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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 fiscal period ended December 31, 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 Identification No.)
incorporation or organization)
4100 N. Mulberry Drive, Suite 200, Kansas City, Missouri 64116
- --------------------------------------------------------------------------------
(Address of principal executive office and Zip Code)
(816) 584-5000
---------------------------------------------
Registrant's telephone number, including area code:
Indicate by check mark whether the Registrant has (1) filed all 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 in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
The number of shares outstanding as of February 9, 2004 of the Registrant's
Class A Common Stock was 18,381,582 ) and there were no shares outstanding of
the Class B Common Stock.
1
American Italian Pasta Company
Form 10-Q
Fiscal Quarter Ended December 31, 2004
Table of Contents
Part I - Financial Information Page
Item 1. Consolidated Financial Statements (unaudited) 3
Consolidated Balance Sheets at December 31, 2004 and October 1, 2004 3
Consolidated Statements of Operations for the three months ended 4
December 31, 2004 and January 2, 2004
Consolidated Statement of Stockholders' Equity for the
three months ended December 31, 2004 5
Consolidated Statements of Comprehensive Income for the
three months ended December 31, 2004 and January 2, 2004 6
Consolidated Statements of Cash Flows for the three months ended
December 31, 2004 and January 2, 2004 7
Notes to Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15-16
Item 4. Controls and Procedures 16
Part II - Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Uses of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
Certifications and Signature Page 18-21
2
Item 1. Consolidated Financial Statements
AMERICAN ITALIAN PASTA COMPANY
Consolidated Balance Sheets
(in thousands, except share amounts)
December 31, October 1,
2004 2004
-------------- --------------
ASSETS (Unaudited)
Current assets:
Cash and temporary investments $ 1,351 $ 4,350
Trade and other receivables, net 44,694 45,704
Prepaid expenses and deposits 9,631 10,554
Inventory 60,716 60,704
Deferred income taxes 789 789
-------------- --------------
Total current assets 117,181 122,101
Property, plant and equipment:
Land and improvements 15,780 15,050
Buildings 135,951 133,534
Plant and mill equipment 389,294 384,020
Furniture, fixtures and equipment 31,370 29,990
-------------- --------------
572,395 562,594
Accumulated depreciation (152,997) (145,836)
-------------- --------------
419,398 416,758
Construction in progress 13,793 10,833
-------------- --------------
Total property, plant and equipment 433,191 427,591
Brands and trademarks 190,473 189,984
Other assets 8,959 8,734
-------------- --------------
Total assets $ 749,804 $748,410
============== ==============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 33,139 $ 36,264
Accrued expenses 20,576 17,134
Income tax payable 36 --
Current maturities of long-term debt 2,040
--
-------------- --------------
Total current liabilities 53,751 55,438
Long-term debt, less current maturities 286,498 286,795
Deferred income taxes 63,256 63,691
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 - 20,239,216 and 18,112,020 at
December 31, 2004 and 20,233,855 and 18,108,139 at October 1, 2004
Class B common stock, $.001 par value:
Authorized shares - 25,000,000 -- --
Issued and outstanding shares - none
Additional paid-in capital 232,257 232,184
Treasury stock, 2,127,196 shares at December 31, 2004 and 2,125,696
shares at October 1, 2004, at cost (51,657) (51,657)
Unearned compensation (2,331) (2,556)
Retained earnings 159,421 160,720
Accumulated other comprehensive income 8,589 3,775
-------------- --------------
Total stockholders' equity 346,299 342,486
-------------- --------------
Total liabilities and stockholders' equity $ 749,804 $748,410
============== ==============
See accompanying notes to consolidated financial statements.
3
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three Months Ended
---------------- --------------
December 31, January 2,
2004 2004
---------------- --------------
(Unaudited)
Revenues:
Retail $ 75,685 $ 74,974
Institutional 23,436 26,625
---------------- --------------
Total Revenues 99,121 101,599
---------------- --------------
Cost of goods sold 76,416 69,745
---------------- --------------
Gross profit 22,705 31,854
Percent of total revenues 22.9% 31.4%
Selling and marketing expense 12,248 13,578
General and administrative expense 3,317 3,019
---------------- --------------
Operating profit 7,140 15,257
Percent of total revenues 7.2% 15.0%
Interest expense, net 3,914 3,127
---------------- --------------
Income before income tax expense 3,226 12,130
Income tax provision 1,129 4,003
---------------- --------------
Net income $ 2,097 $ 8,127
================ ==============
Percent of total revenues 2.1% 8.0%
Basic earnings per common share:
Net income per common share $ 0.12 $ 0 .45
================ ==============
Weighted-average common shares outstanding 18,112 18,046
================ ==============
Diluted earnings per common share:
Net income per common share assuming dilution $ 0 .11 $ 0.44
================ ==============
Weighted-average common shares outstanding 18,325 18,641
================ ==============
Cash dividend declared per common share $ 0.1875 $ --
================ ==============
See accompanying notes to consolidated financial statements.
