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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: April 2, 2004
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
The number of shares outstanding as of May 12, 2004 of the Registrant's
Class A Convertible Common Stock was 18,046,763 and there were no shares
outstanding of the Class B Common Stock.
Page 1
American Italian Pasta Company
Form 10-Q
Quarter Ended April 2, 2004
Table of Contents
Part I - Financial Information Page
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets at April 2, 2004 and
October 3, 2003. 3
Consolidated Statements of Income for the three
months ended April 2, 2004 and April 4, 2003. 4
Consolidated Statements of Income for the six
months ended April 2, 2004 and April 4, 2003. 5
Consolidated Statements of Stockholders' Equity
for the six months ended April 2, 2004. 6
Consolidated Statements of Comprehensive Income
for the three months ended April 2, 2004 and
April 4, 2003. 7
Consolidated Statements of Comprehensive Income
for the six months ended April 2, 2004 and
April 4, 2003. 8
Consolidated Statements of Cash Flows for the
six months ended April 2, 2004 and April 4, 2003. 9
Notes to Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 21
Item 4. Controls and Procedures 21
Part II - Other Information
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
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
April 2, October 3,
2004 2003
(In thousands)
(Unaudited)
Assets
Current assets:
Cash and temporary investments $ 6,621 $6,465
Trade and other receivables 49,106 51,730
Prepaid expenses and deposits 15,554 12,692
Inventory 87,812 78,760
Deferred income taxes 2,435 2,435
-------- --------
Total current assets 161,528 152,082
Property, plant and equipment:
Land and improvements 14,998 14,867
Buildings 133,240 132,035
Plant and mill equipment 379,222 355,767
Furniture, fixtures and equipment 28,269 25,266
-------- --------
555,729 527,935
Accumulated depreciation (134,950) (122,811)
-------- --------
420,779 405,124
Construction in progress 7,064 18,996
-------- --------
Total property, plant and equipment 427,843 424,120
Brands and trademarks 189,909 186,147
Other assets 8,913 8,146
-------- --------
Total assets $788,193 $770,495
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 32,980 $ 42,416
Accrued expenses 21,012 18,480
Income tax payable 269 1,096
Current maturities of long-term debt 4,990 2,554
------- -------
Total current liabilities 59,251 64,546
Long-term debt 304,884 300,778
Deferred income taxes 68,436 61,666
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 20
Issued and outstanding shares - 20,146,595
and 18,023,134, respectively at April 2,
2004, and 20,063,827 and 18,040,709,
respectively at October 3, 2003
Class B common stock, $.001 par value:
Authorized shares - 25,000,000 -- --
Issued and outstanding shares - none
Additional paid-in capital 229,782 227,234
Treasury stock (51,598) (46,585)
Unearned compensation (1,259) (891)
Retained earnings 176,804 164,495
Accumulated other comprehensive income (loss) 1,873 (768)
------- -------
Total stockholders' equity 355,622 343,505
------- -------
Total liabilities and stockholders' equity $788,193 $770,495
======== ========
See accompanying notes to consolidated financial statements.
Page 3
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Income
Three Months Ended
April 2, April 4,
2004 2003
(In thousands, except per
share data)
(Unaudited)
Revenues $113,347 $110,652
Cost of goods sold 78,542 75,371
New product development and start up costs 2,627 --
-------- --------
Gross profit 32,178 35,281
Selling and marketing expense 14,384 12,743
General and administrative expense 3,921 3,545
Acquisition-related expenses -- 3,511
-------- --------
Operating profit 13,873 15,482
Interest expense, net 2,589 2,249
-------- --------
Income before income tax expense 11,284 13,233
Income tax expense 3,723 4,363
-------- --------
Net income $ 7,561 $ 8,870
======== ========
Earnings Per Common Share:
Net income per common share $ .42 $ .50
======== ========
Weighted-average common shares outstanding 17,996 17,727
======== ========
Earnings Per Common Share - Assuming Dilution:
Net income per common share assuming dilution $ .41 $ .48
======== ========
Weighted-average common shares outstanding 18,602 18,421
======== ========
Cash Dividend Declared Per Common Share $ .1875 $ --
======== ========
See accompanying notes to consolidated financial statements.
