Form 10-Q for American Italian Pasta Company

10-Q 1 form10q_0422222.htm Form 10-Q for American Italian Pasta Company


                                  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, 2002

                                       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 6, 2002 of the Registrant's
Class A Convertible Common Stock was 17,959,372 and there were no shares
outstanding of the Class B Common Stock.

American Italian Pasta Company
Form 10-Q
Quarter Ended March 31, 2002

Table of Contents

Part I - Financial Information Page

Item 1. Consolidated Financial Statements (unaudited)

Consolidated Balance Sheets at March 31, 2002 and
September 30, 2001. 3

Consolidated Statements of Income for the three
months ended March 31, 2002 and 2001. 4

Consolidated Statements of Income for the six
months ended March 31, 2002 and 2001. 5

Consolidated Statements of Stockholders' Equity
for the six months ended March 31, 2002. 6

Consolidated Statements of Cash Flows for the
six months ended March 31, 2002 and 2001. 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



                        PART I - FINANCIAL INFORMATION
             Item 1 - Consolidated Financial Statements (Unaudited)

                         AMERICAN ITALIAN PASTA COMPANY
                           Consolidated Balance Sheets

                                                                                    March 31,           September 30,
                                                                                      2002                   2001
                                                                                      ----                   ----
                                                                                            (In thousands)
                                                                                              (Unaudited)
Assets
Current assets:
   Cash and temporary investments                                                        $4,726             $5,284
   Trade and other receivables                                                           36,074             37,546
   Prepaid expenses and deposits                                                          6,337              8,024
   Inventory                                                                             53,248             43,866
   Deferred income taxes                                                                  2,689              3,565
                                                                                        --------          --------
Total current assets                                                                    103,074             98,285
Property, plant and equipment:
     Land and improvements                                                               10,843              8,123
   Buildings                                                                            101,134             99,548
     Plant and mill equipment                                                           272,319            269,751
   Furniture, fixtures and equipment                                                     13,563             10,957
                                                                                        --------          --------
                                                                                        397,859            388,379
     Accumulated depreciation                                                           (89,625)          (80,453)
                                                                                        -------           --------
                                                                                        308,234            307,926
     Construction in progress                                                            49,060             31,236
                                                                                        --------          --------
Total property, plant and equipment                                                     357,294            339,162
Intangible assets                                                                       117,042            116,707
Other assets                                                                              5,916              5,989
                                                                                        --------          --------
Total assets                                                                           $583,326           $560,143
                                                                                       ========           ========

Liabilities and stockholders' equity 
     Current liabilities:
     Accounts payable                                                                  $ 19,597           $ 22,416
     Accrued expenses                                                                    15,839             19,652
     Income tax payable                                                                   2,304                877
     Current maturities of long-term debt                                                 2,404              1,559
                                                                                        --------          --------
Total current liabilities                                                                40,144             44,504
Long-term debt                                                                          233,646            236,783
Deferred income taxes                                                                    38,623             33,664
Commitments and contingencies
Stockholders' equity:
   Preferred stock, $.001 par value:
         Authorized shares - 10,000,000                                                      --                 --
     Class A common stock, $.001 par value:
         Authorized shares - 75,000,000                                                      20                 19
     Class B common stock, $.001 par value:
          Authorized shares - 25,000,000                                                     --                 --
     Additional paid-in capital                                                         209,564            202,674
     Treasury stock                                                                     (34,394)          (34,394)
     Notes receivable from officers                                                         (61)              (61)
     Unearned compensation                                                                 (173)             (223)
     Retained earnings                                                                   99,474             80,563
   Accumulated other comprehensive loss                                                  (3,517)           (3,386)
                                                                                        --------          --------
Total stockholders' equity                                                              270,913            245,192
                                                                                         -------           -------
Total liabilities and stockholders' equity                                             $583,326           $560,143
                                                                                       ========           ========


See accompanying notes to consolidated financial statements.