4
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statement of Stockholders' Equity
(in thousands)
Three Months Ended
December 31,
2004
----------------
(Unaudited)
Class A Common Shares
Balance, beginning of period 20,234
Issuance of shares of Class A Common stock to option holders and other issuances 5
----------------
Balance, end of period 20,239
================
Class A Common Stock
Balance, beginning and end of period $ 20
================
Additional Paid-in Capital
Balance, beginning of period $ 232,184
Issuance of shares of Class A Common stock to option holders and other issuances 68
Tax benefit from stock compensation 5
----------------
Balance, end of period $ 232,257
================
Treasury Stock
Balance, beginning and end of period $ (51,657)
================
Unearned Compensation
Balance, beginning of period $ (2,556)
Cancellation of common stock 75
Issuance of common stock (58)
Earned compensation 208
----------------
Balance, end of period $ (2,331)
================
Accumulated Other Comprehensive Income (Loss)
Foreign currency translation adjustment:
Balance, beginning of period $ 4,705
Change during the period 3,892
----------------
Balance, end of period 8,597
----------------
Interest rate swaps and forward exchange contract fair value adjustments:
Balance, beginning of period (930)
Change during the period 922
----------------
Balance, end of period (8)
----------------
Total accumulated other comprehensive income $ 8,589
================
Retained Earnings
Balance, beginning of period $ 160,720
Dividends declared (3,396)
Net income 2,097
----------------
Balance, end of period $ 159,421
----------------
Total Stockholders' Equity $ 346,299
================
See accompanying notes to consolidated financial statements.
5
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Comprehensive Income
(in thousands)
Three Months Ended
----------------------------------
December 31, January 2,
2004 2004
--------------- ---------------
(Unaudited)
Net income $ 2,097 $ 8,127
Other comprehensive income:
Net unrealized gains on qualifying cash flow hedges (net of income
tax expense of $515 and $493, respectively) 922 1,000
Foreign currency translation adjustment (net of income tax benefit
of $1,904 and $3,598, respectively) 3,892 3,303
--------------- ---------------
Total other comprehensive income 4,814 4,303
--------------- ---------------
Comprehensive income $ 6,911 $ 12,430
=============== ===============
See accompanying notes to consolidated financial statements.
6
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended
-----------------------------------
December 31, January 2,
2004 2004
--------------- ---------------
(Unaudited)
Operating activities:
Net income $ 2,097 $ 8,127
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 7,328 6,471
Deferred income tax expense 954 4,675
Changes in operating assets and liabilities:
Trade and other receivables, net 2,311 4,313
Prepaid expenses and deposits 743 (1,764)
Inventory 396 (3,894)
Accounts payable and accrued expenses 1,707 (5,951)
Income taxes 40 (1,070)
Other (223) 278
--------------- ---------------
Net cash provided by operating activities 15,353 11,185
--------------- ---------------
Investing activities:
Additions to property, plant and equipment (8,286) (8,703)
Purchase of pasta brands -- (992)
--------------- ---------------
Net cash used in investing activities (8,286) (9,695)
--------------- ---------------
Financing activities:
Proceeds from issuance of debt 10,953 --
Principal payments on debt and capital lease obligations (17,076) (2,781)
Proceeds from issuance of common stock, net of issuance costs 87 276
Dividends paid (3,396)
--
Other (824) (50)
--------------- ---------------
Net cash used in financing activities (10,256) (2,555)
--------------- ---------------
Effect of exchange rate changes on cash 190 (85)
--------------- ---------------
Net increase (decrease) in cash and temporary investments 2,999 (1,150)
Cash and temporary investments at beginning of period 4,350 6,465
--------------- ---------------
Cash and temporary investments at end of period $ 1,351 $ 5,315
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Note payable exchanged for treasury stock $ -- $ 4,000
=============== ===============
See accompanying notes to consolidated financial statements.
