 2000, and changes in sales mix.
(See Note 3 to the Consolidated Financial Statements)
Revenues for the Retail market increased $12.0 million, or 17.0%, to $82.9
million for the three-month period ended March 31, 2003, from $70.9 million for
the three-month period ended March 31, 2002. The increase primarily reflects
volume growth of 13.8%. Revenue growth exceeded volume growth due primarily to
higher selling prices related to durum pass throughs and recent brand
acquisitions, offset by changes in sales mix and a reduction in the payments
received from the U.S. government under the Continued Dumping and Subsidy Offset
Act of 2000.
Revenues for the Institutional market increased $3.8 million, or 15.7%, to
$27.7 million for the three-month period ended March 31, 2003, from $23.9
million for the three-month period ended March 31, 2002. This increase was
primarily a result of volume growth of 17.5%. Revenue growth lagged volume
growth due primarily to changes in sales mix, offset by higher selling prices
related to durum pass throughs.
Gross Profit. Gross profit increased $1.6 million, or 4.6% to $35.3 million
for the three-month period ended March 31, 2003, from $33.7 million for the
three-month period ended March 31, 2002. This increase was primarily
attributable to revenue growth associated with increased volumes and higher
selling prices. These increases were partially offset by higher raw material
costs, principally durum wheat. Gross profit as a percentage of revenues
decreased to 31.9% for the three-month period ended March 31, 2003 from 35.6%
Page 17
for the three-month period ended March 31, 2002. The decrease in gross profit as
a percentage of revenues relates to the lower net revenue impact of the
Continued Dumping and Subsidy Offset payment, product sales mix associated with
the continued strong growth of our ingredient, private label and club businesses
and the impact of higher raw material costs, principally durum wheat.
Selling and Marketing Expense. Selling and marketing expense decreased $0.1
million, or 0.8%, to $12.7 million for the three-month period ended March 31,
2003, from $12.8 million for the three-month period ended March 31, 2002.
Selling and marketing expense as a percentage of revenues decreased to 11.5% for
the three-month period ended March 31, 2003, from 13.5% for the comparable prior
year period. The lower selling and marketing expense as a percentage of sales is
attributable primarily to higher rates of revenue growth for our businesses
which require less selling and marketing support, and the leverage benefits of
controlling our overhead costs.
General and Administrative Expense. General and administrative expenses
increased $0.3 million, or 10.5%, to $3.5 million for the three-month period
ended March 31, 2003 from $3.2 million for the three-month period ended March
31, 2002. General and administrative expense as a percentage of revenues
decreased to 3.2% for the three-month period ended March 31, 2003 from 3.4% for
the comparable prior year period.
Provision for Acquisition Expenses. The provision for acquisition expenses
of $3.5 million for the quarter ended March 31, 2003 consisted of incremental
costs associated with the brand acquisitions and were incurred primarily for
purchased product premiums during the transition, incremental logistic costs,
employee incentives, and transition support.
Operating Profit. Operating profit for the three-month period ended March
31, 2003, was $15.5 million, a decrease of $2.2 million or 12.3% from the $17.7
million reported for the three-month period ended March 31, 2002. Included in
operating profit is the impact of the $3.5 million charge for incremental costs
associated with the acquisitions. Operating profit decreased as a percentage of
revenues to 14.0% for the three-month period ended March 31, 2003, from 18.6%
for the three-month period ended March 31, 2002 as a result of the factors
discussed above.
Interest Expense. Interest expense for the three-month period ended March
31, 2003, was $2.2 million, decreasing $0.2 million or 7.1% from the $2.4
million reported for the three-month period ended March 31, 2002. Interest
expense decreased from a year ago despite higher average debt, due to lower
interest rates. Additionally, the interest on debt associated with the Arizona
facility was capitalized to the project during the quarter. Interest will no
longer be capitalized to this project since it was placed in service in the
current quarter. Therefore, higher interest expense is expected for the
remainder of fiscal 2003.
Income Tax. Income tax expense for the three-month period ended March 31,
2003, was $4.4 million, compared to $5.2 million reported for the three-month
period ended March 31, 2002, and reflects effective income tax rates of
approximately 33.0% and 34.0%, respectively.
