-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SfyOx8AOWZeW6L6GOC8KJluGXkra/ZgURPX8Kz8FQatWN/Dlfng73Yh4qFzEwo3t +u/HI+gch6SOpsdvGcV15Q== 0000922907-01-500073.txt : 20010515 0000922907-01-500073.hdr.sgml : 20010515 ACCESSION NUMBER: 0000922907-01-500073 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ITALIAN PASTA CO CENTRAL INDEX KEY: 0000849667 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FOOD PREPARATIONS & KINDRED PRODUCTS [2090] IRS NUMBER: 841032638 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13403 FILM NUMBER: 1633139 BUSINESS ADDRESS: STREET 1: 4100 N MULBERRY DRIVE SUITE 200 CITY: KANSAS CITY STATE: MO ZIP: 64116 BUSINESS PHONE: 8165026000 MAIL ADDRESS: STREET 1: 4100 N MULBERRY DRIVE SUITE 200 CITY: KANSS CITY STATE: MO ZIP: 64116 10-Q 1 f10q_050701.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended: March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-13403 American Italian Pasta Company (Exact name of Registrant as specified in its charter) Delaware 84-1032638 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4100 N. Mulberry Drive, Suite 200, Kansas City, Missouri 64116 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (816) 584-5000 - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant has (1) filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding as of May 4, 2001 of the Registrant's Class A Convertible Common Stock was 17,495,715 and there were no shares outstanding of the Class B Common Stock. Page 1 American Italian Pasta Company Form 10-Q Quarter Ended March 31, 2001
Table of Contents Part I - Financial Information Page Item 1. Consolidated Financial Statements (unaudited) Consolidated Balance Sheets at March 31, 2001 and September 30, 2000. 3 Consolidated Statements of Income for the three months ended March 31, 2001 and 2000. 4 Consolidated Statements of Income for the six months ended March 31, 2001 and 2000. 5 Consolidated Statements of Stockholders' Equity for the six months ended March 31, 2001 and 2000. 6 Consolidated Statements of Cash Flows for the six months ended March 31, 2001 and 2000. 7 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 Part II - Other Information Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 Signature Page 17
Page 2
AMERICAN ITALIAN PASTA COMPANY Consolidated Balance Sheets March 31, September 30, 2001 2000 ---- ---- (In thousands) (Unaudited) Assets Current assets: Cash and temporary investments $ 11,502 $ 6,677 Trade and other receivables 27,287 27,479 Prepaid expenses and deposits 6,484 4,424 Inventory 31,029 28,390 Deferred income taxes 2,874 2,989 --------- --------- Total current assets 79,176 69,959 Property, plant and equipment: Land and improvements 8,123 7,159 Buildings 92,521 85,157 Plant and mill equipment 261,539 230,383 Furniture, fixtures and equipment 12,503 10,011 --------- --------- 374,686 332,710 Accumulated depreciation (71,975) (64,769) --------- --------- 302,711 267,941 Construction in progress 17,772 43,727 --------- --------- Total property, plant and equipment 320,483 311,668 Goodwill and other intangibles, net 47,074 -- Other assets 2,652 2,144 --------- --------- Total assets $ 449,385 $ 383,771 ========= ========= Liabilities and stockholders' equity Current liabilities: Accounts payable $ 16,374 $ 12,261 Accrued expenses 13,713 8,352 Income tax payable 1,452 841 Current maturities of long-term debt 1,493 1,564 --------- --------- Total current liabilities 33,032 23,018 Long-term debt 158,419 138,502 Deferred income taxes 28,845 23,847 Commitments and contingencies Stockholders' equity: Preferred stock, $.001 par value: Authorized shares - 10,000,000 -- -- Class A common stock, $.001 par value: Authorized shares - 75,000,000 19 18 Class B common stock, $.001 par value: Authorized shares - 25,000,000 -- -- Additional paid-in capital 200,797 177,725 Treasury stock (34,394) (31,362) Notes receivable from officers (61) (61) Retained earnings 67,172 54,233 Accumulated other comprehensive income (loss) (4,444) (2,149) --------- --------- Total stockholders' equity 229,089 198,404 --------- --------- Total liabilities and stockholders' equity $ 449,385 $ 383,771 ========= =========
See accompanying notes to consolidated financial statements. Page 3
AMERICAN ITALIAN PASTA COMPANY Consolidated Statements of Income Three Months Ended March 31, 2001 2000 ---- ---- (In thousands) (Unaudited) Revenues $75,030 $63,965 Cost of goods sold 51,642 45,899 ------ ------ Gross profit 23,388 18,066 Selling and marketing expense 7,247 4,387 General and administrative expense 2,337 1,688 ----- ----- Operating profit 13,804 11,991 Interest expense, net 2,073 1,101 ----- ----- Income before income tax expense 11,731 10,890 Income tax expense 4,041 3,975 Net income $7,690 $6,915 ====== ====== Earnings Per Common Share: Net income per common share $.44 $.38 ==== ==== Weighted-average common shares outstanding 17,453 18,303 ====== ====== Earnings Per Common Share - Assuming Dilution: Net income per common share assuming dilution $.42 $.37 ==== ==== Weighted-average common shares outstanding 18,161 18,738 ====== ======