7
AMERICAN ITALIAN PASTA COMPANY
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-months ended December 31, 2004
are not necessarily indicative of the results that may be expected for the
fiscal year ended September 30, 2005. 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 fiscal year ended October 1, 2004.
American Italian Pasta Company (the "Company" or "AIPC") uses a 52/53 week
financial reporting cycle with a fiscal year that 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 years 2005 and 2004 included thirteen weeks of
activity.
Reclassifications - Certain amounts from the prior year have been reclassified
to conform to the current year's presentation. Deferred debt issuance cost
amortization expense totaling $230,000 has been reclassified from general and
administrative expense to interest expense for the first quarter of fiscal 2004.
2. STOCK OPTIONS/EARNINGS PER SHARE
A summary of the Company's stock option activity is as follows:
Number
of Shares
--------------
Outstanding at October 1, 2004 2,810,562
Exercised (1,819)
Granted 25,000
Canceled/Expired (64,200)
--------------
Outstanding at December 31, 2004 2,769,543
==============
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 213,000 shares for the three-month period ended December 31, 2004
and 595,000 shares for the three-month period ended January 2, 2004.
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 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 vesting period of these options. The Company's
pro forma information follows (in thousands, except for earnings per share
information):
Three Months Ended
----------------------------------
December 31, January 2,
2004 2004
--------------- --------------
Net income $ 2,097 $ 8,127
Compensation cost under the fair value method (647) (991)
--------------- --------------
Pro forma net income $ 1,450 $ 7,136
=============== ==============
Pro forma earnings per share:
Basic $ .08 $ .40
=============== ==============
Diluted $ .08 $ .38
=============== ==============
8
3. RESTRUCTURING AND RIGHTSIZING PROGRAM
During the third quarter of fiscal year 2004, the Company announced a
restructuring and rightsizing program to better align its production capacity
and cost structure with the Company's current business and operating profile and
the current pasta industry environment. The restructuring program responded to
industry-wide reductions in demand related to recent changes in consumer diet
trends and to manufacturing overcapacity in the pasta industry. The key
strategic elements of the restructuring and rightsizing program included
reductions in the Company's workforce, manufacturing capacity and inventory
levels and the related reconfiguration of its distribution network. In that
regard, during the fourth quarter of fiscal 2004, the Company suspended full
operations at one of its manufacturing facilities; temporarily shut-down
production at two of its four domestic manufacturing facilities; and exited
certain leased domestic distribution centers. As a result of the restructuring
and rightsizing, production capacity and output will more effectively match
anticipated sales demand, significant cost savings are expected to be generated
and lower inventory levels have been achieved.
During fiscal year 2004, the Company recorded $2,868,000 of restructuring
expenses. These expenses primarily include employee severance and termination
benefits, lease costs, and supply agreement costs. The severance and benefit
costs relate to the termination of approximately 14% of the Company's workforce,
a majority of whom were employed at manufacturing locations. Lease costs relate
to the commitment and termination costs for certain leased warehouses that will
no longer be required due to the distribution network restructuring facilitated
by reduced inventory levels. Supply agreement costs relate to amounts to be paid
under a raw materials supply agreement that includes a minimum purchase
commitment not expected to be met in fiscal year 2005 due to the suspension of
operations at one plant beginning in fiscal year 2004.
The table below sets forth the significant cost components and related activity
in the restructuring program as discussed in Management's Discussion and
Analysis during the three-month period ended December 31, 2004. Certain non-cash
adjustments have been made to reflect severance and supply agreement costs that
will not be incurred due to the decision to reactivate the Kenosha facility
during the quarter. These non-cash adjustments are reflected in the accompanying
2005 Statement of Operations (in thousands):
Balance at
October 1, Non-Cash December 31,
2004 Adjustments Payments 2004
--------------- -------------- --------------- --------------
Employee severance and
termination benefits $ 279 $ (216) $ (63) $ --
Lease costs 559 17 (432) 144
Supply agreement costs 700 (100) -- 600
Other 94 44 (138) --
--------------- -------------- --------------- --------------
Total $ 1,632 $ (255) $ (633) $ 744
=============== ============== =============== ==============
As of December 31, 2004, the remaining liability related to the accrual of the
restructuring costs was $744,000 and is included in "Accrued expenses" on the
accompanying December 31, 2004 consolidated balance sheet.