Net Income. Net income for the three-month period ended March 31, 2003, was
$8.9 million, decreasing $1.2 million or 11.8% from the $10.1 million reported
for the three-month period ended March 31, 2002. Included in net income is the
impact of the $3.5 million ($2.3 million after tax) charge for incremental costs
associated with the acquisitions. Diluted earnings per common share were $0.48
per share for the three-month period ended March 31, 2003 compared to $0.54 per
share for the three-month period ended March 31, 2002. Included in the diluted
earnings per common share is the ($0.13) per share
Page 18
effect of incremental costs associated with the acquisitions. Net income as a
percentage of the net revenues was 8.0% versus 10.6% in the prior year.
Six months fiscal 2003 compared to six months fiscal 2002.
Revenues. Revenues increased $30.8 million, or 16.5%, to $217.7 million for
the six-month period ended March 31, 2003, from $186.8 million for the six-month
period ended March 31, 2002. The increase for the six-month period ended March
31, 2002 was primarily due to volume growth of 17.6% over the prior year period.
Revenue growth lagged volume growth due primarily to changes in sales mix and a
reduction in payments received from the U.S. government under the Continued
Dumping and Subsidy Offset Act of 2000, offset by recent branded acquisitions
and higher selling prices related to durum pass throughs. (see Note 3 to the
Consolidated Financial Statements)
Revenues for the Retail market increased $22.5 million, or 15.8%, to $164.2
million for the six-month period ended March 31, 2003, from $141.7 million for
the six-month period ended March 31, 2002. The increase primarily reflects
volume growth of 16.6%, higher selling prices related to durum pass throughs and
the impact of recent brand acquisitions, offset by changes in sales mix and a
reduction in the payments received from the U.S. government under the Continued
Dumping and Subsidy Offset Act of 2000.
Revenues for the Institutional market increased $8.4 million, or 18.6%, to
$53.5 million for the six-month period ended March 31, 2003, from $45.1 million
for the six-month period ended March 31, 2002. This increase was primarily due
to volume growth of 19.6% and higher selling prices related to durum pass
throughs, offset by changes in sales mix.
Gross Profit. Gross profit increased $2.3 million, or 3.5%, to $68.9
million for the six-month period ended March 31, 2003, from $66.6 million for
the six-month period ended March 31, 2002. This increase was primarily due to
revenue growth associated with increased volumes and higher selling prices.
These increases were partially offset by higher raw material costs, principally
durum wheat. Gross profit as a percentage of revenues decreased to 31.6% for the
six-month period ended March 31, 2003, from 35.6% for the six-month period ended
March 31, 2002. The decrease in gross profit as a percentage of revenues relates
to the lower net revenue impact of the Continued Dumping and Offset payment,
product sales mix associated with the continued strong growth of our ingredient,
private label and club businesses and the impact of higher raw material costs,
principally durum wheat.
Selling and Marketing Expense. Selling and marketing expense decreased $0.3
million, or 1.1%, to $26.3 million for the six-month period ended March 31,
2003, from $26.6 million for the six-month period ended March 31, 2002. Selling
and marketing expense as a percentage of revenues decreased to 12.1% for the
six-month period ended March 31, 2003, from 14.3% for the comparable prior year
period. The lower selling and marketing expense as a percentage of revenues is
attributable primarily to higher rates of revenue growth for our businesses
which require less selling and marketing support, and the leverage benefits of
controlling our overhead costs.
General and Administrative Expense. General and administrative expense
increased $0.2 million, or 2.8%, to $6.4 million for the six-month period ended
March 31, 2003, from $6.2 million for the comparable prior period, and decreased
as a percentage of revenues at 2.9% and 3.3% for the six-month periods ended
March 31, 2003 and 2002, respectively.
Provision for Acquisition and Plant Start-up Expenses. The provision for
acquisition and plant start-up expenses of $4.9 million for the six-month
Page 19
period ended March 31, 2003 consisted of incremental costs associated with the
brand acquisitions and plant start-up costs related to the Arizona facility.
