Attached files
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EX-32 - AMERICAN ITALIAN PASTA CO | form10exh32_020210.htm |
EX-31.1 - AMERICAN ITALIAN PASTA CO | form10exh311_020210.htm |
EX-31.2 - AMERICAN ITALIAN PASTA CO | form10qexh312_020210.htm |
EX-10.1 - AMERICAN ITALIAN PASTA CO | form10qexh101_020210.htm |
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-Q
þ
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Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
|
|
For
the quarterly period ended January 1, 2010
|
||
Or
|
||
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Transition
Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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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 incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
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4100
N. Mulberry Drive, Suite 200
Kansas
City, Missouri
(Address
of principal executive offices)
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64116
(Zip
Code)
|
Registrant’s
telephone number, including area code:
(816) 584-5000
NOT
APPLICABLE
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has 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 þ No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer
|
Accelerated
filer þ
|
|
Non-accelerated
filer
|
Smaller
reporting company
|
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes
No þ
|
As of
January 29, 2010, the Registrant had 21,115,966 shares of common stock, par
value $0.001 per share, outstanding.
AMERICAN
ITALIAN PASTA COMPANY
Form
10-Q
Fiscal
Quarter Ended January 1, 2010
Table
of Contents
Part
I - Financial Information
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Page
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|
Item
1.
|
Financial
Statements (unaudited)
|
1
|
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Condensed
Consolidated Balance Sheets
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1
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Condensed
Consolidated Statements of Operations
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2
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Condensed
Consolidated Statements of Cash Flows
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3
|
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Notes
to Condensed Consolidated Financial Statements
|
4
|
Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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10
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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16
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Item
4.
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Controls
and Procedures
|
16
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Part
II - Other Information
|
||
Item
1.
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Legal
Proceedings
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16
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Item
1A.
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Risk
Factors
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16
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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17
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Item
3.
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Defaults
Upon Senior Securities
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17
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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17
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Item
5.
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Other
Information
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17
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Item
6.
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Exhibits
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17
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Signatures
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18
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PART
I. FINANCIAL
INFORMATION
ITEM
1. CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN
ITALIAN PASTA COMPANY
CONDENSED
CONSOLIDATED BALANCE SHEETS
Unaudited
(in
thousands, except share amounts)
January 1, 2010
|
October 2, 2009
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 31,871 | $ | 30,959 | ||||
Trade
and other receivables, net
|
46,901 | 45,828 | ||||||
Inventories
|
45,454 | 50,996 | ||||||
Other
current assets
|
6,740 | 6,372 | ||||||
Deferred
income taxes
|
16,793 | 22,202 | ||||||
Total
current assets
|
147,759 | 156,357 | ||||||
Property,
plant and equipment, net
|
286,103 | 291,212 | ||||||
Brands
|
78,733 | 79,074 | ||||||
Other
assets
|
3,032 | 3,420 | ||||||
Total
assets
|
$ | 515,627 | $ | 530,063 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 22,162 | $ | 29,852 | ||||
Accrued
expenses
|
20,657 | 24,147 | ||||||
Income
tax payable
|
3,460 | - | ||||||
Current
maturities of long term debt
|
- | 5,900 | ||||||
Total current liabilities
|
46,279 | 59,899 | ||||||
Long
term debt, less current maturities
|
80,000 | 104,100 | ||||||
Deferred
income taxes
|
54,157 | 52,972 | ||||||
Other
long term liabilities
|
6,184 | 5,676 | ||||||
Total
liabilities
|
186,620 | 222,647 | ||||||
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; Issued and outstanding shares – 23,357,185 and
21,129,627, respectively, at January 1, 2010; 23,198,013 and 20,981,913,
respectively, at October 2, 2009
|
23 | 23 | ||||||
Class
B common stock, par value $.001
|
||||||||
Authorized
shares – 25,000,000; Issued and outstanding – none
|
- | - | ||||||
Additional
paid-in capital
|
276,677 | 274,142 | ||||||
Treasury
stock 2,227,558 shares at January 1, 2010 and 2,216,100 shares
at
|
||||||||
October
2, 2009, at cost
|
(52,903 | ) | (52,519 | ) | ||||
Accumulated
other comprehensive income
|
16,698 | 17,957 | ||||||
Retained
earnings
|
88,512 | 67,813 | ||||||
Total
stockholders’ equity
|
329,007 | 307,416 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 515,627 | $ | 530,063 |
See
accompanying notes to the unaudited condensed consolidated financial
statements.
1
AMERICAN
ITALIAN PASTA COMPANY
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(in
thousands, except per share amounts)
Quarter Ended
|
||||||||
January 1, 2010
(Thirteen
Weeks)
|
January 2, 2009
(Fourteen
Weeks)
|
|||||||
Revenues
|
$ | 148,946 | $ | 171,206 | ||||
Cost
of goods sold
|
98,982 | 122,362 | ||||||
Gross
profit
|
49,964 | 48,844 | ||||||
Selling
and marketing expense
|
7,248 | 7,364 | ||||||
General
and administrative expense
|
8,683 | 8,653 | ||||||
Loss
related to long-lived assets
|
103 | 347 | ||||||
Operating
profit
|
33,930 | 32,480 | ||||||
Interest
expense, net
|
1,776 | 5,878 | ||||||
Other
(income) expense, net
|
(10 | ) | 95 | |||||
Income before income
taxes
|
32,164 | 26,507 | ||||||
Income
tax expense
|
11,465 | 479 | ||||||
Net
income
|
$ | 20,699 | $ | 26,028 | ||||
Net
income per common share (basic)
|
$ | 0.98 | $ | 1.28 | ||||
Weighted-average
common shares outstanding (basic)
|
21,047 | 20,257 | ||||||
Net
income per common share (diluted)
|
$ | 0.95 | $ | 1.23 | ||||
Weighted-average
common shares outstanding (diluted)
|
21,833 | 21,078 |
See
accompanying notes to the unaudited condensed consolidated financial
statements.