4. INVENTORIES
Inventories are carried at standard costs adjusted for capitalized variances,
which approximate the lower of cost, determined on a first-in, first-out (FIFO)
basis, or market. The Company periodically reviews its inventory for
slow-moving, damaged or discontinued items and provides reserves to reduce such
items identified to their recoverable amount. Inventories consist of the
following (in thousands):
December 31, October 1,
2004 2004
---------------- ---------------
Finished goods $ 39,053 $ 43,564
Raw materials, additives, packaging materials and work-in-process 21,663 17,140
---------------- ---------------
$ 60,716 $ 60,704
================ ===============
5. 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
9
subsidy offset payment provides for annual payments from the U.S. government.
The Company recognizes the Byrd Amendment payment as revenue in the quarter in
which the amount, and the right to receive the payment, can be reasonably
determined.
In the first quarter of fiscal year 2005, the Company received notice from the
Department of Commerce of the amount to be received and recorded approximately
$1,000,000 as revenue. There was no revenue recorded in the first quarter of
fiscal year 2004. It is not possible to reasonably estimate the potential
amount, if any, to be received in future periods beyond fiscal year 2005.
6. AMENDMENT TO CREDIT FACILITY
On November 9, 2004, the Company's credit facility was amended to revise the
definitions of "Consolidated EBITDA" and "Fixed Charge Coverage Ratio" and to
increase the "Maximum Leverage Ratio" and to decrease the minimum required
Consolidated EBITDA, all related to certain financial covenants in effect in
fiscal year 2004. In addition, the lenders were granted a collateral interest in
substantially all of the Company's tangible and intangible domestic assets.
7. DIVIDENDS
The Company declared and paid a dividend totaling $3,396,000 in the first
quarter of fiscal 2005 (18.75 cents per share)
8. SUBSEQUENT EVENT
On February 2, 2005, the Company's Board of Directors declared a quarterly
dividend of 18.75 cents per share, payable to shareholders of record as of
February 22, 2005, to be paid on March 8, 2005.
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 on form 10-Q ("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 filed on December 15, 2004. 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.
In this report, we have provided information about our "free cash flow". This is
a non-GAAP financial measure which management believes provides useful
information about operating results and cash generation. These amounts should be
read in conjunction with our GAAP financial statements included in the report.
Overview
We believe we are the largest producer 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
historically very competitive costs. We believe that the combination of our low
cost structure, our product strategy of offering branded, private label,
imported and specialty products, our scalable production facilities and our key
customer relationships create competitive advantages.
We generate revenues in two customer markets: retail and institutional. Retail
market revenues include the sales of our pasta products to customers who resell
the pasta in retail channels (including sales to grocery, club, mass merchant
and discount stores) and encompass sales of our branded, private label, imported
and specialty products. These revenues represented 76.4% and 73.8% of our total
revenue for the three-month periods ended December 31, 2004 and January 2, 2004,
respectively. 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 (meals away from home) market. It also includes
revenues from sales to government agencies and other customers that we pursue
periodically. The institutional market represented 23.6% and 26.2% of our total
revenue for the three-month periods ended December 31, 2004 and January 2, 2004,
respectively.
10
During the thirteen weeks ended December 25, 2004, the retail dry pasta category
(as measured by AC Nielsen) in the United States experienced declines in
consumption of approximately 2%, sequentially improving from the 4-5% decline in
the previous thirteen week period.
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 also based on competitive market factors. 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 and gross profits than our non-branded businesses.
Revenues are reported net of cash discounts, product returns, and certain
promotional and slotting allowances.
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 non-contractual arrangements
with food industry leaders that provide for the "pass-through" of direct
material cost and certain other cost changes as pricing adjustments. The
pass-throughs are generally limited to actual changes in cost and, as a result,
impact margins 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 decreases in raw material costs.
Our cost of goods sold consists primarily of raw materials, packaging,
manufacturing costs (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 discussed above and advance purchase
contracts for durum wheat which are generally less than twelve months in
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, 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.
Selling and marketing costs constituted 12.4% and 13.4% of revenues for the
three-month periods ended December 31, 2004 and January 2, 2004, respectively.
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 1, 2004 consolidated
financial statements included in our Annual Report on Form 10-K, 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 long-lived and
intangible assets, the method of accounting for stock options, and the estimates
used to record allowances for doubtful accounts, reserves for slow-moving,
damaged and discontinued inventory 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 1, 2004 consolidated financial
statements included in our Annual Report on Form 10-K, 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,
such as our brands and trademarks. 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. We completed our impairment testing at the end of fiscal year 2004
and determined that no material impairment existed. 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.