Operating Profit. Operating profit for the six-month period ended March 31,
2003, was $31.2 million, a decrease of $2.5 million or 7.4% from the $33.7
million reported for the six-month period ended March 31, 2002. Included in
operating profit is the impact of the $4.9 million charge for incremental costs
associated with the acquisitions and plant start-up expenses. Operating profit
decreased as a percentage of revenues to 14.3% for the six-month period ended
March 31, 2003, from 18.1% for the six-month period ended March 31, 2002 as a
result of the factors discussed above.
Interest Expense. Interest expense for the six-month period ended March 31,
2003, was $4.7 million, decreasing $0.3 million or 6.1% from the $5.0 million
reported for the six-month period ended March 31, 2002. Interest expense
decreased from a year ago despite higher average debt, due to lower interest
rates. Additionally, the interest on debt associated with the Arizona facility
was capitalized to the project during the quarter. Interest will no longer be
capitalized to this project since it was placed in service in the current
quarter. Therefore, higher interest expense is expected for the remainder of
fiscal 2003.
Income Tax. Income tax expense for the six-month period ended March 31,
2003, was $8.8 million, decreasing $1.1 million from the $9.8 million reported
for the six-month period ended March 31, 2002, and reflects effective income tax
rates of approximately 33.0% and 34.2%, respectively.
Net Income. Net income for the six-month period ended March 31, 2003, was
$17.8 million, decreasing $1.1 million or approximately 5.9% from the $18.9
million reported for the six months ended March 31, 2002. Included in net income
is the impact of the $4.9 million ($3.3 million after tax) charge for
incremental costs associated with the acquisitions and plant start-up costs.
Diluted earnings per common share were $0.97 per share for the six-month period
ended March 31, 2003 compared to $1.02 per share for the six-month period ended
March 31, 2002. Included in the diluted earnings per common share is the ($0.18)
per share effect of costs related to acquisition and plant start-up costs. Net
income as a percentage of net revenues was 8.2% versus 10.1% 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
$5.4 million, and working capital totaled $65.2 million at March 31, 2003.
Our net cash provided by operating activities totaled $42.8 million for the
six-month period ended March 31, 2003 compared to $26.5 million for the
six-month period ended March 31, 2002.
Cash used in investing activities principally relates to the purchase of
pasta brands and investments in manufacturing, distribution, milling and
management information system assets. Capital expenditures were $25.9 million
for the six-month period ended March 31, 2003 compared to $29.6 million in the
comparable prior year period. In addition to the new Arizona facility, we plan
to spend approximately $15 million in the remainder of fiscal year 2003,
primarily for cost saving, maintenance and capacity expansion projects.
Net cash provided by financing activities was $34.1 million for the
six-month period ended March 31, 2003 compared to $3.9 million for the six-month
period ended March 31, 2002. The net borrowings of $46.1 million in fiscal 2003
relates to the purchase of the Golden Grain/Mission pasta brand and the
Page 20
purchase of treasury stock. We have purchased 346,398 shares of company stock
for $12.1 million in the six months ended March 31, 2003. 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,
working capital requirements and acquisitions. We expect that future cash
requirements will principally be for capital expenditures, repayments of
indebtedness, working capital requirements and acquisitions.
On December 13, 2002, we completed a $100 million term loan facility as an
amendment to our existing revolving credit agreement. The terms of the original
revolving credit facility provide for commitment reductions of $110 million
between October 1, 2002 and October 1, 2005. The additional term loan capacity
is nearly sufficient to offset the cumulative annual reductions in credit
availability required by the original credit facility. The original terms of the
credit agreement remain generally the same.
Selected
Contractual
Obligations at
March 31, 2003 Payments Due by Period
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Less than 1-3 years 4-5 years After
1 year 5 years
- --------------------------------------------------------------------------------
(in thousands)
Long term debt $313,753 $4,197 $119,556 $190,000 $--
Capital lease
obligations 996 430 566 -- --
Unconditional durum
purchase
obligations 34,034 26,824 7,210 -- --
Total contractual
cash
obligations $348,783 $31,451 $127,332 $190,000 $--
We have current commitments for $34.0 million in durum purchases for fiscal
years 2003 and 2004. Additionally, we have approximately $25.0 million in
expenditures remaining under the previously referenced capital programs. We
anticipate the majority of these current capital programs will be fully funded
by the end of fiscal year 2003. We expect to fund these commitments from
operations and borrowings under our credit facility. 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 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.