                         AMERICAN ITALIAN PASTA COMPANY

                        Consolidated Statements of Income

                                                                                          Three Months Ended
                                                                                               March 31,
                                                                                      2002                   2001
                                                                                      ----                   ----
                                                                                            (In thousands)
                                                                                              (Unaudited)

Revenues                                                                              $94,843               $75,030
Cost of goods sold                                                                     61,126                51,642
                                                                                       ------                ------
Gross profit                                                                           33,717                23,388
Selling and marketing expense                                                          12,845                 7,022
General and administrative expense                                                      3,209                 2,562
                                                                                        -----                 -----
Operating profit                                                                       17,663                13,804
Interest expense, net                                                                   2,422                 2,073
                                                                                        -----                 -----
Income before income tax expense                                                       15,241                11,731
Income tax expense                                                                      5,182                 4,041
                                                                                        -----                 -----
Net income                                                                            $10,059                $7,690
                                                                                      =======               ======

Earnings Per Common Share:
    Net income per common share                                                          $.56                  $.44
                                                                                      =======               =======

    Weighted-average common shares outstanding                                         17,835                17,453
                                                                                      =======               =======

Earnings Per Common Share - Assuming Dilution:
    Net income per common share assuming dilution                                        $.54                  $.42
                                                                                      =======               =======

    Weighted-average common shares outstanding                                         18,653                18,161
                                                                                      =======               =======

     See accompanying notes to consolidated financial statements.





                         AMERICAN ITALIAN PASTA COMPANY

                        Consolidated Statements of Income

                                                                                            Six Months Ended
                                                                                               March 31,
                                                                                      2002                    2001
                                                                                      ----                    ----
                                                                                            (In thousands)
                                                                                              (Unaudited)

Revenues                                                                             $186,846              $141,434
Cost of goods sold                                                                    120,285                98,956
                                                                                      -------                ------
Gross profit                                                                           66,561                42,478
Selling and marketing expense                                                          26,641                12,562
General and administrative expense                                                      6,186                 4,744
Provision for acquisition expenses                                                         --                 1,827
                                                                                      -------                ------
Operating profit                                                                       33,734                23,345
Interest expense, net                                                                   4,978                 3,601
                                                                                      -------                ------
Income before income tax expense                                                       28,756                19,744
Income tax expense                                                                      9,845                 6,805
                                                                                      -------                ------
Net income                                                                            $18,911               $12,939
                                                                                      =======               =======

Earnings Per Common Share:
    Net income per common share                                                         $1.06                  $.75
                                                                                      =======               =======
    Weighted-average common shares outstanding                                         17,764                17,290


Earnings Per Common Share - Assuming Dilution:
    Net income per common share assuming dilution                                       $1.02                  $.72
                                                                                      =======               =======

    Weighted-average common shares outstanding                                         18,605                17,857
                                                                                      =======               =======

     See accompanying notes to consolidated financial statements.



                                             AMERICAN ITALIAN PASTA COMPANY

                                     Consolidated Statements of Stockholders' Equity


                                                                                                          Six months ended
                                                                                                            March 31, 2002
                                                                                                      ---------------------------
                                                                                                          (In thousands)
                                                                                                            (unaudited)
Class A Common Shares
  Balance, beginning of period                                                                                19,218
  Issuance of shares of Class A Common stock to option holders & other issuances                                 321
                                                                                                              ------
  Balance, end of period                                                                                      19,539
                                                                                                              ======

Class A Common Stock
  Balance, beginning of period                                                                               $    19
  Issuance of shares of Class A Common stock to option holders & other issuances                                   1
                                                                                                           ---------
  Balance, end of period                                                                                       $  20
                                                                                                           =========

Additional Paid-in Capital
  Balance, beginning of period                                                                             $ 202,674
  Issuance of shares of Class A Common stock to option holders & other issuances                               6,890
                                                                                                           ---------
  Balance, end of period                                                                                   $ 209,564
                                                                                                           =========