11
Long Lived Assets: In accordance with SFAS No. 144, "Accounting For Impairment
or Disposal of Long-lived Assets," we review long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. We evaluate recoverability of assets to be held
and used by comparing the carrying amount of an asset to future net cash flows
expected to be generated by the asset. 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.
In conjunction with our restructuring and rightsizing program, we suspended full
operations at our Kenosha, Wisconsin manufacturing facility. Although we
partially reactivated this facility in October 2004, for a temporary period, we
currently anticipate operations to be substantially suspended into fiscal 2006.
We have reviewed this facility for impairment and have determined that this
asset is not impaired. 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
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 years 2004 and 2005; dividend yield of 2.0%
for fiscal years 2004 and 2005; a volatility factor of the expected market price
of our common stock of .35 for fiscal year 2004 and 2005; 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.
In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R,
"Share-Based Payment", which is a revision of SFAS No. 123, "Accounting for
Stock-Based Compensation" and is applicable to fiscal quarters beginning after
June 15, 2005. SFAS No. 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an
alternative.
We expect to adopt SFAS No. 123R on July 2, 2005. The adoption of SFAS No. 123R
will have a significant impact on our reported results of operations, although
it will have no impact on our cash flow or overall financial position. Had we
adopted SFAS No. 123R in prior periods, the impact of that Statement, net of
taxes, would have been approximately $3.3 million, $5.2 million, and $2.9
million in fiscal years 2004, 2003 and 2002, respectively. The full impact of
adoption of the Statement cannot be predicted at this time as it will depend, in
part, on the levels and value of share-based payments granted in the future.
Prior to the adoption of SFAS 123R, we are considering accelerating the vesting
of certain unvested options awarded to employees and officers that have exercise
prices significantly greater than the current share price of the stock and
vesting periods ending in fiscal years 2005 and 2006. The accelerated vesting
would result in our not being required to recognize any compensation expense
associated with these option grants in future periods included in the above
disclosure.
Accounts Receivable - Significant Customers: During the three-month period ended
December 31, 2004, we generated 26% 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, and 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.
Reserve for Slow-Moving, Damaged and Discontinued Inventory: We carry our
inventory at standard costs, adjusted for capitalized variances, which
approximate the lower of cost, determined on a first in, first-out (FIFO) basis,
or market. We periodically review our inventory for slow-moving, damaged and
discontinued items and provide reserves to reduce such items identified to their
recoverable amounts.
12
Promotional Allowance: Promotional allowances related to our sales are recorded
at the time revenue is recognized. Such allowances, where applicable, are
estimated based on anticipated volume and promotional spending with specific
customers.
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 Italian operations. These
derivatives qualify for hedge accounting as discussed in detail in Note 1 to our
October 1, 2004 consolidated financial statement. 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 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 1, 2004 consolidated financial statements included in our Annual
Report on Form 10-K, and the section titled "Quantitative and Qualitative
Disclosures About Market Risk."
We consider our historical business patterns and our regularly updated forecasts
in determining the amounts of our foreign inventory 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.
Restructuring and Rightsizing Program
The pasta industry continued to experience the significant changes that have
been seen over the last 18-21 months, with U.S. pasta consumption continuing to
decrease as a result of recent changes in consumer diet trends. During this
period, we estimate the decline in industry-wide consumption to be over 100
million annualized pounds. Retail consumption of dry pasta (as measured by AC
Nielsen) declined by approximately 2% in volume for the thirteen weeks ended
December 25, 2004. The production overcapacity that existed within the pasta
industry, combined with decreasing consumer demand, has resulted in a highly
competitive market with pricing levels and operating margins coming under
increasing pressure.
During the fourth quarter of fiscal 2004 production and manufacturing cost
inefficiencies were experienced in the transition period after the Company's
restructuring program changes were implemented. This resulted in higher than
projected operating costs due to product waste, production inefficiencies and
incremental distribution costs. At the beginning of the 2005 fiscal year, the
Company expected that these operating processes and the related cost
inefficiencies would come into line during the first two fiscal quarters. As
anticipated, improvements in operating costs per unit manufactured were achieved
during the first quarter and continued improvements are expected during the
second quarter. These improvements should allow the Company to achieve its
planned levels of production and cost efficiency in the last half of the fiscal
year.