Page 21
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 $150
million outstanding at March 31, 2003. The estimated fair value of the interest
rate swap agreements of ($4.4 million) is the amount we would be required to pay
to terminate the swap agreements at March 31, 2003. 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 $0.7 million for the quarter ended March 31, 2003. 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 March 31,
2003, long-term debt includes obligations of 37.5 million Euros ($40.3 million)
under a credit facility which bears interest at a variable rate based upon the
Euribor rate.
Item 4. CONTROLS AND PROCEDURES
Within 90 days prior to the filing of this report, Mr. Webster, our CEO,
and Mr. Schmidgall, our CFO, evaluated our disclosure controls and procedures
and, based on this evaluation, concluded that the Company's disclosure controls
and procedures were appropriate and effective in causing information required to
be disclosed in our reports filed under the Securities Exchange Act of 1934 to
be recorded, processed, summarized and reported within the required time
periods. There have been no significant changes in our internal controls or in
other factors that could significantly affect these controls since May 14, 2003.
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
Page 22
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------
The Annual Meeting of Shareholders was held on February 6, 2003.
There were two 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
Horst Schroeder 16,478,732 98,300
Mark C. Demetree 15,572,218 1,004,814
Timothy S. Webster 16,492,883 84,149
James Heeter 16,154,149 422,883
The following directors continued in office:
Serving Until 2004 Serving Until 2005
Tim Pollak Jonathan E. Baum
William R. Patterson Robert H. Niehaus
Richard C. Thompson
The second matter was the ratification of the Board of
Directors' selection of Ernst & Young LLP to serve as the
Company's independent auditors for the fiscal year 2003. The
shareholders cast 16,013,470 votes in the affirmative and
543,961 votes in the negative and shareholders holding 19,601
votes abstained from voting on the ratification of Ernst &
Young LLP as the Company's independent auditors for the fiscal
year 2003.
Item 5. Other Information
- -------------------------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
- -------------------------------
(a) Exhibits.
10.1 Employment Agreement by and between American Italian Pasta
Company and Horst W. Schroeder dated January 14, 2003.
10.2 Asset Purchase and Sale Agreement by and among American
Italian Pasta Company, PepsiCo Puerto Rico, Inc. and Golden
Grain Company dated January 28, 2003.
10.3 Asset Purchase Agreement by and between American Italian
Pasta Company, Mrs. Leeper's, Inc. and Edwin J. Muscat and
Michelle M. Muscat dated February 27, 2003.
10.4 Form of Stock Option Award Agreement for Stock Option Awards
Pursuant to the Company's 2000 Equity Incentive Plan.
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K.
None
Page 23
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 14, 2003 /s/ Timothy S. Webster
- ---------------------- --------------------------------------------
Date Timothy S. Webster
President and Chief Executive Officer
(Principal Executive Officer)
May 14, 2003 /s/ Warren Schmidgall
- ---------------------- --------------------------------------------
Date Warren Schmidgall
Executive Vice President and Chief Financial
Officer
(Principal Financial and Accounting Officer)
Page 24
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------------------------------
10. Material Contracts
10.1 Employment Agreement by and between American Italian
Pasta Company and Horst W. Schroeder dated January 14,
2003.
10.2 Asset Purchase and Sale Agreement by and among American
Italian Pasta Company, PepsiCo Puerto Rico, Inc. and
Golden Grain Company dated January 28, 2003.
10.3 Asset Purchase Agreement by and between American
Italian Pasta Company, Mrs. Leeper's, Inc. and Edwin J.
Muscat and Michelle M. Muscat dated February 27, 2003.
10.4 Form of Stock Option Award Agreement for Stock Option
Awards Pursuant to the Company's 2000 Equity Incentive
Plan.
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Page 25
CERTIFICATION
I, Timothy S. Webster, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Italian
Pasta Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involved management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003
/s/ Timothy S. Webster
-----------------------------------
Timothy S. Webster, President & CEO
Page 26
CERTIFICATION
I, Warren Schmidgall, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Italian
Pasta Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involved management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003
/s/ Warren Schmidgall
-----------------------------------
Warren Schmidgall, EVP & CFO
Page 27