See accompanying notes to consolidated financial statements. Page 4
AMERICAN ITALIAN PASTA COMPANY Consolidated Statements of Income Six Months Ended March 31, 2001 2000 ---- ---- (In thousands) (Unaudited) Revenues $141,434 $123,106 Cost of goods sold 98,956 88,986 ------ ------ Gross profit 42,478 34,120 Selling and marketing expense 13,062 8,265 General and administrative expense 4,244 3,172 Provision for acquisition expenses 1,827 -- ----- -- Operating profit 23,345 22,683 Interest expense, net 3,601 2,329 ----- ----- Income before income tax expense 19,744 20,354 Income tax expense 6,805 7,429 ----- ----- Net income $12,939 $12,925 ======= ======= Earnings Per Common Share: Net income per common share $.75 $.71 ==== ==== Weighted-average common shares outstanding 17,290 18,258 ====== ====== Earnings Per Common Share - Assuming Dilution: Net income per common share assuming dilution $.72 $.69 ==== ==== Weighted-average common shares outstanding 17,857 18,756 ====== ======
See accompanying notes to consolidated financial statements. Page 5
AMERICAN ITALIAN PASTA COMPANY Consolidated Statements of Stockholders' Equity Six months ended March 31, 2001 --------------------------- (In thousands) (unaudited) Class A Common Shares Balance, beginning of period 18,363 Issuance of shares of Class A Common stock to option holders & other issuances 788 --------- Balance, end of period 19,151 ========= Class A Common Stock Balance, beginning of period $ 18 Issuance of shares of Class A Common stock to option holders & other issuances 1 --------- Balance, end of period $ 19 ========= Additional Paid-in Capital Balance, beginning of period $ 177,725 Issuance of shares of Class A Common stock to option holders & other issuances 23,072 --------- Balance, end of period $ 200,797 ========= Treasury Stock Balance, beginning of period $ 31,362 Purchase of treasury stock 3,032 --------- Balance, end of period $ 34,394 ========= Notes Receivable from Officers Balance, beginning of period $ (61) Paydown of notes receivable from officers -- --------- Balance, end of period $ (61) ========= Accumulated Other Comprehensive Income (Loss) Balance, beginning of period $ (2,149) Foreign currency translation adjustment (917) Interest rate swaps fair value adjustment (1,378) --------- Balance, end of period $ (4,444) ========= Retained Earnings Balance, beginning of period $ 54,233 Net income 12,939 --------- Balance, end of period 67,172 --------- Total Stockholders' Equity $ 229,089 =========
See accompanying notes to consolidated financial statements. Page 6
AMERICAN ITALIAN PASTA COMPANY Consolidated Statements of Cash Flows Six Months Ended March 31, 2001 2000 ---- ---- (In thousands) (Unaudited) Operating activities: Net income $ 12,939 $ 12,925 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 8,052 8,401 Deferred income tax expense 4,998 3,892 Changes in operating assets and liabilities, net of Mueller's Brand Acquisition: Trade and other receivables (590) 2,002 Prepaid expenses and deposits (2,062) 7 Inventory 863 (6,644) Accounts payable and accrued expenses 4,645 (257) Income tax payable 1,296 1,930 Other (979) (766) -------- -------- Net cash provided by operating activities 29,162 21,490 Investing activities: Purchase of Mueller's brand pasta business (23,552) -- Additions to property, plant and equipment (17,020) (28,536) -------- -------- Net cash used in investing activities (40,572) (28,536) Financing activities: Proceeds from issuance of debt 20,000 5,000 Principal payments on debt and capital lease obligations (727) (699) Proceeds from issuance of common stock, net of issuance costs 1,718 749 Purchase of Treasury Stock (3,032) -- Other -- (177) -------- -------- Net cash provided by financing activities 17,959 4,873 Effect of exchange rate changes on cash (1,724) -- -------- -------- Net increase (decrease) in cash and temporary 4,825 (2,173) investments Cash and temporary investments at beginning of period 6,677 3,088 -------- -------- Cash and temporary investments at end of period $ 11,502 $ 915 ======== ========
See accompanying notes to consolidated financial statements. Page 7 AMERICAN ITALIAN PASTA COMPANY Notes to Consolidated Financial Statements March 31, 2001 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 and six-month periods ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ended September 30, 2001. These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto and management's discussion and analysis thereof included in the Company's Annual Report on Form 10-K for the year ended September 29, 2000 and management's discussion and analysis included in Item 2 hereof. American Italian Pasta Company (the "Company" or "AIPC") uses a 52/53 week financial reporting cycle with a fiscal year which ends on the last Friday of September or the first Friday of October. The Company's first three fiscal quarters end on the Friday last preceding December 31, March 31, and June 30 or the first Friday of the following month. For purposes of this Form 10-Q, the second fiscal quarter of fiscal years 2001 and 2000 both included thirteen weeks of activity and are described as the three month periods ended March 31, 2001 and 2000. 