2
AMERICAN
ITALIAN PASTA COMPANY
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(in
thousands)
Quarter Ended
|
||||||||
January 1, 2010
(Thirteen
Weeks)
|
January 2, 2009
(Fourteen
Weeks)
|
|||||||
OPERATING
ACTIVITIES:
|
||||||||
Net
income
|
$ | 20,699 | $ | 26,028 | ||||
Adjustments
to reconcile net income to net cash provided
by
operations:
|
||||||||
Depreciation
and amortization
|
6,181 | 6,482 | ||||||
Amortization
of deferred financing fees
|
306 | 324 | ||||||
Share-based
compensation expense
|
2,217 | 1,569 | ||||||
Deferred
income tax expense
|
6,568 | 146 | ||||||
Excess
tax benefit – share-based compensation
|
(984 | ) | (823 | ) | ||||
Other
|
344 | 1,245 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Trade
and other receivables
|
(1,565 | ) | 1,950 | |||||
Inventories
|
5,208 | 5,805 | ||||||
Other
current assets
|
(490 | ) | (3,561 | ) | ||||
Accounts
payable and accrued expenses
|
(10,361 | ) | (11,800 | ) | ||||
Income
taxes payable
|
4,737 | 340 | ||||||
Other
|
(219 | ) | (421 | ) | ||||
Net
cash provided by operating activities
|
32,641 | 27,284 | ||||||
INVESTING
ACTIVITIES:
|
||||||||
Additions
to property, plant and equipment
|
(2,345 | ) | (1,909 | ) | ||||
Redemption
of short-term investments
|
- | 622 | ||||||
Other
|
15 | 245 | ||||||
Net
cash used in investing activities
|
(2,330 | ) | (1,042 | ) | ||||
FINANCING
ACTIVITIES:
|
||||||||
Principal
payments on debt
|
(30,000 | ) | (23,099 | ) | ||||
Excess
tax benefit related to share-based compensation
|
984 | 823 | ||||||
Other
|
(292 | ) | (39 | ) | ||||
Net
cash used in financing activities
|
(29,308 | ) | (22,315 | ) | ||||
Effect
of exchange rate changes on cash
|
(91 | ) | (234 | ) | ||||
Net
increase in cash and cash equivalents
|
912 | 3,693 | ||||||
Cash
and cash equivalents, beginning of period
|
30,959 | 38,623 | ||||||
Cash
and cash equivalents, end of period
|
$ | 31,871 | $ | 42,316 | ||||
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
||||||||
Cash
paid for interest
|
$ | 1,422 | $ | 6,578 | ||||
Cash
income tax paid, net
|
$ | 160 | $ | 6 | ||||
Non-cash
investing and financing activities
|
||||||||
Property,
plant and equipment accrued in accounts payable
|
$ | 124 | $ | 1,016 | ||||
See
accompanying notes to the unaudited condensed consolidated financial
statements.
3
AMERICAN
ITALIAN PASTA COMPANY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Unless
the context indicates otherwise, all references in this Quarterly Report on Form
10-Q to “the Company”, “we”, “us”, “our”, and similar words are to American
Italian Pasta Company and its subsidiaries.
1. BASIS
OF PRESENTATION
Our first
quarter of fiscal year 2010 contained 13 weeks, one week less than our
comparative first quarter of fiscal year 2009 that contained 14
weeks. Our fiscal year ends on the last Friday of September or the
first Friday of October, resulting in a 52- or 53-week year depending on the
calendar. Our first three quarters end on the Friday last preceding
December 31, March 31 and June 30 or the first Friday of the
following month of each quarter. Fiscal year 2010 will be a 52-week
year and will end on October 1, 2010. Fiscal year 2009 was a 53-week
fiscal year and ended on October 2, 2009.
The
accompanying unaudited condensed 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
thirteen weeks ended January 1, 2010 are not necessarily indicative of the
results that may be expected for the fiscal year ended October 1,
2010. For further information, refer to the consolidated financial
statements and accompanying notes included in our Annual Report on Form 10-K for
the fiscal year ended October 2, 2009.
2. RECENT
ACCOUNTING PRONOUNCEMENTS
In December 2009, the FASB issued FASB
ASU 2009-16, “Transfers and Servicing (Topic 860): Accounting for Transfers of
Financial Assets”, to codify SFAS 166, “Accounting for Transfers of
Financial Assets an amendment of FASB Statement No. 140”, which amends the
derecognition guidance in FASB Statement No. 140 and eliminates the
exemption from consolidation for qualifying special-purpose entities. This
statement is effective for financial asset transfers occurring after the
beginning of an entity's first fiscal year that begins after November 15,
2009. This statement will be effective for us beginning in our fiscal 2011. We
do not believe that the adoption of ASU 2009-16 will have a material effect on
our condensed consolidated financial statements.
3. INVENTORIES
Inventories
are carried at standard cost 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 or
discontinued items and adjust our reserves to reduce such items identified to
their recoverable amount.
We
recognized $0.2 million and $0.5 million of expense related to slow moving,
damaged, and discontinued inventory during the thirteen week period ended
January 1, 2010 and the fourteen week period ended January 2,
2009. This expense was included as a component of cost of goods sold
on the condensed consolidated statements of operations.
Inventories
consist of the following (in thousands):
January 1, 2010
|
October 2, 2009
|
|||||||
Finished
goods
|
$ | 30,801 | $ | 38,156 | ||||
Raw
materials, additives, packaging materials and
work-in-process
|
15,395 | 13,422 | ||||||
Reserves for
slow-moving, damaged and discontinued inventory
|
(742 | ) | (582 | ) | ||||
Inventories
|
$ | 45,454 | $ | 50,996 |
4
4. DEBT
Our debt
consists of the following (in thousands):
January 1, 2010
|
October 2, 2009
|
|||||||
Borrowings
under U.S. credit facility
|
$ | 80,000 | $ | 110,000 | ||||
Less
current maturities
|
- | 5,900 | ||||||
Long
term debt, less current maturities
|
$ | 80,000 | $ | 104,100 |
As of
January 1, 2010, the U.S. credit facility, as amended, was comprised of an $80.0
million term loan and a $30.0 million revolving credit facility. The
U.S. credit facility is secured by substantially all of our domestic assets and
provides for interest at either the LIBOR rate plus 550 basis points or at an
alternate base rate calculated as the prime rate plus 450 basis
points. The term loan matures in March 2011 and does not have
scheduled principal payments. Principal pre-payments are required if
certain contingent events occur, including the sale of certain assets, issuance
of equity, and the generation of excess cash flow as defined in the credit
agreement. As of October 2, 2009, the excess cash flow payment
due under this agreement related to fiscal 2009 results was approximately $5.9
million, which was paid from available cash during the first quarter of fiscal
year 2010. The excess cash flow payment, if any, required to be made
in December 2010 will be based on results for the full 2010 fiscal year and is
contingent on a number of variables, including our earnings before interest,
taxes, depreciation and amortization, the level and timing of cash interest
paid, capital expenditures, and cash taxes paid, and the amount of voluntary
pre-payments (all as defined in the credit facility). During the
current fiscal year, we have made voluntary principal payments of $24.1
million. The weighted average term loan interest rate in effect at
January 1, 2010 was 5.7%. We had no borrowings outstanding under the
revolving credit facility as of January 1, 2010. The outstanding
letters of credit under our revolving credit facility totaled approximately $1.0
million as of January 1, 2010. Accordingly, we had additional
borrowing capacity of $29.0 million under the U.S. credit facility as of January
1, 2010.
Our U.S.
credit facility contains restrictive covenants, including financial covenants
requiring minimum and cumulative earnings levels as well as limitations on the
payment of dividends, stock purchases, capital expenditures, and our ability to
enter into certain contractual arrangements. We were in compliance with these
financial covenants as of January 1, 2010.