Page 4
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Income
Six Months Ended
April 2, April 4,
2004 2003
(In thousands, except per
share data)
(Unaudited)
Revenues $ 214,946 $217,688
Cost of goods sold 148,287 148,830
New product development and start-up costs 2,627 --
--------- --------
Gross profit 64,032 68,858
Selling and marketing expense 27,962 26,336
General and administrative expense 7,170 6,357
Acquisition-related and plant start-up expenses -- 4,939
--------- --------
Operating profit 28,900 31,226
Interest expense, net 5,486 4,676
--------- --------
Income before income tax expense 23,414 26,550
Income tax expense 7,726 8,757
--------- --------
Net income $ 15,688 $ 17,793
========= ========
Earnings Per Common Share:
Net income per common share $ .87 $ 1.00
========= ========
Weighted-average common shares outstanding 18,021 17,781
========= ========
Earnings Per Common Share - Assuming Dilution:
Net income per common share assuming dilution $ .84 $ .97
========= ========
Weighted-average common shares outstanding 18,621 18,423
========= ========
Cash Dividend Declared Per Common Share $ .1875 $ --
========= ========
See accompanying notes to consolidated financial statements.
Page 5
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Stockholders' Equity
Six Months Ended
April 2, 2004
--------------------
(In thousands)
(unaudited)
Class A Common Shares
Balance, beginning of period 20,064
Issuance of shares of Class A Common stock through option
exercises & other issuances, (net) 82
----------
Balance, end of period 20,146
==========
Class A Common Stock
Balance, beginning and end of period $ 20
==========
Additional Paid-in Capital
Balance, beginning of period $ 227,234
Issuance of shares of Class A Common stock through option
exercises & other issuances, net 2,177
Tax benefit from stock compensation 371
----------
Balance, end of period $ 229,782
==========
Treasury Stock
Balance, beginning of period $ (46,585)
Purchase of treasury stock (5,013)
----------
Balance, end of period $ (51,598)
==========
Unearned Compensation
Balance, beginning of period $ (891)
Earned compensation 238
Issuance of common stock (606)
----------
Balance, end of period $ (1,259)
==========
Other Comprehensive Income (Loss)
Foreign currency translation adjustment
Balance, beginning of period $ 1,751
Change during the period 2,393
----------
Balance, end of period $ 4,144
----------
Interest rate swaps fair value adjustment
Balance, beginning of period (2,519)
Change during the period 248
----------
Balance, end of period (2,271)
----------
Total accumulated other comprehensive income $ 1,873
==========
Retained Earnings
Balance, beginning of period $ 164,495
Net income 15,688
Dividends declared (3,379)
----------
Balance, end of period $ 176,804
==========
Total Stockholders' Equity $ 355,622
==========
See accompanying notes to consolidated financial statements.
Page 6
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Comprehensive Income
Three months ended
April 2, April 4,
2004 2003
(In thousands)
(unaudited)
Net income $7,561 $8,870
Other comprehensive loss
Net unrealized losses on qualifying cash
flow hedges (net of income tax benefit
of $370 and $334, respectively) (752) (675)
Foreign currency translation adjustment
(net of income tax benefit (expense) of
$448 and ($329), respectively) (910) 668
------- ------
Total other comprehensive loss (1,662) (7)
------- ------
Comprehensive income $5,899 $8,863
======= ======
See accompanying notes to consolidated financial statements.
Page 7
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Comprehensive Income
Six months ended
April 2, April 4,
2004 2003
(In thousands)
(unaudited)
Net income $15,688 $17,793
Other comprehensive income
Net unrealized gains (losses) on
qualifying cash flow hedges (net of
income tax benefit (expense)of ($122) and
$690, respectively) 248 (1,401)
Foreign currency translation adjustment
(net of income tax expense of ($1,179) and
($996), respectively) 2,393 2,023
------- -------
Total other comprehensive income 2,641 622
------- -------
Comprehensive income $18,329 $18,415
======= =======
See accompanying notes to consolidated financial statements.
Page 8
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Cash Flows
Six Months Ended
April 2, April 4,
2004 2003
(In thousands)
(Unaudited)
Operating activities:
Net income $15,688 $17,793
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 12,939 11,743
Deferred income tax expense 5,990 7,246
Changes in operating assets and liabilities:
Trade and other receivables 2,861 3,624
Prepaid expenses and deposits (2,963) (1,987)
Inventory (9,152) (7,563)
Accounts payable and accrued expenses (7,892) 14,048
Income tax payable 549 (288)
Other (664) (1,809)
------- -------
Net cash provided by operating activities 17,356 42,807
Investing activities:
Purchase of pasta brands (4,280) (54,234)
Additions to property, plant and equipment (14,296) (25,856)
------- -------
Net cash used in investing activities (18,576) (80,090)
Financing activities:
Additions to deferred debt issuance costs (269) (1,106)
Proceeds from issuance of debt 10,223 62,988
Principal payments on debt and capital lease
Obligations (9,041) (16,880)
Proceeds from issuance of common stock, net of
issuance costs 1,772 1,229
Purchase of treasury stock (1,013) (12,119)
------- -------
Net cash provided by financing activities 1,672 34,112
Effect of exchange rate changes on cash (296) 320
------- -------
Net increase (decrease) in cash
and temporary investments 156 (2,851)
Cash and temporary investments at beginning of period 6,465 8,247
------- -------
Cash and temporary investments at end of period $ 6,621 $ 5,396
======= =======
Supplemental disclosure of cash flow information:
Note payable exchanged for treasury stock $ 4,000 $ --
======= =======
Pasta brands acquired in exchange for common stock $ -- $ 5,000
======= =======
See accompanying notes to consolidated financial statements.