2. Earnings Per Share Dilutive securities, consisting of options to purchase the Company's Class A common stock, included in the calculation of diluted weighted average common shares were 708,000 and 567,000 shares for the three-month and six-month periods ended March 31, 2001, respectively, and 435,000 and 498,000 shares for the three-month and six-month periods ended March 31, 2000, respectively. A summary of the Company's stock option activity: Number of Shares Outstanding at September 30, 2000 2,588,524 Exercised (81,292) Granted 68,500 Canceled/Expired (21,676) --------- Outstanding at March 31, 2001 2,554,056 ========= 3. 2000 Equity Incentive Plan In December 2000, the Board of Directors adopted the 2000 Equity Incentive Plan for all employees. The Plan was subsequently approved by shareholders at the February 2001 Shareholder Meeting. Under the Plan, the Board or a committee designated by the Board is authorized to grant nonqualified stock options, incentive stock options, reload options, stock appreciation rights, shares of restricted Common Stock, performance shares, performance units, and shares of Common Stock awarded as a bonus. There are 1,000,000 shares of Common Stock reserved for issuance under the Plan. Page 8 4. Derivatives and Hedging Activities In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and its amendments Statements 137 and 138, in June 1999 and June 2000, respectively. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. No such amount was recorded for the six months ended March 31, 2001. The adoption of Statement No. 133, as amended, on October 1, 2000, resulted in a charge of $1,378,000 to other comprehensive income (loss). 5. Stock Repurchase During the six months ended March 31, 2001, the Company purchased 154,849 shares of its common stock for $3,032,000. Total shares held in treasury as of March 31, 2001 were 1,654,981. 6. Purchase of Mueller's Brand Pasta Business On November 13, 2000, the Company purchased the Mueller's brand pasta business from Bestfoods. Mueller's is the largest single pasta brand in the United States, with particularly strong distribution in the eastern part of the country. The acquisition encompassed the trademarks and goodwill associated with the brand, the customer accounts and relationships, and certain tangible assets, primarily inventory. Total consideration for the purchased assets, excluding approximately $5.2 million paid for tangible assets, was approximately $38.2 million, consisting of $17.6 million in cash and 686,666 shares of common stock valued at $30 per share. The acquisition has been accounted for as a purchase. The proforma financial results are not materially different than the reported results. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion set forth below, as well as other portions of this Quarterly Report, contains statements concerning potential future events. Such forward-looking statements are based upon assumptions by the Company's management, as of the date of this Quarterly Report, including assumptions about risks and uncertainties faced by AIPC. Readers can identify these forward-looking statements by their use of such verbs as expects, anticipates, believes or similar verbs or conjugations of such verbs. If any management assumptions prove incorrect or should unanticipated circumstances arise, our actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors, included but not limited to our dependence on a limited number of customers for a substantial portion of our revenue, our ability to manage rapid growth, our ability to obtain necessary raw materials and minimize fluctuations in raw material prices, the impact of the highly competitive environment in which we operate, reliance exclusively on a single product category, our limited personnel, our ability to cost-effectively transport our products and the significant risks inherent in our recent international expansion. For additional discussion of the principal factors that could cause actual results Page 9 to be materially different, refer to our Current Report on Form 10-K dated December 16, 2000, filed by the Company with the Securities and Exchange Commission, any amendments thereto and other matters disclosed in the Company's other public filings. This report has been filed with the Securities and Exchange Commission (the "SEC" or the "Commission") in Washington, D.C. and can be obtained by contacting the SEC's public reference operations or obtaining it through the SEC's web site on the World Wide Web at http://www.sec.gov. Readers are strongly encouraged to consider those factors when evaluating any such forward-looking statement. We will not update any forward-looking statements in this Quarterly Report to reflect future events or developments. Results of Operations Second quarter fiscal 2001 compared to second quarter fiscal 2000. Revenues. Total revenues increased $11.1 million, or 17.3%, to $75.0 million for the three-month period ended March 31, 2001, from $64.0 million for the three-month period ended March 31, 