The operational factors surrounding the implementation of the restructuring and
the concurrent reductions in inventory levels resulted in some specific product
availability issues during the fourth quarter of 2004. While customer service
levels improved during the first quarter, certain product availability issues
have continued. To regain higher levels of customer service, in mid-October 2004
the Company partially re-activated the Kenosha, Wisconsin facility that was
closed as part of the restructuring and rightsizing program. For the foreseeable
future, the facility will continue to operate at partial production levels,
consistent with the Company's strategy of having the plant available for
short-term production needs. It is anticipated that customer service levels will
return to historical performance during the second fiscal quarter.
QUARTER ENDED DECEMBER 31, 2004, COMPARED TO QUARTER ENDED JANUARY 2, 2004
Results of Operations
Revenues. Total revenues decreased $2.5 million, or 2.4%, to $99.1 million for
the three-month period ended December 31, 2004, from $101.6 million for the
three-month period ended January 2, 2004. Revenues decreased $1.6 million, or
1.5%, due to volume declines and decreased $1.9 million, or 1.9%, due to lower
average selling prices and changes in sales mix. Overall, revenues were affected
by declining category sales due in part to current reduced carbohydrate
awareness trends in the American diet. Also impacting the comparability of
13
revenue is the $1.0 million, or 1.0%, recognized in the quarter ended December
31, 2004 related to the payment received from the U.S. government under the
Continued Dumping and Subsidy Offset Act of 2000 (CDO), while no such amount was
received or recognized in the quarter ended January 2, 2004. (See note 3 to the
consolidated financial statements.)
Revenues for the Retail market increased $0.7 million, or 0.9%, to $75.7 million
for the three-month period ended December 31, 2004, from $75.0 million for the
three-month period ended January 2, 2004. Revenues increased $3.6 million, or
4.9%, due to volume growth and decreased $3.9 million, or 5.3%, due to lower
average selling prices and changes in the sales mix. Our branded business
revenues decreased by approximately 2.9%, offset by an increase of 5.3% for our
private label business. The sales of our low and reduced carb product lines
continued at our lower level of expectation. Total revenues from these product
lines were $1.1 million in the three-month period ended December 31, 2004, $1.6
million lower than the prior year's quarter, in part due to the higher
introductory sales of Atkins products last year. Additionally, as indicated
above, revenue increased by $1.0 million or 1.3% due to the revenue recognized
on payments received from the U.S. government under the CDO.
Revenues for the Institutional market decreased $3.2 million, or 12.0%, to $23.4
million for the three-month period ended December 31, 2004, from $26.6 million
for the three-month period ended January 2, 2004. Revenues decreased $5.2
million, or 19.5%, due to volume declines, and increased $2.0 million, or 7.5%
due to higher average selling prices and changes in sales mix. The volume
decline was expected and is directly related to the idling of the Kenosha
facility, as volume was lower with certain ingredient customers and low margin
contract customers.
Gross Profit. Gross profit decreased $9.1 million, or 28.7%, to $22.7 million
for the three-month period ended December 31, 2004, from $31.9 million for the
three-month period ended January 2, 2004. Gross profit was impacted by a number
of factors compared to the prior year's first quarter; primarily lower sales
prices, higher freight costs, and higher material and overhead costs, on a per
unit basis.
Gross profit as a percentage of revenues decreased to 22.9% for the three-month
period ended December 31, 2004 from 31.4% for the three-month period ended
January 2, 2004 due to the factors discussed above.
Selling and Marketing Expense. Selling and marketing expense decreased $1.3
million or 9.8%, for the three-month period ended December 31, 2004 from $13.6
million for the three-month period ended January 2, 2004. This is primarily
related to lower promotional spending, reduced consumer spending and lower
payroll costs. Selling and marketing expense as a percentage of revenue
decreased to 12.4% for the three-month period ended December 31, 2004, from
13.4% for the comparable prior year period.
General and Administrative Expense. General and administrative expenses
increased $0.3 million, or 9.9% to $3.3 million for the three-month period ended
December 31, 2004 from $3.0 million for the three-month period ended January 2,
2004. This is attributable primarily to increased costs of information
technology, regulatory compliance costs and organization-related costs. General
and administrative expense as a percentage of revenues increased to 3.3% for the
three-month period ended December 31, 2004 from 3.0% for the comparable prior
year period due to the relatively fixed nature of these costs.
Operating Profit. Operating profit for the three-month period ended December 31,
2004, was $7.1 million, decreasing $8.1 million or 53.2% from the $15.3 million
reported for the three-month period ended January 2, 2004. Operating profit
decreased as a percentage of revenues to 7.2% for the quarter ended December 31,
2004, from 15.0% for the quarter ended January 2, 2004, as a result of the
factors discussed above.