Page 9
AMERICAN ITALIAN PASTA COMPANY
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
April 2, 2004
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 April 2, 2004
are not necessarily indicative of the results that may be expected for the year
ended October 1, 2004. 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 October 3, 2003.
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 2004 included thirteen weeks of activity and
fiscal 2003 included fourteen weeks of activity and are included in the
six-month periods ended April 2, 2004 and April 4, 2003, respectively.
Inventories
Inventories are stated using product specific standard costs which approximate
the lower of cost determined on a first-in, first-out (FIFO) basis, or market.
Inventories consist of the following:
April 2, October 3,
2004 2003
(In thousands)
Finished goods $71,316 $65,024
Raw materials, packaging materials and
work-in-process 16,496 13,736
------- -------
$87,812 $78,760
======= =======
2. Stock Options/Earnings Per Share
A summary of the Company's stock option activity:
Number of Shares
Outstanding at October 3, 2003 2,793,593
Exercised (57,452)
Granted 73,792
Canceled/Expired (106,969)
---------
Outstanding at April 2, 2004 2,702,964
=========
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 606,000 and 600,000 shares for the three-month and six-month periods
ended April 2, 2004, respectively, and 694,000 and 642,000 shares for the
three-month and six-month periods ended April 4, 2003, respectively.
Page 10
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):
Three months ended Six months ended
April 2, April 4, April 2, April 4,
2004 2003 2004 2003
Net income, as reported $7,561 $8,870 $15,688 $17,793
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects (976) (1,796) (1,849) (3,250)
------ ------ ------- -------
Pro forma net income $6,585 $7,074 $ 13,839 $ 14,543
====== ====== ======== ========
Earnings per share:
Basic - as reported $ .42 $ .50 $ .87 $ 1.00
====== ====== ======== ========
Basic - pro forma $ .37 $ .40 $ .77 $ .82
====== ====== ======== ========
Diluted - as reported $ .41 $ .48 $ .84 $ .97
====== ====== ======== ========
Diluted - pro forma $ .35 $ .38 $ .74 $ .79
====== ====== ======== ========
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"), commonly known as the Byrd Amendment,
which provides that assessed anti-dumping and subsidy duties liquidated by the
Department of Commerce on Italian and Turkish imported pasta after October 1,
2000 will be distributed to affected domestic producers. The legislation
creating the dumping and subsidy offset payment provides for annual payments
from the U.S. government.
In the first quarter of fiscal 2003, the Company received $2.4 million under the
Act and recognized the revenue income ratably in each quarter over the fiscal
year. To date, no payment has been received for fiscal year 2004. However, based
on correspondence from the Department of Customs, the Company expects to receive
$1.5 million for the current fiscal year. Beginning with the current fiscal
year, the Company is recognizing the entire Byrd Amendment payment as revenue in
the quarter in which the amount and the right to receive the payment can be
reasonably determined. As such, the $1.5 million related to fiscal 2003 has been
recognized as revenue in the three months ended April 2, 2004.
It is not possible to reasonably estimate the potential amount, if any, to be
received in future periods beyond fiscal 2004.
4. Brand Acquisitions
On January 5, 2004, the Company repurchased the shares issued pursuant to the
Mrs. Leeper's Specialty Pasta acquisition for $5.0 million and paid $3.0 million
in lieu of the scheduled cash earn out tied to sales and profit growth over the
next two years.
Page 11
5. Dividend Plan
On January 12, 2004, the Company announced that the Board of Directors
authorized the payment of a quarterly dividend of 18.75 cents per share, payable
to shareholders of record as of March 19, 2004, to be paid on April 5, 2004. The
aggregate amount of the dividend, totaling $3,379,000 is recorded in accrued
expenses in the accompanying April 2, 2004 consolidated balance sheet.
6. Amendment to Credit Facility
On January 16, 2004, the Company completed an amendment to its revolving credit
facility. The amendment increases the permitted restricted payments in the
agreement to $40 million plus 25% of consolidated net income. In addition, the
amendment revised the maximum leverage ratios allowable under the original
credit agreement. The original terms of the facility, other than those addressed
above, remain generally the same.