2000. The increase for the three-month period ended March 31, 2001 was primarily due to higher per unit selling prices associated with the Mueller's brand pasta business acquisition (Mueller's acquisition). Volumes were up 7.4% over the prior year. Volume growth was led by private label (+24.7%) and ingredient (+10.0%). For the remainder of the 2001 year, in addition to volume growth, average prices will be higher due to the Mueller's acquisition and higher durum prices resulting in cost pass-throughs. Volume associated with the Mueller's brand was down 15.7% from the year-ago quarter. During the year-ago quarter, the Mueller's brand was produced by AIPC for Bestfoods. As a result, year-ago revenues are based on production, while current year revenues are based on shipments to retail now that Mueller's is owned by AIPC. On a shipments to retail basis for the second quarter of both years, volumes were down by less than 6%. During the second quarter we honored Bestfoods marketing commitments as we transitioned the brand into AIPC. Excluding the Mueller's brand, volumes were 14.6% higher than the second quarter of last year. Revenues for the Retail market increased $8.0 million, or 18.0%, to $52.4 million for the three-month period ended March 31, 2001, from $44.4 million for the three-month period ended March 31, 2000. The increase primarily reflects volume growth of 5.8% and higher per unit selling prices, primarily due to the Mueller's acquisition. Year over year, excluding Mueller's, our volume was up 18.2%. Revenues for the Institutional market increased $3.1 million, or 15.6%, to $22.6 million for the three-month period ended March 31, 2001, from $19.6 million for the three-month period ended March 31, 2000. This increase was primarily a result of ingredient volume growth of 10.0%, along with 7.5% volume growth in our foodservice business, partially offset by lower contract volumes. Gross Profit. Gross profit increased $5.3 million, or 29.5%, to $23.4 million for the three-month period ended March 31, 2001, from $18.1 million for the three-month period ended March 31, 2000. This increase was primarily attributable to revenue growth associated with increased volumes and the higher per unit selling prices of Mueller's products. These increases were partially offset by higher raw material and packaging costs. Gross profit as a percentage of revenues increased to 31.2% for the three-month period ended March 31, 2001 from 28.2% for the three-month period ended March 31, 2000. The increase Page 10 in gross profit as a percentage of revenues relates to incremental gross profit on Mueller's products subsequent to the acquisition. For the remainder of the 2001 year, we expect increases in gross profit to continue as a result of the Mueller's acquisition, partially offset by the negative impact on gross margin percentages of higher durum wheat costs. Selling and Marketing Expense. Selling and marketing expense increased $2.9 million, or 65.2%, to $7.2 million for the three-month period ended March 31, 2001, from $4.4 million for the three-month period ended March 31, 2000. This increase was primarily due to higher marketing costs associated with higher retail revenues, as well as the incremental marketing and personnel costs associated with the Mueller's acquisition. Selling and marketing expense as a percentage of revenues increased to 9.7% for the three-month period ended March 31, 2001, from 6.9% for the comparable prior year period. Going forward, we expect selling and marketing expenses to exceed 10% of net revenues due to the additional promotional expenses dedicated to the Mueller's business. General and Administrative Expense. General and administrative expense increased between periods, and as a result increased as a percentage of revenues from 2.6% to 3.1%. The majority of the increase relates to personnel and goodwill amortization costs associated with the Mueller's acquisition. Operating Profit. Operating profit for the three-month period ended March 31, 2001, was $13.8 million, an increase of $1.8 million or 15.1% over the $12.0 million reported for the three-month period ended March 31, 2000, and decreased as a percentage of revenues to 18.4% for the three-month period ended March 31, 2001, from 18.7% for the three-month period ended March 31, 2000 as a result of the factors discussed above. Interest Expense. Interest expense for the three-month period ended March 31, 2001, was $2.1 million, increasing $1.0 million or 88.3% from the $1.1 million reported for the three-month period ended March 31, 2000. The increase related to borrowings associated with the Mueller's acquisition, the stock repurchase program, and capital expenditures. These increases were partially offset by cash flow from operations and an increase in capitalized interest. Income Tax. Income tax expense for the three-month period ended March 31, 2001, was $4.0 million, comparable to the $4.0 million reported for the three-month period ended March 31, 2000, and reflects effective income tax rates of approximately 34.5% and 36.5%, respectively. Net Income. Net income for the