Our U.S.
credit facility includes restrictions that limit borrowings by our Italian
subsidiary, Pasta Lensi S.r.l. (“Lensi”), to $5.0 million, all of which is
available as of the end of the current period. Lensi has credit
facilities that allow 30-60 day advances that are based on accounts receivable
balances pledged and are secured by Lensi’s accounts receivables and other
assets, as well as a general line of credit of approximately $0.6
million. There were no borrowings outstanding under these credit
facilities as of either January 1, 2010 or October 2, 2009.
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”, commonly referred to as the Byrd Amendment, which provided
that assessed anti-dumping and subsidy duties liquidated by the Department of
Commerce on Italian and Turkish imported pasta after October 1, 2000 would be
paid to affected domestic producers. We record Byrd Amendment
payments as revenue in the period in which the amount, and the right to receive
the payment, can be reasonably determined.
During
the first quarter of fiscal 2010 and 2009, we received payments and recognized
revenue of $1.5 million and $0.8 million, respectively.
Effective
October 1, 2007, the Act was repealed, resulting in the discontinuation of
future distributions to affected domestic producers for duties assessed after
such date. It is not possible to reasonably estimate amounts, if any,
to be received in the future on duties assessed prior to October 1,
2007.
5
6.
|
INCOME
TAXES
|
The
objective of accounting for income taxes is to recognize the amount of taxes
payable or refundable for the current year and to recognize deferred tax
liabilities and assets for future tax consequences of events that have been
recognized in our financial statements or tax returns. Judgment is required in
assessing the future tax consequences of events that have been recognized in our
financial statements or tax returns.
We
recorded an income tax expense of $11.5 million for the thirteen week period
ended January 1, 2010. The tax expense is primarily attributable to
the impact of pre-tax earnings for the year to date recorded at the projected
annual effective rate.
It is our
policy to classify interest and penalties as a component of income tax
expense. Estimated interest and penalties classified as a component
of income tax expense were less than $0.1 million for the thirteen weeks ended
January 1, 2010 and for the fourteen weeks ended January 2,
2009. Accrued interest and penalties, net of tax benefits, were $1.0
million as of January 1, 2010 and October 2, 2009.
We file
income tax returns in the U.S. federal jurisdiction, the Netherlands, Italy and
various state jurisdictions.
As of
January 1, 2010, the federal tax returns for the fiscal years ended 2004 through
2009 are open to audit and will remain open to audit until the statue closes for
the years in which the net operating losses are utilized. Various
state and foreign tax returns for the fiscal years ended 2003 through 2009 are
open to audit under their respective statutes of limitations. During
fiscal year 2008, the Internal Revenue Service completed an examination of our
tax return for fiscal year 2004, with no material change in taxes due for that
period. As of January 1, 2010, we do not believe there will be a
significant change in the total amount of unrecognized tax benefits within the
next twelve months.
As of
October 2, 2009, we had federal net operating loss carryforwards of $33.6
million and federal AMT credit carryforwards of $11.8 million. Based
upon all available evidence, both positive and negative, management determined
that it is more likely than not that these carryforwards will be utilized before
expiration.
We also
evaluated existing valuation allowances related to certain state tax credits and
certain state and foreign net operating loss carryforwards. Based on
all available evidence, both positive and negative, we determined that it is not
more likely than not that we will realize the benefits related to these
carryforwards. We will continue to evaluate the valuation allowance
related to those carryforwards not meeting the more likely than not criteria at
the end of each period taking into account current and forecasted operating
results.
We have
elected the tax law ordering approach to determine when excess tax deductions
resulting from equity awards are realized. Therefore, excess tax
benefits resulting from current year equity award exercises have been recognized
as a component of additional paid-in capital.
7.
|
EQUITY
INCENTIVE PLANS
|
Our
current equity plan, as approved in December 2000 and amended in February 2004,
authorizes us to grant nonvested shares, stock options, and stock appreciation
rights to certain officers, key employees and contract employees for the
purchase or award of up to 1.8 million shares of our common stock, plus shares
forfeited related to awards made under either our current or our prior equity
incentive plan. Also outstanding are stock options to purchase
approximately 0.1 million shares of our common stock that were issued under
terminated equity incentive plans established during October 1992, October 1993,
and October 1997. Generally, we issue new shares upon the award of
nonvested shares and the exercise of stock options or stock appreciation
rights. Accordingly, we do not anticipate we will repurchase shares
on the open market during fiscal year 2010 for the purpose of satisfying
nonvested share grants or stock option or stock appreciation right
exercises.
6
Stock
Options
A summary
of our stock option activity is as follows:
Number
of Shares
|
Weighted
Average Exercise
Price
|
Aggregate
Intrinsic Value
|
Weighted
Average Remaining Contractual Term
(in years)
|
|||||||||||||
Outstanding
at October 2, 2009
|
472,598 | $ | 32.89 | |||||||||||||
Exercised
|
(9,798 | ) | $ | 26.47 | ||||||||||||
Expired
|
(100 | ) | $ | 28.90 | ||||||||||||
Outstanding
at January 1, 2010
|
462,700 | $ | 33.03 | |||||||||||||
Vested
or expected to vest at January 1, 2010
|
462,184 | $ | 33.04 | $ | 1,710,000 | 3.3 | ||||||||||
Exercisable
at January 1, 2010
|
458,670 | $ | 33.09 | $ | 1,681,000 | 3.3 |
The
aggregate intrinsic values reflected above includes only those option awards for
which the exercise price is less than the current market price as of January 1,
2010.
Stock
options generally vest over three or five years in varying amounts, depending on
the terms of the individual agreements, and expire ten years from the date of
grant.
During
the thirteen weeks ended January 1, 2010, we received cash for payment of the
grant price of exercised share options of approximately $0.1 million and we
anticipate we will realize a nominal tax benefit related to these exercised
share options. The cash received for payment of the grant price is
included as a component of cash flow from financing activities on the condensed
statement of cash flows. The tax benefit related to the option
exercise price in excess of the option fair value at grant date is separately
disclosed as a component of cash flow from financing activities on the condensed
consolidated statement of cash flows; the remainder of the tax benefit is
included as a component of cash flow from operating activities.
No stock
options were issued or exercised during the first quarter of fiscal
2009.
We
recognized compensation expense, which is a non-cash charge, related to stock
options of less than $0.1 million and $0.1 million during the first quarter of
fiscal 2010 and 2009, respectively. At January 1, 2010, unrecognized
compensation expense related to these awards was less than $0.1 million and will
be recognized over a weighted average period of less than one year.