Interest Expense. Interest expense for the three-month period ended December 31,
2004, was $3.9 million, increasing $0.8 million from the $3.1 million reported
for the three-month period ended January 2, 2004. The increase in interest is
attributable to higher average borrowing rates, a higher interest rate spread
under the lending agreement and increased amortization of deferred debt issuance
costs. These increases were offset, in part, by lower average outstanding debt.
Income Tax. Income tax expense for the three-month period ended December 31,
2004, was $1.1 million, decreasing $2.9 million from the $4.0 million reported
for the three-month period ended January 2, 2004, and reflects effective income
tax rates of approximately 35% and 33%, respectively. The increase in effective
tax rates is a result of the expiration of certain tax incentives utilized in
prior years.
Net Income. Net income decreased $6.0 million, or 74.2%, to $2.1 million for the
three-month period ended December 31, 2004 from $8.1 million for the three-month
period ended January 2, 2004 due to the reduced margins and operating profits
discussed above.
Diluted earnings per common share were $0.11 per share for the three-month
period ended December 31, 2004 compared to $0.44 per share for the three-month
period ended January 2, 2004. Net income as a percentage of net revenues was
2.1% for the three-month period ended December 31, 2004 versus 8.0% in the same
period of 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 $1.4 million
and net working capital totaled $63.4 million at December 31, 2004.
14
Our net cash provided by operating activities totaled $15.4 million and free
cash flow (operating cash flow less capital expenditures as discussed below) was
$7.1 million, for the three-month period ended December 31, 2004 compared to
$11.2 million, and $2.5 million for the three-month period ended January 2,
2004, respectively. This increase relates to improved working capital
management, partially offset by the reduced profitability.
Cash flow used in investing activities principally relates to investments in
production and distribution, milling and management information system assets.
Capital expenditures were $8.3 million for the three-month period ended December
31, 2004, and $8.7 million for the three-month period ended January 2, 2004.
Net cash used by financing activities was $10.3 million for the three-month
period ended December 31, 2004 compared to net cash used by financing activities
of $2.6 million for the three-month period ended January 2, 2004. The $10.3
million of cash used in the three-month period ended December 31, 2004, is
primarily a result of $17.1 million in principal payments on debt and capital
lease obligations, and the payment of $3.4 million in dividends partially offset
by $11.0 million proceeds from issuance of debt used to finance operating and
capital expenditure needs. The $2.6 million of cash used in the three-month
period ended January 2, 2004 is primarily a result of $2.8 million in principal
payments on debt and capital lease obligations.
We currently use cash generated from operations to fund capital expenditures,
repayment of debt, working capital requirements and dividend payments. We expect
that future cash requirements will principally be the same.
At December 31, 2004, we had a $400 million credit facility consisting of a $300
million revolving credit facility (including availability for issuance of
letters of credit) and a $100 million term loan facility. The $400 million
facility includes $100 million dual currency availability in Euros or U.S.
dollars to finance our international business in Italy.
The facility provides for annual commitment reductions between October 1, 2002
and October 2, 2005 totaling $110 million. The credit facility matures on
October 2, 2006. The total capacity of the credit facility was $320 million as
of December 31, 2004 and there was approximately $36.2 million of borrowings
available at that time. At December 31, 2004, we had $50,000 of outstanding
letters of credit.
On November 9, 2004, our credit facility was amended to revise the definitions
of "Consolidated EBITDA" and "Fixed Charge Coverage Ratio" and to increase the
"Maximum Leverage Ratio" and to decrease the "Minimum Consolidated EBITDA". In
addition, the lenders were granted a collateral interest in substantially all of
our tangible and intangible domestic assets. There are no other material
differences between the terms of the original credit facility and the amended
credit facility.
The principal maturity terms of our $400 million revolving credit facility are
as follows (in thousands):
Amount Date
------ ----
Scheduled Commitment Reduction $ 25,000 October 1, 2002
Scheduled Commitment Reduction 25,000 October 1, 2003
Scheduled Commitment Reduction 30,000 October 1, 2004
Scheduled Commitment Reduction 30,000 October 1, 2005
Final Maturity 290,000 October 2, 2006
---------------
$400,000
===============
Interest is charged at LIBOR/Euribor plus an applicable margin based on a
sliding scale of the ratio of the Company's total indebtedness divided by
earnings before interest, taxes, depreciation and amortization ("EBITDA"). In
addition, a commitment fee is charged on the unused facility balance based on
the sliding scale of the Company's total indebtedness divided by EBITDA. The
stated interest per the credit facility plus the commitment fee is classified as
interest expense.