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 30, 2003. 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 believe we are the largest producer and one of the fastest-growing major
marketers of dry pasta in North America. We began operations in 1988. 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 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
75.2% and 75.0% of our total revenue for the six months ended April 2, 2004 and
April 4, 2003, 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
Page 12
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 24.8% and 25.0% of our total
revenue for the six months ended April 2, 2004 and April 4, 2003, respectively.
During the quarter, the dry pasta category in the United States experienced
year-over-year declines in consumption in excess of 7%. In our view this
category decline, which had significant impact on the Company's results for the
quarter versus the year ago quarter, is attributable to dietary concerns by the
American consumer related to carbohydrates. Looking forward over the balance of
fiscal year 2004, we do not anticipate a change in current consumer trends. As a
result, we may adjust or reduce certain production schedules and incur other
costs to reduce inventories and other elements of our cost structure.
Average sales prices for our non-branded products vary depending on
customer-specific packaging and raw material requirements, product manufacturing
complexity and other service requirements. Average prices for our branded
products are based on competitive market factors which normally apply to
consumer package products. 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. Selling prices of our branded
products are significantly higher than selling prices in our other business
units, including private label. This results in higher revenues, gross profits,
and gross margin percentages than our non-branded businesses. Our new reduced
carb product line generates significantly higher per unit revenue than our other
products. Revenues are reported net of cash discounts and product returns.
We seek to develop strategic customer relationships with food industry leaders
that have substantial pasta requirements. We have a long-term supply agreement
through December 31, 2006 with Sysco, and other similar 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 non-contractual
arrangements with our customers as mentioned above and advance purchase
contracts for durum wheat which are generally less than twelve months' duration.
Our new reduced carb product line includes significantly higher costs for raw
materials and manufacturing than our other pasta products.
With the introduction of our reduced carb product line, we incurred $2.6 million
of new product development and start-up costs. These costs represent the upfront
"investment" in a portfolio of new products that we expect to help mitigate the
impact of general pasta consumption declines. These costs included formulation
development and product testing of a portfolio of low and reduced carb products;
incremental manufacturing and logistics costs including unplanned downtime on
dedicated lines, efficiency losses, and excess product waste; overcoming limited
short-term raw material availability and sourcing issues (blending,
transportation, etc.); and quality assurance, outside testing and other direct
product development costs. We currently expect to record additional new product
development and start-up costs of between $1.0 and $1.5 million in the third
quarter of 2004.
Page 13
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, 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 and/or
plant start-up costs include incremental direct and indirect manufacturing and
distribution costs that are incurred as a result of construction, commissioning
and start-up of new manufacturing capacity. 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 when incurred.
Selling and marketing costs increased substantially in both fiscal years 2002
and 2001, in line with the significant expansion of our retail business. These
costs constituted 13.0% and 12.1% of revenues for the six months ended April 2,
2004 and April 4, 2003, respectively. Going forward, we expect these costs to
remain higher than a year ago primarily due to the launch of reduced carb pasta.
Our effective tax rate is expected to increase to approximately 34% in the
second half of fiscal 2004 because of the expiration of certain tax benefits in
our international operations.
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 October 3, 2003 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, and the
estimates used to record 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 October 3, 2003
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 (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 other considerations. 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 have 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
Page 14
employee stock options is equal to 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 1.33% for fiscal 2003 and 2004; dividend yield of zero for
fiscal 2003 and 2% for fiscal 2004; a volatility factor of the expected market
price of our common stock of .354 for fiscal 2003 and fiscal 2004; and a
weighted-average expected life of the options of 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 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.
Accounts Receivable - Significant Customers. We generate approximately 25% of
our revenues and corresponding accounts receivable from sales to two
multi-national 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 variable rate long-term
debt and foreign currency risks associated with our Italy operations. These
derivatives qualify for hedge accounting as discussed in detail in Note 1 to our
October 3, 2003 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. 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 risks, an interest
rate swap is used to effectively convert a portion of variable rate debt to
fixed rate. This instrument is valued using the market standard methodology of
netting the discounted future fixed cash receipts and the discounted expected
variable
Page 15
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 October 3, 2003 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 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 2004 compared to second quarter fiscal 2003.
Revenues. Total revenues increased $2.7 million, or 2.4%, to $113.3 million for
the three-month period ended April 2, 2004, from $110.7 million for the
three-month period ended April 4, 2003. Revenues decreased $3.3 million, or 2.9%
due to lower volumes and increased $6.0 million or 5.4%, due to higher average
selling prices and the impact of the revenue recognized from the Continued
Dumping and Subsidy Offset Act of 2000 (CDSOA). The Company realized $1.5
million in revenue under the CDSOA in the second current fiscal quarter versus
$0.6 million in revenue in the year ago quarter.