Stock
Appreciation Rights
A summary
of our stock appreciation rights activity is as follows:
Number
of Shares
|
Weighted
Average Exercise Price
|
Aggregate
Intrinsic Value
|
Weighted
Average Remaining Contractual Term
(in years)
|
|||||||||||||
Outstanding
at October 2, 2009
|
1,848,111 | $ | 9.67 | |||||||||||||
Issued
|
214,530 | $ | 33.80 | |||||||||||||
Exercised
|
(57,196 | ) | $ | 7.27 | ||||||||||||
Forfeited
|
(5,579 | ) | $ | 16.44 | ||||||||||||
Outstanding
at January 1, 2010
|
1,999,866 | $ | 12.31 | |||||||||||||
Vested
or expected to vest at January 1, 2010
|
1,809,852 | $ | 12.14 | $ | 41,001,000 | 4.7 | ||||||||||
Exercisable
at January 1, 2010
|
515,384 | $ | 7.57 | $ | 14,029,000 | 4.4 |
7
The
aggregate intrinsic values reflected above includes only those stock
appreciation rights awards for which the exercise price is less than the current
market price as of January 1, 2010.
The stock
appreciation rights vest over three or four years in varying amounts, depending
on the terms of the individual agreements, and expire seven years from the date
of grant.
Stock
appreciation rights with an intrinsic value of $1.5 million were exercised
during the thirteen week period ended January 1, 2010, resulting in the issuance
of approximately 44,000 shares of common stock. We anticipate we will
realize a tax benefit related to these exercised stock appreciation rights of
approximately $0.6 million. Stock appreciation rights with an
intrinsic value of $2.3 million were exercised during the fourteen week period
ended January 2, 2009, resulting in the issuance of approximately 107,000 shares
of common stock. We anticipate we will realize a tax benefit related
to these exercised stock appreciation rights of approximately $0.7
million. The tax benefit related to the stock appreciation right
exercise price in excess of the stock appreciation right fair value at grant
date is separately disclosed as a component of cash flow from financing
activities on the condensed statements of cash flows; the remainder of the tax
benefit is included as a component of cash flow from operating
activities.
We
recognized compensation expense, a non-cash charge, related to stock
appreciation rights of $0.6 million and $0.3 million during the first quarter of
fiscal 2010 and 2009, respectively. At January 1, 2010, unrecognized
compensation expense related to these awards totaled approximately $6.1 million
and will be recognized over a weighted average period of 1.5 years.
Nonvested
Share Liability Awards
Our
nonvested share activity for awards subject to liability accounting is as
follows:
Number
of Shares
|
Weighted
Average Grant Date
Fair Value
|
Aggregate
Intrinsic
Value
|
||||||||||
Nonvested
at October 2, 2009
|
122,057 | $ | 6.36 | |||||||||
Vested
|
(11,943 | ) | $ | 5.68 | ||||||||
Nonvested
at January 1, 2010
|
110,114 | $ | 6.43 | $ | 3,831,000 |
Nonvested
share liability awards vest over four or five years.
For
awards granted prior to fiscal year 2008, we permitted employees to net-settle
shares for taxes at amounts greater than minimum statutory withholding
obligation, which resulted in the awards being classified as long term
liabilities. The compensation expense or benefit recognized each
period represents a portion, depending on the percentage of the requisite
service that has been rendered at the reporting date, of the change in market
value of the shares that have not vested as of the end of each reporting period
plus the change in market value of shares that vested during the reporting
period. Nonvested share liability awards may result in recognition of
either compensation expense or compensation benefit (reduction in compensation
expense) for a reporting period. We did not issue any nonvested share
liability awards during fiscal years 2010 or 2009.
We
recognized compensation expense, a non-cash charge, related to nonvested
liability award shares of $1.1 million during the thirteen week period ended
January 1, 2010, compared to $1.0 million during the fourteen week period ended
January 2, 2009. The bulk of these awards will vest in March 2010;
accordingly, the weighted average remaining life of liability awards is less
than one year.
The total
fair value of nonvested liability award shares that vested during the thirteen
week period ended January 1, 2010 and the fourteen week period ended January 2,
2009 was $0.4 million and less than $0.1 million, respectively. Upon vesting,
the liability related to the vested share is derecognized and recorded as a
component of additional paid-in capital.
8
We
anticipate we will realize a tax benefit related to these vested share awards of
approximately $0.2 million and less than $0.1 million for the thirteen week
period ended January 1, 2010 and the fourteen week period ended January 2, 2009,
respectively. The tax benefit related to equity awards accounted for
using the liability method is included as a component of cash flow from
operating activities.
Nonvested
Share Equity Awards
Our
nonvested share activity for awards subject to equity accounting is as
follows:
Number
of Shares
|
Weighted
Average Grant Date
Fair Value
|
Aggregate
Intrinsic
Value
|
||||||||||
Nonvested
at October 2, 2009
|
182,104 | $ | 14.69 | |||||||||
Granted
|
110,559 | $ | 29.43 | |||||||||
Vested
|
(35,494 | ) | $ | 8.39 | ||||||||
Nonvested
at January 1, 2010
|
257,169 | $ | 21.90 | $ | 8,947,000 |
Nonvested
share equity awards vest over either three or four years. Nonvested
shares issued during or after fiscal year 2008 are classified as equity and
compensation expense is recognized over the vesting period based on the fair
value of the nonvested shares at grant date.
We
recognized compensation expense, a non-cash charge, related to nonvested equity
award shares of $0.4 million and $0.1 million for the quarters ended January 1,
2010 and January 2, 2009, respectively. At January 1, 2010,
unrecognized compensation expense related to these awards totaled approximately
$4.8 million and will be recognized over a weighted average period of 2.3
years.
We
anticipate we will recognize a tax benefit related to shares vesting during the
thirteen week period ended January 1, 2010 and the fourteen week period ended
January 2, 2009 of approximately $0.4 million and $0.1 million,
respectively. The tax benefit related to equity share awards with a
fair value at the vest date in excess of the fair value at the grant date is
included as a component of cash flows from financing activities; the remainder
of the tax benefit is included as a component of cash flow from operating
activities.
Holders
of both equity and liability nonvested share awards are permitted to net settle
shares to satisfy the minimum statutory tax withholding
obligation. We received 11,458 and 2,394 shares, respectively, at a
weighted average price of $33.50 and $15.83, respectively, during the quarters
ended January 1, 2010 and January 2, 2009, in connection with the withholding of
taxes upon vesting of shares awards.
8. EARNINGS
PER SHARE
Basic
earnings per share was computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share was computed by dividing net income
available to common shareholders by the sum of weighted average number of
outstanding common shares plus incremental shares that may be issued in future
periods related to outstanding stock options and stock appreciation rights, if
dilutive. When calculating incremental shares related to outstanding share
options and stock appreciation rights, we apply the treasury stock method.
The treasury stock method assumes that proceeds, consisting of the amount the
employee must pay on exercise, compensation cost attributed to future services
and not yet recognized, and excess tax benefits that would be credited to
additional paid-in capital on exercise of the share awards, are used to
repurchase outstanding shares at the average market price for the
period.