three-month period ended March 31, 2001, was $7.7 million, increasing $.8 million or 11.2% from the $6.9 million reported for the three-month period ended March 31, 2000. Diluted earnings per share was $0.42 per share for the three-month period ended March 31, 2001 compared to $0.37 per share in the comparable prior year period, an increase of 13.5% over the prior year quarter. Page 11 Six months fiscal 2001 compared to six months fiscal 2000. Revenues. Revenues increased $18.3 million, or 14.9%, to $141.4 million for six-month period ended March 31, 2001, from $123.1 million for the six-month period ended March 31, 2000. The increase for the six-month period ended March 31, 2001 was primarily due to higher per unit selling prices associated with the Mueller's acquisition. Volumes were up 7.6% over the prior year period, but were up 18.3% when excluding Mueller's. Volume growth was led by private label (26.7%) and ingredient (24.8%). For the remainder of the 2001 year, in addition to volume growth, average prices will be higher due to the Mueller's acquisition and higher durum prices resulting in cost pass-throughs. Revenues for the Retail market increased $13.1 million, or 15.0%, to $100.5 million for the six-month period ended March 31, 2001, from $87.3 million for the six-month period ended March 31, 2000. The increase primarily reflects volume growth of 1.4% and higher per unit selling prices, primarily due to the Mueller's acquisition. Excluding Mueller's, our volume was up 16.4%. Revenues for the Institutional market increased $5.2 million, or 14.5%, to $41.0 million for the six-month period ended March 31, 2001, from $35.8 million for the six-month period ended March 31, 2000. This increase was primarily due to volume growth in the Ingredient market of 24.8% offset by lower contract volumes. Gross Profit. Gross profit increased $8.4 million, or 24.5%, to $42.5 million for the six-month period ended March 31, 2001, from $34.1 million for the six-month period ended March 31, 2000. This increase was primarily attributable to revenue growth associated with increased volumes and the higher per unit selling prices of Mueller's products. These increases were partially offset by higher raw material and packaging costs. Gross profit as a percentage of revenues increased to 30.0% for the six-month period ended March 31, 2001, from 27.7% for the six-month period ended March 31, 2000. The increase in gross profit as a percentage of revenues relates to incremental gross profit on Mueller's products subsequent to the acquisition. For the remainder of the 2001 year, we expect increases in gross profit to continue as a result of the Mueller's acquisition, partially offset by the negative impact on gross margin percentages of higher durum wheat costs. Selling and Marketing Expense. Selling and marketing expense increased $4.8 million, or 58.0%, to $13.1 million for the six-month period ended March 31, 2001, from $8.3 million for the six-month period ended March 31, 2000. Selling and marketing expense as a percentage of revenues increased to 9.2% for the six-month period ended March 31, 2001, from 6.7% for the comparable prior year period. This increase was primarily due to higher marketing costs associated with higher retail revenues as well as incremental marketing and personnel costs associated with the Mueller's acquisition. Going forward, we expect selling and marketing expenses to exceed 10% of net revenues due to the additional promotion expenses dedicated to the Mueller's business. General and Administrative Expense. General and administrative expense increased $1.1 million, or 33.8%, to $4.2 million for the six-month period ended March 31, 2001, from $3.2 million for the comparable prior period, and increased as a percentage of revenues from 2.6% to 3.0%. The majority of the increase relates to personnel and goodwill amortization costs associated with the Mueller's acquisition. Provision for Acquisition Related Expenses. The provision for acquisition related expenses of $1.8 million for the six-month period ended March 31, 2001 consisted of one-time costs associated with the Mueller's acquisition. Page 12 Operating Profit. Operating profit for the six-month period ended March 31, 2001, was $23.3 million, an increase of $0.7 million or 2.9% over the $22.7 million reported for the six-month period ended March 31, 2000, and decreased as a percentage of revenues to 16.5% for the six-month period ended March 31, 2001, from 18.4% for the six-month period ended March 31, 2000 as a result of the factors discussed above. Excluding the $1.8 million charge for non-recurring acquisition expenses, operating profit was $25.2 million, a $2.5 million or 11.0% increase over that reported in the prior year period. Operating profit as a percentage of net revenues, excluding the non-recurring charge was 17.8% versus 18.4% in the prior year. Interest Expense. Interest expense for the six-month period ended March 31, 2001, was $3.6 million, increasing $1.3 million or 54.6% from the $2.3 million reported for the six-month period ended March 31, 2000. The increase related