Revenues from the Retail market increased $2.3 million, or 2.7%, to $85.2
million for the three-month period ended April 2, 2004, from $82.9 million for
the three-month period ended April 4, 2003. Revenues decreased $2.1 million or
2.6%, due to volume declines and increased $4.4 million, or 5.4% due to higher
average selling prices and the impact of the revenue recognized from the CDSOA.
Volume declines are attributable primarily to declines in category consumption,
partially offset by initial shipments of our new line of reduced carb pastas
while higher average selling prices are attributable to higher selling prices of
our reduced carb pasta, partially offset by pricing and promotion investments
made to increase market share of our base retail products.
Revenues for the Institutional market increased $0.4 million, or 1.6%, to $28.1
million for the three-month period ended April 2, 2004, from $27.7 million for
the three-month period ended April 4, 2003. Revenues decreased $1.0 million or
3.6%, due to lower volumes, and increased $1.4 million, or 5.1% due to higher
average selling prices and changes in sales mix. Ingredient revenues declined by
20.3% due to category weakness and significant trade inventory adjustments. A
strong quarter in our Food Service, Contract and overseas business offset the
performance in Ingredient.
New Product Development and Start-up Costs. The new product development and
start-up costs of $2.6 million for the quarter ended April 2, 2004 related to
our reduced carb products. These costs included: formulation development and
product testing of a portfolio of low and reduced carb products; incremental
manufacturing and logistics costs including unplanned downtime on dedicated
lines, efficiency losses, and excess product waste; overcoming limited
short-term raw material availability and sourcing issues (blending,
transportation, etc.); and quality assurance, outside testing and other direct
product development costs.
Page 16
Gross Profit. Gross profit decreased $3.1 million, or 8.8% to $32.2 million for
the three-month period ended April 2, 2004, from $35.3 million for the
three-month period ended April 4, 2003. Included in the gross profit is the
impact of the $2.6 million charge for incremental costs associated with the new
product development and start-up costs. Gross profit was impacted by a number of
factors compared to the prior year's second quarter; primarily increased per
unit costs, attributable to lower than expected volumes, our expanded
manufacturing and logistics capacity, and inflationary cost factors. Average
prices were higher during the quarter as the higher per unit selling prices of
our reduced carb products and the CDSOA payment offset pricing and promotion
investments made to increase market share of our base retail products.
Gross profit as a percentage of revenues decreased to 28.4% for the three-month
period ended April 2, 2004 from 31.9% for the three month period ended April 4,
2003, principally due to the $2.6 million of incremental costs incurred and
higher costs discussed above, partially offset by the increase in the revenue
associated with the CDSOA. Excluding the new product development and start-up
costs, gross margins were 30.7% for the quarter.
Selling and Marketing Expense. Selling and marketing expense increased $1.6
million, or 12.9%, to $14.4 million for the three-month period ended April 2,
2004, from $12.7 million for the three-month period ended April 4, 2003 due to
increased promotional and marketing support for our brands. Selling and
marketing expense as a percentage of revenues increased to 12.7% for the
three-month period ended April 2, 2004, from 11.5% for the comparable prior year
period.
General and Administrative Expense. General and administrative expenses
increased $0.4 million, or 10.6%, to $3.9 million for the three-month period
ended April 2, 2004 from $3.5 million for the three-month period ended April 4,
2003 primarily due to increased investments in information technology. General
and administrative expense as a percentage of revenues increased to 3.5% for the
three-month period ended April 2, 2004 from 3.2% for the comparable prior year
period.
Acquisition-Related Expenses. The acquisition-related expenses of $3.5 million
for the quarter ended April 4, 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 April 2,
2004, was $13.9 million, a decrease of $1.6 million or 10.4% from the $15.5
million reported for the three-month period ended April 4, 2003. Operating
profit decreased as a percentage of revenues to 12.2% for the three-month period
ended April 2, 2004, from 14.0% for the three-month period ended April 4, 2003
as a result of the factors discussed above.
Interest Expense. Interest expense for the three-month period ended April 2,
2004, was $2.6 million, increasing $0.3 million or 15.1% from the $2.2 million
reported for the three-month period ended April 4, 2003. The increase in
interest is attributable to lower capitalized interest compared to a year ago
when we were completing our Tolleson manufacturing facility, offset partially by
the impact of lower interest rates in the current quarter versus a year ago.
Income Tax. Income tax expense for the three-month period ended April 2, 2004,
was $3.7 million, compared to $4.4 million reported for the three-month period
ended April 4, 2003, and reflects effective income tax rates of approximately
33.0% in both periods.