9
The
computations of basic and diluted earnings per share were as follows (in
thousands, except per share data):
Quarter Ended
|
||||||||||||||||||||||||
January 1, 2010
(Thirteen
Weeks)
|
January 2, 2009
(Fourteen
Weeks)
|
|||||||||||||||||||||||
Net
Income
|
Weighted
Average Shares Outstanding
|
Per
Share Amount
|
Net
Income
|
Weighted
Average Shares Outstanding
|
Per
Share Amount
|
|||||||||||||||||||
Basic
earnings per share
|
$ | 20,699 | 21,047 | $ | 0.98 | $ | 26,028 | 20,257 | $ | 1.28 | ||||||||||||||
Effect
of dilutive securities:
|
||||||||||||||||||||||||
Stock
options and stock appreciation rights
|
786 | 821 | ||||||||||||||||||||||
Diluted
earnings per share
|
$ | 20,699 | 21,833 | $ | 0.95 | $ | 26,028 | 21,078 | $ | 1.23 |
For the
quarters ended January 1, 2010 and January 2, 2009, share awards totaling
approximately 0.7 million and 0.5 million shares of common stock, respectively,
were antidilutive and, therefore, not included in the computation of diluted
earnings per share.
9. COMPREHENSIVE
INCOME
Comprehensive
income consists of the following (in thousands):
Quarter Ended
|
||||||||
January 1, 2010
(Thirteen
Weeks)
|
January 2, 2009
(Fourteen
Weeks)
|
|||||||
Net
income
|
$ | 20,699 | $ | 26,028 | ||||
Foreign
currency translation adjustment
|
(1,259 | ) | (1,253 | ) | ||||
Comprehensive
income
|
$ | 19,440 | $ | 24,775 |
10. COMMITMENTS
AND CONTINGENCIES
From time
to time and in the ordinary course of our business, we are the subject of
government investigations or audits and named as a defendant in legal
proceedings related to various issues, including worker’s compensation claims,
tort claims and contractual disputes. Although we do not believe that
the resolution of any currently pending matters will have a material adverse
effect on our business or condensed consolidated financial statements, the
ultimate resolutions of such matters is inherently subject to uncertainty and
may have a material adverse effect upon our business or condensed consolidated
financial statements.
11. SUBSEQUENT
EVENTS
We have
evaluated subsequent events through February 4, 2010.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
|
|
RESULTS
OF OPERATIONS
|
Our
accompanying first quarter condensed consolidated results of operations and
consolidated cash flows are for the thirteen week period ended January 1, 2010
and the fourteen week period ended January 2, 2009. We report on a
52/53 week fiscal year end that generally consists of four thirteen week
quarters that end on the Friday nearest the end of the
quarter. Approximately every sixth year we report on a 53-week fiscal
year end that results in a fourteen week quarter during that fiscal
year. Our first quarter of fiscal year 2010 contained thirteen weeks,
one week less than our comparative first quarter of fiscal year 2009 that
contained fourteen weeks. Accordingly, fiscal year 2010 will be a
52-week year and will end on October 1, 2010; fiscal year 2009 was a 53-week
fiscal year and ended on October 2, 2009.
10
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: (1) our dependence on a limited number of
customers for a substantial portion of our revenue; (2) our ability to obtain
necessary raw materials and minimize fluctuations in raw material prices; (3)
the potential adverse impact on revenue and margins of the highly competitive
environment in which we operate; (4) our reliance exclusively on a single
product category; (5) our ability to cost-effectively transport our products;
(6) consumption trends for our product; (7) the status of production capacity in
the U.S. and the level of imports from foreign producers; (8) our ability to
sustain quality and service requirements for our customers; and (9) our ability
to attract and retain key personnel. For
additional discussion of factors that could cause actual results to materially
differ from those anticipated, see the Risk Factors set forth in Item 1A of our
Annual Report on Form 10-K for our fiscal year ended October 2,
2009. 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 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 statements. We will not update any forward-looking
statements in this Quarterly Report to reflect future events or
developments.
Overview
Our first
quarter of fiscal year 2010 contained thirteen weeks, one week less than our
comparative first quarter of fiscal year 2009 that contained fourteen
weeks. Our accompanying first quarter condensed consolidated results
of operations and condensed consolidated cash flows are for the thirteen week
period ended January 1, 2010 and the fourteen week period ended January 2,
2009. We report on a 52/53 week fiscal year end that generally
consists of four thirteen week quarters that end on the Friday nearest the end
of the quarter. Approximately every sixth year we report on a 53-week
fiscal year end that results in a fourteen week quarter during that fiscal
year. Fiscal year 2010 will be a 52-week year and will end on October
1, 2010; fiscal year 2009 was a 53-week fiscal year and ended on October 2,
2009.
We
believe we are the largest producer and marketer of dry pasta in North
America, by volume, based on data available from The Nielsen Company
(“Nielsen”), published competitor financial information, industry sources such
as the National Pasta Association, suppliers, trade magazines and our own market
research.
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 retailers, club stores, mass merchant, drug and discount stores) and
encompass sales of our proprietary branded, customer branded (also referred to
as “private label”) products, and imported products. Retail revenues represented
approximately 81.7% and 79.5% of our total revenue for the thirteen week period
ended January 1, 2010 and the fourteen week period ended January 2, 2009,
respectively. Institutional market revenues include the sales of our
pasta products to foodservice distributors (comprised of businesses and
organizations that sell products to restaurants, healthcare facilities, schools,
hotels, industrial caterers, and multi-unit restaurant chains that procure
directly), food processors that use pasta as a food ingredient, government
agencies, and other customers that we periodically supply. The
institutional market represented approximately 18.3% and 20.5% of our total
revenue for the thirteen week period ended January 1, 2010 and the fourteen week
period ended January 2, 2009, respectively.
Average
selling prices for both our branded and non-branded products are based on the
competitive market environment. In addition, average selling prices
for our non-branded products may be affected by customer-specific packaging and
raw material requirements, product manufacturing complexity and other service
requirements. Average retail and institutional prices will also vary due to
changes in the relative share of customer revenues and item-specific sales
volumes (i.e., product sales mix). Generally, average retail selling prices are
higher than institutional selling prices. Selling prices of our proprietary
branded products are higher than selling prices for our
11
other
product categories, including customer brands. Revenues are reported net of cash
discounts, product returns, and promotional and slotting
allowances.
Our cost
of goods sold consists primarily of raw materials, packaging, manufacturing
costs (including depreciation) and distribution costs (including
transportation). 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. Although our objective is to maintain a
relatively stable gross margin as a percent of revenues, our input costs in
general, and durum in particular, are volatile and, as a result, our gross
margin as a percent of revenue may be subject to
fluctuation. Generally, we seek price increases to maintain our
margins when our manufacturing and distribution costs increase. We
mitigate our exposure to changes in raw material costs through advance purchase
contracts for durum wheat. These advance purchases of durum wheat are
also designed to ensure we can obtain the quantity and quality of durum wheat
necessary to satisfy our customers’ requirements. We also mitigate a
limited portion of our exposure to changes in manufacturing and distribution
costs through arrangements with a limited number of institutional customers that
provide for the “pass-through” of changes in raw material costs and certain
other cost changes as price adjustments.