to borrowings associated with the Mueller's acquisition, the stock repurchase program, and capital expenditures. These increases were partially offset by cash flow from operations and an increase in capitalized interest. Income Tax. Income tax expense for the six-month period ended March 31, 2001, was $6.8 million, decreasing $0.6 million from the $7.4 million reported for the six-month period ended March 31, 2000, and reflects effective income tax rates of approximately 34.5% and 36.5%, respectively. Net Income. Net income for the six-month period ended March 31, 2001, and March 31, 2000, was $12.9 million. Excluding the impact of the $1.8 million charge for non-recurring acquisition costs, net income for the six months totaled $14.1 million, an increase of $1.2 million or 9.4% over the prior year period. Diluted earnings per common share were $0.72 per share for the six-month period ended March 31, 2001 compared to $0.69 per share for the six-month period ended March 31, 2000. Excluding the impact of the $1.8 million charge for non-recurring acquisition costs, diluted earnings per common share were $0.79, and net income as a percentage of net revenue was 10.0% versus 10.5% in the prior year. Financial Condition and Liquidity Our primary sources of liquidity are cash provided by operations and borrowings under our credit facility. Cash and temporary investments totaled $11.5 million, and working capital totaled $46.1 million at March 31, 2001. Our net cash provided by operating activities totaled $29.2 million for the six-month period ended March 31, 2001 compared to $21.5 million for the six-month period ended March 31, 2000. The increase in the net cash provided by operations is due to lower working capital requirements and final payments under the Bestfoods Supply Agreement. Cash used in investing activities principally relates to the purchase of the Mueller's brand pasta business and our investments in manufacturing, distribution and milling assets. Capital expenditures were $17.0 million for the six-month period ended March 31, 2001 compared to $28.5 million in the comparable prior year period. The primary decrease in such spending for the six-month period ended March 31, 2001 was related to significant capital expenditures a year ago for our new Italian manufacturing facility. Additionally, we plan to spend approximately $15 million in the remainder of fiscal year 2001, primarily for cost saving, maintenance projects, and capacity expansion projects. We anticipate completion of these projects during the fiscal year ending September 30, 2001. Net cash provided by financing activities was $18.0 million for the six-month period ended March 31, 2001 compared to $4.9 million for the six-month period ended March 31, 2000. Borrowings under our revolver increased by $20.0 Page 13 million to fund the Mueller's brand pasta business purchase and the purchase of treasury stock. We continue to use our available credit facility, as well as cash from operations, to fund capital expansion programs as necessary. We currently use cash to fund capital expenditures, repayments of debt and working capital requirements. We expect that future cash requirements will principally be for capital expenditures, repayments of indebtedness and working capital requirements. We have current commitments for $22.2 million in raw material purchases for fiscal year 2001. Additionally, we have approximately $15.0 million in expenditures remaining under the previously referenced capital programs. We expect to fund these commitments from operations and borrowings under our credit facility. The credit facility currently has available a credit of approximately $47 million. At this time, the current and projected borrowings under the credit facility do not exceed the facility's available commitment. The facility matures at the end of fiscal year 2002. We anticipate that any borrowing outstanding at that time will be satisfied with funds from operations or will be refinanced. We currently have no other material commitments. We believe that net cash provided by operating and financing activities will be sufficient to meet our expected capital and liquidity needs for the foreseeable future. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our principal exposure to market risk associated with financial instruments relate to interest rate risk associated with variable rate borrowings and foreign currency exchange rate risk associated with borrowings denominated in foreign currency. We occasionally utilize simple derivative instruments such as interest rate swaps to manage our mix of fixed and floating rate debt. We had various fixed interest rate swap agreements with notional amounts of $34 million and 40 million Euros outstanding at March 31, 2001. The estimated fair value of the interest rate swap agreements of $(1,378,000) is the amount we would be required to pay to terminate the swap agreements at March 31, 2001. We hedge our net investment in our foreign subsidiaries with euro borrowings under our credit facility. Changes in the U.S. dollar equivalent of euro-based borrowings