Net Income. Net income for the three-month period ended April 2, 2004, was $7.6
million, decreasing $1.3 million or 14.8% from the $8.9 million reported for the
three-month period ended April 4, 2003. Diluted earnings per common
Page 17
share were $0.41 per share for the three-month period ended April 2, 2004
compared to $0.48 per share for the three-month period ended April 4, 2003.
Included in the 2004 diluted earnings per common share is the ($0.10) per share
effect of incremental costs associated with new product development and start-up
costs and ($0.13) per share effect due to acquisition expenses in 2003. Net
income as a percentage of the net revenues was 6.7% versus 8.0% in the prior
year.
Six months fiscal 2004 compared to six months fiscal 2003.
Revenues. Revenues decreased $2.7 million, or 1.3%, to $214.9 million for the
six-month period ended April 2, 2004, from $217.7 million for the six-month
period ended April 4, 2003. Revenues decreased $14.4 million, or 6.6% due to
volume declines and increased $11.7 million, or 5.4% due to higher average
selling prices and the impact of revenue recognized from the CDSOA. Also
impacting the comparability of revenue is a 26 week quarter in fiscal 2004
versus a 27 week quarter in fiscal 2003. Revenues were affected by declining
category sales due in part to current reduced carbohydrate awareness trends in
the American diet.
Revenues for the Retail market decreased $4.0 million, or 2.4%, to $160.2
million for the six-month period ended April 2, 2004, from $164.2 million for
the six-month period ended April 4, 2003. Revenues decreased $16.1 million, or
9.8% due to volume declines and increased $12.1 million, or 7.3% due to higher
average selling prices and the impact of revenue recognized from the CDSOA.
Revenues for the Institutional market increased $1.3 million, or 2.4%, to $54.8
million for the six-month period ended April 2, 2004, from $53.5 million for the
six-month period ended April 4, 2003. Revenues increased $1.3 million due to
higher average selling prices while volume was relatively the same between
periods.
New Product Development and Start-up Costs. The new product development and
start-up costs of $2.6 million for the six-month period ended April 2, 2004
related to our reduced carb products. These costs included: formulation
development and product testing of a portfolio of low and reduced carb products;
incremental manufacturing and logistics costs including unplanned downtime on
dedicated lines, efficiency losses, and excess product waste; overcoming limited
short-term raw material availability and sourcing issues (blending,
transportation, etc.); and quality assurance, outside testing and other direct
product development costs.
Gross Profit. Gross profit decreased $4.8 million, or 7.0%, to $64.0 million for
the six-month period ended April 2, 2004, from $68.9 million for the six-month
period ended April 4, 2003. Included in gross profit is the impact of the $2.6
million charge for incremental costs associated with the new product development
and start-up costs. Gross profit was impacted by a number of factors compared to
the prior year period; primarily volume challenges and higher raw material and
manufacturing costs, along with certain inflationary cost factors, offset by
higher average selling prices.
Gross profit as a percentage of revenues decreased to 29.8% for the six-month
period ended April 2, 2004, from 31.6% for the six-month period ended April 4,
2003, principally due to the $2.6 million of incremental costs incurred and
higher costs discussed above.
Selling and Marketing Expense. Selling and marketing expense increased $1.6
million, or 6.2%, to $28.0 million for the six-month period ended April 2, 2004,
from $26.3 million for the six-month period ended April 4, 2003, due to
increased promotional and marketing support for our brands. Selling and
marketing expense as a percentage of revenues increased to 13.0% for the
six-month period ended April 2, 2004, from 12.1% for the comparable prior year
period.
Page 18
General and Administrative Expense. General and administrative expense increased
$0.8 million, or 12.8%, to $7.2 million for the six-month period ended April 2,
2004, from $6.4 million for the comparable prior period, and increased as a
percentage of revenues at 3.3% and 2.9% for the six-month periods ended April 2,
2004 and April 4, 2003, respectively. This is attributable primarily to
increased information technology and organization-related costs.
Acquisition-Related and Plant Start-up Expenses. The acquisition-related and
plant start-up expenses of $4.9 million for the six-month period ended April 4,
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 April 2, 2004,
was $28.9 million, a decrease of $2.3 million or 7.4% from the $31.2 million
reported for the six-month period ended April 4, 2003. Operating profit
decreased as a percentage of revenues to 13.4% for the six-month period ended
April 2, 2004, from 14.3% for the six-month period ended April 4, 2003 as a
result of the factors discussed above.
Interest Expense. Interest expense for the six-month period ended April 2, 2004,
was $5.5 million, increasing $0.8 million or 17.3% from the $4.7 million
reported for the six-month period ended April 4, 2003. The increase in interest
is attributable to lower capitalized interest compared to a year ago when we
were completing our Tolleson facility.