We seek
to achieve low-cost production through vertical integration and continued
investment in maintaining up-to-date 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. Depreciation expense related to these assets is a component of
inventory cost and cost of goods sold.
According
to Nielsen data for U.S. grocery and mass merchants, during the 52 week period
ending December 19, 2009, the dry pasta category grew at a rate of approximately
4.5% as compared to the prior 52 week period. The growth trend
continued during the thirteen weeks ending December 19, 2009, with an increase
in consumption of approximately 2.2% compared to the prior year
period. With the ongoing economic environment, more people continue
to cook at home and are taking advantage of the many alternatives available with
a versatile food such as dry pasta. Dry pasta offerings include
traditional semolina pasta as well as alternative formulations such as
whole-wheat, multi-grain, and omega-added. Consumption of traditional
semolina pasta, which comprises approximately 90% of the pasta market when
expressed as a percent of pounds consumed, increased 4.0% and 1.4% during the 52
and 13 weeks ending December 19, 2009, respectively. During the same
period, the market-wide consumption of alternative formulation pasta has grown
at a rate of 8.1% and 8.4% during the 52 and 13 week periods ending December 19,
2010, respectively. In addition consumers have been taking advantage
of lower priced private label alternatives to traditional branded label
products. For the pasta category, during the 52 week period ending
December 19, 2009, total brand growth was 2.4% and private label growth was
8.8%.
We are
continuing the implementation of our strategy to focus on growing customer
brands (private label) in the overall market and our proprietary brands in core
markets where they are strongest. As a part of that strategy, we are
extracting our proprietary branded products from markets in which they are
underperforming.
Our
institutional business had significant changes during the first
quarter. The food service market, which includes restaurants,
continues to be challenged by current macro-economic conditions. The
ingredient market has been increasingly impacted by increased
competition. For our ingredient business, we generally receive a
conversion fee with costs recovered on a pass-through
basis. Ingredient products primarily use non-durum wheat classes for
production. Although our per unit margin remained stable, average
selling prices decreased due primarily to declines in the cost of non-durum
wheat. These decreases within our institutional business have been
partly offset by sales made to the government due to our renewed participation
in the U.S. Department of Agriculture (“USDA”) contract bid
program.
Critical Accounting
Policies
This
discussion and analysis encompass our results of operations and financial
condition as reflected in our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. 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, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the 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
12
intangible
assets, the assumptions used in the accounting for share-based compensation, the
estimates used to record allowances for doubtful accounts, reserves for
slow-moving, damaged and discontinued inventory, reserves for obsolete spare
parts, promotional allowances, and income taxes. Our management bases its
estimates and judgments on 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 the critical accounting
policies section in our Annual Report on Form 10-K for the fiscal year ended
October 2, 2009 for a complete discussion of our significant accounting
policies. We did not adopt any new critical accounting policies during the
fiscal quarter ended January 1, 2010.
Thirteen Week Period Ended
January 1, 2010 Compared To Fourteen Week Period Ended January 2,
2009
Following
is an analysis of changes in key items included in the condensed consolidated
statements of operations for the thirteen week period ended January 1, 2010
compared to the fourteen week period ended January 2, 2009. Amounts
have been rounded. Percent of revenues, dollar change and percent
change are all calculated based on amounts presented in this table (dollar
amounts in millions):
Thirteen
weeks ended
January 1, 2010
|
Fourteen
weeks ended
January 2, 2009
|
|||||||||||||||||||||||
Amount
|
%
of
Revenues
|
Amount
|
%
of
Revenues
|
Dollar
Change
|
Percent
Change
|
|||||||||||||||||||
Revenues:
|
||||||||||||||||||||||||
Retail
|
$ | 121.6 | 81.7 | % | $ | 136.1 | 79.5 | % | $ | (14.5 | ) | (11 | )% | |||||||||||
Institutional
|
27.3 | 18.3 | 35.1 | 20.5 | (7.8 | ) | (22 | ) | ||||||||||||||||
Total
revenues
|
148.9 | 100.0 | 171.2 | 100.0 | (22.3 | ) | (13 | ) | ||||||||||||||||
Significant
Expenses
|
||||||||||||||||||||||||
Cost
of goods sold
|
99.0 | 66.5 | 122.4 | 71.5 | (23.4 | ) | (19 | ) | ||||||||||||||||
Selling
and marketing expense
|
7.2 | 4.8 | 7.4 | 4.3 | (0.2 | ) | (3 | ) | ||||||||||||||||
General
and administrative expense
|
8.7 | 5.8 | 8.7 | 5.1 | - | - | ||||||||||||||||||
Interest
expense, net
|
1.8 | 1.2 | 5.9 | 3.5 | (4.1 | ) | (70 | ) | ||||||||||||||||
Income
tax expense
|
11.5 | 7.7 | 0.5 | 0.3 | 11.0 | 2,200 | ||||||||||||||||||
Key
Measurements
|
||||||||||||||||||||||||
Gross
profit
|
49.9 | 33.5 | 48.8 | 28.5 | 1.1 | 2 | ||||||||||||||||||
Operating
profit
|
33.9 | 22.8 | 32.5 | 19.0 | 1.4 | 5 | ||||||||||||||||||
Income
before income taxes
|
32.2 | 21.6 | 26.5 | 15.5 | 5.7 | 22 | ||||||||||||||||||
Net
income
|
20.7 | 13.9 | 26.0 | 15.2 | (5.3 | ) | (20 | ) | ||||||||||||||||
Revenues: Total
revenue of $148.9 million for the thirteen week period ended January 1, 2010
represents a $22.3 million, or approximately 13%, decrease compared with total
revenue of $171.2 million for the fourteen week period ended January 2,
2009. Revenues decreased approximately $14.1 million, or 8%, due to
lower average selling prices and $8.8 million, or 5%, due to decreased
volume. The overall decrease in total revenue was partly mitigated by
an approximate $0.7 million increase in revenue related to payments received
from the U.S. government under the Continued Dumping and Subsidy Offset Act of
2000 (“Byrd Amendment”). On a weekly average basis, to adjust for the
difference in weeks contained in the periods, volume increased approximately
2%.
Retail
market revenue decreased $14.5 million, or approximately 11%, to $121.6 million
for the thirteen week period ended January 1, 2010, from $136.1 million for the
fourteen week period ended January 2, 2009. This decrease resulted
from the combination of a $7.5 million decrease in revenue related to our
strategic proprietary and customer brands and a $7.6 million decrease in revenue
related to proprietary brands we are extracting from underperforming markets,
partly offset by the increase in payments received under the Byrd
Amendment. The $7.5 million decrease in revenue related to our
strategic proprietary and customer brands was comprised of a $9.6 million
decrease due to lower pricing partly offset by a $2.1 million increase due to
increased volume during the thirteen week period ended January 1, 2010 compared
to the fourteen week period ended January 2, 2009. The decrease in
average selling prices for strategic proprietary and customer brands reflects
reductions made in response to lower input costs. The increased
volume for strategic proprietary and customer brands was principally due to an
industry wide increase in consumption, our strategic focus, and increased
promotion. On a weekly average basis, to adjust
13
for the
difference in weeks contained in the periods, our strategic proprietary and
customer brand volume increased approximately 10%.