is recorded as a component of the net translation adjustment in the consolidated statement of stockholder's equity. We have operations in Italy. The functional currency for this operation is the Euro. At March 31, 2001, long-term debt includes foreign subsidiary obligations of 53.7 million Euros ($49.4 million) under a credit facility which bears interest at a variable rate based upon the Euribor rate. Page 14 PART II - OTHER INFORMATION Item 1. Legal Proceedings - ------------------------------- Not applicable Item 2. Changes in Securities - ------------------------------- Not applicable Item 3. Defaults Upon Senior Securities - ------------------------------- Not applicable Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------- The Annual Meeting of Shareholders was held on February 8, 2001. There were three matters submitted to a vote of security holders. The first matter was for the election of directors. Each of the persons named in the Proxy Statement as a nominee for director was elected. Following are the voting results on each of the nominees for director:
Election of Directors Votes For Votes Withheld David Y. Howe 14,531,437 1,277,058 John P. O'Brien 15,589,352 229,143 William R. Patterson 15,590,552 227,943
The following directors continued in office:
Serving Until 2002 Serving Until 2003 Jonathan E. Baum Horst W. Schroeder Robert H. Niehaus Mark C. Demetree Richard C. Thompson Timothy S. Webster James A. Heeter
The second matter was for the ratification of the Board of Directors' selection of Ernst & Young LLP to serve as the Company's independent auditors for the fiscal year 2001. The shareholders cast 15,804,778 votes in the affirmative and 12,706 votes in the negative and shareholders holding 1,011 votes abstained from voting on the ratification of Ernst & Young LLP as the Company's independent auditors for the fiscal year 2001. The third matter was for approval of the American Italian Pasta Company 2000 Equity Incentive Plan. The shareholders cast 10,310,159 votes in the affirmative and 2,748,361 votes in the negative and shareholders holding 9,820 votes abstained from voting on the approval of the AIPC 2000 Equity Incentive Plan. Page 15 Item 5. Other Information - ------------------------- Not applicable Item 6. Exhibits and Reports on Form 8-K - ------------------------- (a) Exhibits. 10.1 Separation Agreement, Full Release and Waiver of Claims and Non-Competition Agreement between the Company and Norman F. Abreo dated February 28, 2001. (b) Reports on Form 8-K. We filed a Form 8-K on January 5, 2001 announcing the closing of our acquisition of the Mueller's pasta brand from Bestfoods. We filed a Form 8-K on January 16, 2001 announcing the filing of a registration statement on Form S-3 covering the 686,666 shares issued to Bestfoods as part of the purchase price. We filed a Form 8-K on January 24, 2001 publishing guidance on forecasted 2001 earnings and cash flow. Page 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. American Italian Pasta Company May 11, 2001 /s/ Timothy S. Webster - --------------------------- ----------------------------------- Date Timothy S. Webster President and Chief Executive Officer (Principal Executive Officer) May 11, 2001 /s/ Warren B. Schmidgall - --------------------------- ----------------------------------- Date Warren B. Schmidgall Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Page 17 EXHIBIT INDEX Exhibit No. Description - ----------- ----------------------------------------------------- 10.1 Separation Agreement, Full Release and Waiver of Claims and Non-Competition Agreement between the Company and Norman F. Abreo dated February 28, 2001. Page 18 EX-10.1 2 form10q_050701exh10.txt Exhibit 10.1 SEPARATION AGREEMENT, FULL RELEASE AND WAIVER OF CLAIMS, NON-COMPETITION AGREEMENT AMERICAN ITALIAN PASTA COMPANY ("the Company") and NORMAN F. ABREO ("You") agree as follows: 1. The term "this Agreement" shall include this document and all other documents referenced to herein. 2. You are eligible for the following consideration only if you sign this Agreement and comply with the other terms of this Agreement. In exchange for this Agreement, the Company agrees to allow you to voluntarily resign effective February 28, 2001 and, thereafter, to associate with you as an independent contractor consultant under the terms of the Consulting Agreement attached as Exhibit A and incorporated by reference. Furthermore, when your final paycheck is issued, the Company shall pay you $17,700.00 (subject to applicable withholding) in accrued but unused vacation benefits. Pursuant to applicable law, the Company will allow you to roll over your contributions and the Company matches in your 401k account. 