Income Tax. Income tax expense for the six-month period ended April 2, 2004, was
$7.7 million, decreasing $1.0 million from the $8.8 million reported for the
six-month period ended April 4, 2003, and reflects an effective income tax rate
of approximately 33.0% in both periods.
Net Income. Net income for the six-month period ended April 2, 2004, was $15.7
million, decreasing $2.1 million or approximately 11.8% from the $17.8 million
reported for the six months ended April 4, 2003. Diluted earnings per common
share were $0.84 per share for the six-month period ended April 2, 2004 compared
to $0.97 per share for the six-month period ended April 4, 2003. Net income as a
percentage of net revenues was 7.3% versus 8.2% 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 $6.6 million,
and working capital totaled $102.3 million at April 2, 2004.
Our net cash provided by operating activities totaled $17.4 million for the
six-month period ended April 2, 2004 compared to $42.8 million for the six-month
period ended April 4, 2003. This decrease of $25.4 million was primarily due to
higher working capital requirements, specifically related to accounts payable,
which accounts for $21.9 million of the change. Cash provided by operating
activities for the six month period ended April 2, 2004 was reduced by an
increase in inventory of $9.2 million and a decrease in accounts payable and
accrued expenses of $7.9 million. The decrease in payables is related to cost
reduction programs and related supplier agreements.
Cash used in investing activities principally relates to the purchase of pasta
brands and investments in manufacturing, distribution, milling and management
information system assets. In September 2002, we purchased the Lensi brand, and
in October 2002, we purchased the Martha Gooch and LaRosa brands. In addition,
we purchased the Golden Grain/Mission pasta brand and the Mrs. Leeper's pasta
brand in January 2003 and February 2003, respectively, which accounts for the
$54.2 million in the period ended April 4, 2003. Additional cash payments
relative to these acquisitions were made in the period ending
Page 19
April 2, 2004 in the amount of $4.3 million, including the $3 million payment
made in lieu of potential earn out payments related to the Mrs. Leeper's
acquisition. Capital expenditures were $14.3 million for the six-month period
ended April 2, 2004 compared to $25.9 million in the comparable prior year
period.
Net cash provided by financing activities was $1.7 million for the six-month
period ended April 2, 2004 compared to $34.1 million for the six-month period
ended April 4, 2003. The net borrowings of $46.1 million in the fiscal 2003
period relates to the purchase of the Golden Grain/Mission pasta brand and the
purchase of treasury stock. We purchased 346,398 shares of company stock for
$12.1 million in the six months ended April 4, 2003. We continue to use our
available credit facility, as well as cash from operations, to fund capital
expansion programs as necessary.
We continue to use our available credit facility as well as cash from operations
to fund capital expenditures, repayments of debt, and working capital
requirements. On January 12, 2004, the Company announced that the Board of
Directors authorized the payment of a quarterly dividend of 18.75 cents per
share, payable to shareholders of record as of March 19, 2004, to be paid on
April 5, 2004.
Thus, we expect that future cash provided by operating activities will
principally be for repayments of indebtedness, working capital requirements,
capital expenditures and dividends.
Selected
Contractual
Obligations at Payments Due by Period
April 2, 2004 (In thousands)
----------------------------------------------------------------------------------------
Less than After
Total 1 year 1-3 years 4-5 years 5 years
----------------------------------------------------------------------------------------
Long term debt
obligations $309,761 $ 4,951 $304,810 $ -- $ --
Capital lease
obligations 113 39 74 -- --
Raw material
obligations 30,685 22,685 3,000 2,000 3,000
-------- ------- -------- ------ ------
Total contractual
cash obligations $340,559 $27,675 $304,884 $2,000 $3,000
======== ======= ======== ====== ======
Additionally, we have approximately $5 million in expenditures remaining under
capital programs. We expect to fund these commitments from operations and
borrowing capacity 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 20
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 an aggregate notional amount of
$110 million outstanding at April 2, 2004. The estimated fair value of the
interest rate swap agreements ($3.4 million) is the amount we would be required
to pay to terminate the swap agreements at April 2, 2004. 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 $0.6 million for the quarter ended April 2, 2004.
At April 2, 2004 we had a net investment in our Italy operations of (euro)43.7
million ($52.4 million). We hedge our net investment in our foreign subsidiaries
with euro borrowings under our credit facility in the U.S. At April 2, 2004,
long-term debt includes obligations of (euro)37.5 million ($45.4 million).
Interest on our Euro debt is at variable rates and based on Euribor market
rates. 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 stockholder's equity.