Institutional
market revenue decreased $7.8 million, or approximately 22%, to $27.3 million
for the thirteen week period ended January 1, 2010 compared with $35.1 million
for the fourteen week period ended January 2, 2009. Revenues
decreased $4.2 million, or 12%, due to lower average selling prices and $3.6
million, or 10% due to lower volume. This decrease within the
institutional market is the result of a combination of factors, including
ongoing challenges to our customers in the restaurant industry, increased
competitive pressures, and our strategy to focus on retail customer
brands. On a weekly average basis, to adjust for the difference in
weeks contained in the periods, institutional market volume decreased
approximately 3%.
Cost of goods
sold: Cost of goods sold decreased $23.4 million, or
approximately 19%, to $99.0 million for the thirteen week period ended
January 1, 2010 from $122.4 million for the fourteen week period ended January
2, 2009, primarily as a result of the combination of a decrease in our input
costs, a decrease in volume, and a thirteen week quarter during 2010 compared
with a fourteen week quarter during 2009. Cost of goods sold as a
percent of revenues was 66.5% for the thirteen week period ended January 1,
2010, compared with 71.5% for the fourteen week period ended January 2,
2009.
Gross profit: Gross
profit increased $1.1 million, or approximately 2%, to $49.9 million for the
thirteen week period ended January 1, 2010 compared with $48.8 million for the
fourteen week period ended January 2, 2009. The increase in gross
profit primarily results from a more favorable cost structure due to a decrease
in input costs combined with a shift in sales mix to retail from
institutional. Gross profit as a percent of revenues increased to
33.5% for the thirteen week period ended January 1, 2010 from 28.5% for the
fourteen week period ended January 2, 2009.
Selling and marketing
expense: Selling and marketing expense decreased $0.2 million,
or approximately 3%, to $7.2 million the thirteen week period ended January 1,
2010 compared with $7.4 million for the fourteen week period ended January 2,
2009. As a percent of revenues, selling and marketing expenses were
4.8% and 4.3% for the first quarters of fiscal years 2010 and 2009,
respectively. The decrease in total selling and marketing expense was
primarily due to lower brokerage costs of $0.5 million and lower package design
amortization of $0.4 million, partly offset by an increase in marketing expenses
of $0.7 million.
General and administrative
expense: General and administrative expense totaled $8.7
million for the thirteen week period ended January 1, 2010 and for the fourteen
week period ended January 2, 2009. General and administrative expenses as a
percent of revenues increased to 5.8% for the thirteen week period ended January
1, 2010, from 5.1% for the fourteen week period ended January 2, 2009.
Increases in compensation expense, primarily related to share-based
compensation, and depreciation expense were offset by a decrease in professional
fees.
Interest expense,
net: Interest expense for the thirteen week period ended
January 1, 2010 was $1.8 million, a decrease of $4.1 million, or approximately
70%, from $5.9 million for the fourteen week period ended January 2,
2009. This decrease is primarily due to the combination of an
approximate 58% decrease in average outstanding borrowings that resulted in a
$2.9 million decrease in interest expense combined with a decrease in the
average interest rate, from 8.3% to 5.7%, that resulted in a $0.6 million
decrease in interest expense.
Income tax
expense: Income tax expense for the thirteen week period ended
January 1, 2010 was $11.5 million compared $0.5 million for the fourteen week
period ended January 2, 2009. The tax expense was primarily
attributable to the impact of pre-tax earnings for the year to date recorded at
the projected annual effective tax rate of approximately 36%. For the
quarter ended January 2, 2009, the approximate 2% projected annual effective tax
rate was primarily due to a reduction in the valuation allowance against
deductible temporary differences.
Net income: Net
income for the thirteen week period ended January 1, 2010 was $20.7 million, a
decrease of $5.3 million from $26.0 million for the fourteen week period ended
January 2, 2009. This decrease was primarily due to the $11.0 million
increase in income tax expense, partly offset by improved margins and lower
interest expense. Net income as a percent of net revenue for the
current quarter ended was 13.9% versus 15.2% in the comparable quarter of the
prior fiscal year.
14
Liquidity and Capital
Resources
Our
primary sources of liquidity are cash provided by operations and borrowings
under our credit facility. Cash and cash equivalents totaled $31.9 million at
January 1, 2010 and $31.0 million at October 2, 2009.
Our net
cash provided by operating activities totaled $32.6 million for the thirteen
week period ended January 1, 2010 compared to $27.3 million for the fourteen
week period ended January 2, 2009. Our net cash provided by operating
activities for the thirteen week period ended January 1, 2010 was comprised
primarily of net income of $20.7 million, adjusted for $14.6 million of non-cash
charges and credits and a $2.7 million net use of cash related to operating
assets and liabilities. The $14.6 million of non-cash charges and
credits consisted primarily of depreciation and amortization of $6.5 million,
stock based compensation expense of $2.2 million, and a net change in deferred
taxes of $6.6 million. The $2.7 million use of cash related to
changes in operating assets and liabilities primarily relates to the $10.4
million of use of cash related to a reduction in accounts payable and accrued
expenses and the $1.6 million use of cash related to an increase in accounts
receivable, partly offset by the $5.2 million source of cash due to lower
inventory levels and the $4.7 million source of cash related to the increase in
income taxes payable. The source or use of cash related to accounts
payable and accrued expenses fluctuates from period to period based on the
timing of payments and changes in the cost of products and services
used. The use of cash related to accounts payable and accrued expense
was due primarily to a decrease of $3.9 million in accrued incentive
compensation and $2.5 million decrease in amounts payable under grain purchase
contracts. The source or use of cash related to receivables is
primarily due to timing of collections and will fluctuate from period to period
based on selling prices and the timing of sales and collections. The
source or use of cash related to inventory will fluctuate from quarter to
quarter based on the timing of inventory purchases and sales as well as changes
in input costs. The increase in income taxes payable is primarily the
result of the utilization during fiscal 2009 of our federal and certain state
net operating losses.
Cash used
in investing activities totaled $2.3 million for the thirteen week period ended
January 1, 2010. The primary use of investing activity cash was to
fund capital expenditures principally related to investments in production,
distribution, and milling equipment, as well as management information system
assets. Capital expenditures were $2.3 million and $1.9 million for
the thirteen week period ended January 1, 2010 and fourteen week period ended
January 2, 2009, respectively.