3. In exchange for this Agreement, including the consideration set forth in the attached Consulting Agreement (Exhibit A), and in paragraph 2 above, you (and anyone claiming through or on behalf of you), release the Company, and its successors and assigns and each and every past and present employee, shareholder, officer, director, and agent of the Company from any and all claims, demands and causes of action you have or may have had against any of them prior to the date you sign this Agreement, to the maximum extent permitted by law. This release includes, but is not limited to, any and all claims, demands and causes of action, including attorney's fees, which arise under the common law, including but not limited to claims, demands and causes of action for libel, slander, defamation, breach of contract, and wrongful termination; discrimination under local, state or federal law; Title VII of the Civil Rights Act of 1964; the Civil Rights Act of 1991; the Americans With Disabilities Act; the Employee Retirement Income Security Act; the Family and Medical Leave Act; the Kansas Act Against Discrimination; and the Missouri Human Rights Act. Similarly, the Company releases you from any and all claims, demands and causes of action it has or may have had against you prior to the date the Company signs this Agreement. This release includes but is not limited to claims, demands and causes of action for libel, slander, defamation, and breach of contract. 4. As part of this Agreement, you expressly acknowledge the highly competitive nature of the business of the Company and its affiliates and, accordingly, agree that until April 1, 2002 you will not, within North America, directly or indirectly, own, manage, operate, control, be employed by, consult with or be connected in any manner with the ownership (other than passive investments of not more than one percent of the outstanding shares of, or any equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), management, operation, or control of any business engaged in the production and/or marketing of dry pasta for human consumption. 5. This Agreement is not an admission of wrongdoing or liability by you, the Company or any of the individuals or entities set forth in paragraph 3 above. In fact, you expressly agree you were not discriminated against by the Company on the basis of your sex, race, national origin, age, actual or perceived disability and/or any other basis prohibited by law. 6. The existence and content of this Agreement, and your discussions with the Company pertaining to it, are confidential. With the exception of the non-competition provision set forth in paragraph 4 above, you will not communicate or allow the communication in any manner with respect to the existence or content of this Agreement, and the discussions pertaining to it, except that the Agreement may be disclosed by you to your immediate family members, your attorney and accountant or to governmental taxing authorities, if required. 7. You and the Company agree that you will not seek to be reemployed by the Company or its successors and assigns or at any facility owned or leased by the Company or by any entity in which the Company has an ownership interest. 8. You and the Company further agree not to make disparaging remarks about the other party. 9. This Agreement shall be construed in accordance with the laws of the State of Missouri. 10. This Agreement, in conjunction with the Consulting Agreement (Exhibit A), contains the entire agreement of the parties with respect to the matters addressed herein and this Agreement expressly supercedes any prior agreements with the Company, including but not limited to your Employment Agreement and any amendments thereto. No change, modification, or waiver of any provision of this Agreement will be valid unless in writing and signed by the parties to be bound. 11. You expressly acknowledge no representations have been made to you by the Company or any of their legal counsel regarding the tax or other legal implications of any payment made by the Company under this Agreement. 12. You represent and agree that you freely and voluntarily executed this Agreement and that you had the opportunity to consult with an attorney, and that no promise, inducement or agreement not expressed in this Agreement has been made to you by the Company. 13. You and the Company agree that if either party breaches any provision of this Agreement, or if one or more provisions of paragraph 3 of this Agreement is ever determined by a court to be unenforceable, either party, at his or its option, may void this Agreement. Either party may also pursue any other available remedies. 14. You agree that in addition to any other remedy it may have, the Company shall be entitled to enforce the specific performance of this Agreement in all respects, including but not limited to the non-competition provision, and, if successful, the Company shall be entitled to recover its costs and attorneys' fees, provided that if the Company is not successful in seeking either a temporary or permanent injunction, it shall pay your attorneys' fees and costs related to the defense of the same. 15. This Agreement is binding on and inures to the benefit of the Company's successors and assigns and your heirs and assigns. Dated: February 28, 2001 /s/ Norman F. Abreo ----------------------------------------------- Norman F. Abreo American Italian Pasta Company By: /s/ T.S. Webster, CEO -------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----