The functional currency for our Italy operations is the Euro. We have
transactional exposure to various other European currencies, primarily the
British pound. Our net annual transactional exposure is approximately (euro)14.0
million ($17.0 million). We frequently use forward purchase contracts to hedge
this exposure. At April 2, 2004, we have outstanding forward contracts of
(euro)4.8 million and (pound)1.2 million.
Item 4. CONTROLS AND PROCEDURES
As of the end of the period covered by 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 changes during this fiscal quarter in our internal control
over financial reporting that has materially affected or is reasonably likely to
materially affect our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------------
Not applicable
Page 21
Item 2. Changes in Securities and Use of Proceeds
- -------------------------------
(e) The following table provides the information with respect to purchases made
by the Company of shares of its common stock during the second quarter of 2004:
Total Number
of Shares Approximate
Purchased as Dollar Value of
Total Part of Shares that May
Number of Average Publicly Yet Be
Period Shares Price Paid Announced Purchased Under
Purchased per Share Plan the Plan (1)
- --------------------------------------------------------------------------------------------
January 3 to January 5 100,000(2) $50.00 -- $7,881,000
January 6 to January 30 343(3) 37.43 -- 7,881,000
January 31 to February 27 -- -- -- 7,881,000
February 28 to April 2 -- -- -- 7,881,000
------ ------ ------
Total 100,343 $49.96 --
======= ====== ======
(1) On October 4, 2002 the Company's Board of Directors authorized up to
$20 million to implement a common stock repurchase plan.
(2) On January 5, 2004, the Company repurchased the shares issued pursuant
to the Mrs. Leeper's Specialty Pasta acquisition.
(3) Shares received as payment for taxes related to vesting of restricted
stock.
Item 3. Defaults Upon Senior Securities
- -------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------
The Annual Meeting of Shareholders was held on February 19, 2004.
There were three matters submitted to a vote of security holders. The
first matter was for the election of directors. Each of the persons
named in the Proxy Statement as a nominee for director was elected.
Following are the voting results on each of the nominees for director:
Election of Directors Votes For Votes Withheld
Tim M. Pollak 16,037,476 559,063
William R. Patterson 15,891,195 705,344
Terence C. O'Brien 16,191,481 405,058
The following directors continued in office:
Serving Until 2005: Serving Until 2006:
Jonathan E. Baum Horst Schroeder
Robert H. Niehaus Mark C. Demetree
Richard C. Thompson Timothy S. Webster
James A. Heeter
The second matter was the amendment to the Company's 2000 Equity Plan
to increase the shares available under the Plan from 1,000,000 to
1,800,000. The shareholder's cast 11,391,496 votes in the affirmative
and 3,265,483 votes in the negative, shareholders holding 19,886 votes
abstained from voting and there were 1,919,674 broker non-votes on the
amendment to the 2000 Equity Plan.
The third matter was the ratification of the Board of Directors'
selection of Ernst & Young LLP to serve as the Company's
Page 22
independent auditors for the fiscal year 2004. The shareholders cast
16,071,193 votes in the affirmative and 516,175 votes in the negative
and shareholders holding 9,171 votes abstained from voting on the
ratification of Ernst & Young LLP as the Company's independent
auditors for the fiscal year 2004.
Item 5. Other Information
- -------------------------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
- -------------------------------
(a) Exhibits.
10.1 American Italian Pasta Company 2000 Equity Plan, as amended.
10.2 Second amendment to the Credit Agreement, dated January 16,
2004, among American Italian Pasta Company, various financial
institutions and Bank of America, N.A. as administrative agent.
10.3 Separation agreement dated December 12, 2003 between the
Company and David B. Potter.
31.1 Certification of CEO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of CFO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification of the CEO and CFO Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
We filed a report on Form 8-K on January 13, 2004, announcing a
quarterly dividend.
We furnished a report on Form 8-K on January 28, 2004, announcing
first quarter earnings.
We furnished a report on Form 8-K on February 19, 2004 announcing
the resignation of David B. Potter, Executive Vice President,
Procurement and Ingredient Sales.
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 12, 2004 /s/ Timothy S. Webster
- -------------------- -----------------------------------------
Date Timothy S. Webster
President and Chief Executive Officer
(Principal Executive Officer)
May 12, 2004 /s/ Warren B. Schmidgall
- -------------------- -----------------------------------------
Date Warren B. Schmidgall
Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
Page 24
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------------------------
10.1 American Italian Pasta Company 2000 Equity Plan, as amended.
10.2 Second amendment to the Credit Amendment, dated January 16, 2004,
among American Italian Pasta Company, various financial
institutions and Bank of America, N.A. as administrative agent.
10.3 Separation agreement dated December 12, 2003 between the Company
and David B. Potter.
31.1 Certification of CEO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of CFO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32. Certification of the CEO and CFO Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.