Our credit agreement contains restrictive covenants which include, among other
things, financial covenants requiring minimum and cumulative earnings levels and
limitations on the payment of dividends, stock purchases and our ability to
enter into certain contractual arrangements. We do not currently expect these
limitations to have a material effect on business or results of operations.
Pursuant to the amendment to the credit facility agreement on November 9, 2004,
which modified certain financial covenants that were in effect in fiscal year
2004, the Company was in compliance with the restrictive covenants as of
December 31, 2004.
We utilize interest rate swap agreements and foreign exchange contracts to
manage interest rate and foreign currency exposures. The principal objective of
such financial derivative contracts is to moderate the effect of fluctuations in
interest rates and foreign exchange rates. We, as a matter of policy, do not
speculate in financial markets and therefore do not hold these contracts for
trading purposes. We utilize what are considered simple instruments, such as
forward foreign exchange contracts and non-leveraged interest rate swaps, to
accomplish our objectives.
15
At this time, the current and projected borrowings under our credit facility do
not exceed the facility's available commitment. The facility matures on October
2, 2006 and we anticipate that any borrowings outstanding at that time will be
refinanced. We have no other material borrowing commitments.
We believe that net cash expected to be provided by operating activities and the
cash available through our existing credit facility will be sufficient to meet
our expected capital and liquidity needs for the foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our principal exposure to market risk associated with financial instruments
relates to interest rate risk associated with variable rate borrowings and
foreign currency exchange rate risk associated with borrowings and purchases
from foreign subsidiaries denominated in a 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 $110.0 million outstanding at
December 31, 2004. The estimated fair value of the interest rate swap agreements
was ($0.7) million and approximates the amount we would be required to pay to
terminate the swap agreements at December 31, 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
quarter, our interest expense would have increased, and income before taxes
would have decreased by $0.2 million for the quarter ended December 31, 2004.
At December 31, 2004, we had a net investment in our Italy operations of
(euro)44.5 million ($58.6 million). We hedge our net investment in our foreign
subsidiaries with euro borrowings under our credit facility in the U.S. At
December 31, 2004, long-term debt includes obligations of (euro)40.9 million
($55.8 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 foreign currency translation
adjustment in the consolidated statement of stockholder's equity.
The functional currency for our Italy operations is the Euro. Our net annual
transactional exposure is approximately (euro)16.4 million ($22.4 million). We
have transactional exposure to various other European currencies, primarily the
British pound. We frequently use forward purchase contracts to hedge this
exposure. At December 31, 2004, we have outstanding forward contracts of
(euro)6.3 million and (pound)0.9 million.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, Mr. Webster, our CEO, and
Mr. Shadid, 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 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
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 first fiscal quarter of
2005:
Total Number of Approximate Dollar
Shares Purchased Value of Shares that
Total Number of Average Price as Part of Publicly May Yet Be Purchased
Shares Purchased Paid per Share Announced Plan Under the Plan(1)
---------------- -------------- -------------- -----------------
Fiscal Period
October 2 to October 29 -- -- -- $7,881,000
October 30 to November 26 -- -- -- 7,881,000
-- -- -- 7,881,000
----------------- --------------- ----------------
Total -- -- --
================= =============== ================
(1) On October 4, 2002 the Company's Board of Directors authorized up to $20
million to implement a common stock repurchase plan.
16
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
Item 5. OTHER INFORMATION
Not applicable
Item 6. EXHIBITS
(a) Exhibits.
4.8.5 Fourth Amendment, dated as of November 10, 2004, to the Credit Agreement,
dated July 16, 2001, among American Italian Pasta Company, various
financial institutions and Bank of America, N.A., as administrative agent,
which is attached as Exhibit 10.1 to the Company's Form 8-K dated November
12, 2004, is incorporated by reference herein as Exhibit 4.8.5.
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.
17
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
February 9, 2005 /s/ Timothy S. Webster
- --------------------------- -----------------------------------------------------
Date Timothy S. Webster
President and Chief Executive Officer
(Principal Executive Officer)
February 9, 2005 /s/ George D. Shadid
- --------------------------- -----------------------------------------------------
Date George D. Shadid
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
18