During
the thirteen week period ended January 1, 2010, our net cash used by financing
activities totaled $29.3 million. The primary use of cash was to
repay a portion of our credit facility, including a $5.9 million principal
payment required under the excess cash flow provisions of our credit facility
and voluntary payments of $24.1 million.
As of
January 1, 2010, the U.S. credit facility, as amended, was comprised of an $80.0
million term loan and a $30.0 million revolving credit facility. The
U.S. credit facility is secured by substantially all of our domestic assets and
provides for interest at either the LIBOR rate plus 550 basis points or at an
alternate base rate calculated as the prime rate plus 450 basis
points. The term loan matures in March 2011 and does not have
scheduled principal payments. Principal pre-payments are required if
certain contingent events occur, including the sale of certain assets, issuance
of equity, and the generation of excess cash flow as defined in the credit
agreement. For the fiscal year ended October 2, 2009, the
excess cash flow payment due under this agreement was approximately $5.9
million, which was paid from available cash during the first quarter of fiscal
year 2010. The excess cash flow payment, if any, required to be made
in December 2010 will be based on results for the full 2010 fiscal year and is
contingent on a number of variables, including our earnings before interest,
taxes, depreciation and amortization, the level and timing of cash interest
paid, capital expenditures, and cash taxes paid, and the amount of voluntary
pre-payments (all as defined in the credit facility). The weighted
average term loan interest rate in effect at January 1, 2010 was
5.7%. We had no borrowings outstanding under the revolving credit
facility as of January 1, 2010. The outstanding letters of credit
under our revolving credit facility totaled approximately $1.0 million as of
January 1, 2010. Accordingly, we had additional borrowing capacity of
$29.0 million under the U.S. credit facility as of January 1, 2010.
Our U.S.
credit facility contains restrictive covenants, including, financial covenants
requiring minimum and cumulative earnings levels and limitations on the payment
of dividends, stock purchases, capital expenditures, and our ability to enter
into certain contractual arrangements. We were in compliance with all U.S.
credit facility covenants as of January 1, 2010.
15
We
anticipate cash generated from operations and available on our revolving credit
facility to be sufficient to meet our expected capital and liquidity needs,
including the funding of capital expenditures, required debt repayments, and
working capital requirements, for the foreseeable future.
Impact of Recent Accounting
Pronouncements
In December 2009, the FASB
issued FASB ASU 2009-16, “Transfers
and Servicing (Topic 860): Accounting for Transfers of Financial Assets”, to
codify SFAS 166, “Accounting for
Transfers of Financial Assets an amendment of FASB Statement No. 140”, which amends the
derecognition guidance in FASB Statement No. 140 and eliminates the
exemption from consolidation for qualifying special-purpose entities. This
statement is effective for financial asset transfers occurring after the
beginning of an entity's first fiscal year that begins after November 15,
2009. This statement will be effective for us beginning in our fiscal 2011.
We do not believe
that the adoption of ASU 2009-16 will have a material
effect on our condensed consolidated financial statements.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
For
quantitative and qualitative disclosures about market risk, see Item 7A,
“Quantitative and Qualitative Disclosures About Market Risk,” of our Annual
Report on Form 10-K for the year ended October 2, 2009. Our exposures
to market risk have not changed materially since October 2, 2009.
ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation
of Disclosure Controls and Procedures
An
evaluation was performed by management, under the supervision and with the
participation of the Chief Executive Officer (CEO) and the Chief Financial
Officer (CFO), of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended (the 1934 Act)). Based on
that evaluation, our CEO and CFO have concluded that, as of January 1, 2010, our
disclosure controls and procedures were effective to ensure that information
required to be disclosed in reports we file or submit under the 1934 Act has
been recorded, processed, summarized and reported in accordance with the rules
and forms of the Securities and Exchange Commission.
Changes
in Internal Control Over Financial Reporting
In the
quarter ended January 1, 2010, there have been no changes in our internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II.
|
OTHER
INFORMATION
|
ITEM 1. | LEGAL PROCEEDINGS |
Refer to
Note 12 in the accompanying financial statements.
ITEM 1A. | RISK FACTORS |
There
have been no material changes from the risk factors disclosed in Part I, Item
1A, of our Annual Report on Form 10-K for the fiscal year ended October 2,
2009.
16
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The
following table provides the information with respect to purchases we made of
our common stock during the first fiscal quarter of 2010:
Period
|
Total
Number of Shares Purchased(1)
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plan
|
|||||||||
October
3 – October 30
|
97 | $ | 28.56 | - | ||||||||
October
31 – November 27
|
- | - | - | |||||||||
November
28 – January 1
|
11,361 | $ | 33.54 | - | ||||||||
Total
|
11,458 | $ | 33.50 | - |
|
(1)
|
Shares
received as payment for the minimum statutory employee withholding taxes
related to vesting of restricted
stock.
|
On
October 4, 2002, our Board of Directors authorized up to $20.0 million to
implement a common stock repurchase plan. As of January 1, 2010, $7.9
million remained available under the common stock repurchase
plan. Covenants contained in our U.S. credit facility prohibit us
from making additional repurchases under the plan.
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
10.1
|
Amendment
to Employment Agreement dated December 1, 2009 between the Company and
John P. Kelly.
|
10.2
|
American
Italian Pasta Company revised Stock Appreciation Rights Award Agreement
for Senior Vice Presidents and Above (incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K filed December 22,
2009).
|
10.3
|
American
Italian Pasta Company Amended and Restated Severance Plan for Senior Vice
Presidents and Above. (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K, filed November 5,
2009).
|
10.4
|
American
Italian Pasta Company Restricted Stock Award Agreement for Senior Vice
Presidents and Above. (incorporated by reference to Exhibit 10.2 to the
Company’s Form 8-K, filed November 5,
2009).
|
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 | |||
Date: February
4, 2010
|
By:
|
/s/ John P. Kelly | |
John P. Kelly | |||
President
and Chief Executive Officer
|
|||
Date: February
4, 2010
|
By:
|
/s/ Paul R. Geist | |
Paul
R. Geist
|
|||
Executive
Vice President and Chief Financial Officer
|
|||
AMERICAN
ITALIAN PASTA COMPANY
EXHIBIT
INDEX
Exhibit
Number
|
Description of Exhibit |
10.1
|
Amendment
to Employment Agreement dated December 1, 2009 between the Company and
John P. Kelly.
|
10.2
|
American
Italian Pasta Company revised Stock Appreciation Rights Award Agreement
for Senior Vice Presidents and Above (incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K filed December 22,
2009).
|
10.3
|
American
Italian Pasta Company Amended and Restated Severance Plan for Senior Vice
Presidents and Above. (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K, filed November 5,
2009).
|
10.4
|
American
Italian Pasta Company Restricted Stock Award Agreement for Senior Vice
Presidents and Above. (incorporated by reference to Exhibit 10.2 to the
Company’s Form 8-K, filed November 5,
2009).
|
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.
|