Treasury Stock
  Balance, beginning and end of period                                                                     $ (34,394)
                                                                                                           =========

Notes Receivable from Officers
  Balance, beginning and end of period                                                                     $     (61)
                                                                                                           =========

Unearned compensation
 Balance, beginning of period                                                                              $    (223)
 Earned compensation                                                                                              50

 Balance, end of period                                                                                    $     (173)
                                                                                                            =========

Accumulated Other Comprehensive Loss
  Balance, beginning of period                                                                             $  (3,386)
  Foreign currency translation adjustment                                                                        (53)
  Interest rate swaps fair value adjustment                                                                      (78)
                                                                                                            ---------
  Balance, end of period                                                                                   $  (3,517)
                                                                                                            =========

Retained Earnings
  Balance, beginning of period                                                                             $  80,563
  Net income                                                                                                  18,911
                                                                                                            --------
  Balance, end of period                                                                                      99,474
                                                                                                            --------
Total Stockholders' Equity                                                                                 $ 270,913
                                                                                                           =========

       See accompanying notes to consolidated financial statements.





                         AMERICAN ITALIAN PASTA COMPANY

                      Consolidated Statements of Cash Flows

                                                                                                    Six Months Ended
                                                                                                       March 31,
                                                                                                2002                  2001
                                                                                                ----                  ----
                                                                                                       (In thousands)
                                                                                                        (Unaudited)
Operating activities:
Net income                                                                                    $18,911              $12,939
Adjustments to reconcile net income to net cash provided by operations:
    Depreciation and amortization                                                               9,984                8,052
    Deferred income tax expense                                                                 4,959                4,998
    Changes in operating assets and liabilities,
      net of Mueller's brand acquisition:
           Trade and other receivables                                                          1,137                 (590)
           Prepaid expenses and deposits                                                        1,687               (2,062)
           Inventory                                                                           (9,453)                 863
           Accounts payable and accrued expenses                                               (5,558)               4,645
           Income tax payable                                                                   4,132                1,296
           Other                                                                                 (551)                (979)
                                                                                              --------             --------
Net cash provided by operating activities                                                      25,248               29,162

Investing activities:
Purchase of Mueller's pasta brand                                                                  --              (23,552)
Additions to property, plant and equipment                                                    (29,593)             (17,020)
                                                                                              --------             --------
Net cash used in investing activities                                                         (29,593)             (40,572)

Financing activities:
Proceeds from issuance of debt                                                                    979               20,000
Principal payments on debt and capital lease
     obligations                                                                                 (789)                (727)
Proceeds from issuance of common stock, net of
     issuance costs                                                                             3,668                1,718
Purchase of treasury stock                                                                        --                (3,032)
                                                                                              --------             --------
Net cash provided by financing activities                                                       3,858               17,959
Effect of exchange rate changes on cash                                                           (71)              (1,724)
                                                                                              --------             --------
Net increase (decrease) in cash and temporary
     investments                                                                                 (558)               4,825

Cash and temporary investments at beginning of period                                           5,284                6,677
                                                                                              --------             --------
Cash and temporary investments at end of period                                               $ 4,726              $11,502
                                                                                              ========             =======


                See accompanying notes to consolidated financial statements.





                         AMERICAN ITALIAN PASTA COMPANY
                   Notes to Consolidated Financial Statements

                                 March 31, 2002


1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
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 accounting principles generally accepted
in the United States 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, 2002 are not necessarily indicative
of the results that may be expected for the year ended September 30, 2002. 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, 2001 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 2002 and 2001 both included thirteen weeks
of activity and are described as the three month periods ended March 31, 2002
and 2001.

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 818,000 and 841,000 shares for the three-month and six-month periods
ended March 31, 2002, respectively, and 708,000 and 567,000 shares for the
three-month and six-month periods ended March 31, 2001, respectively.

     A summary of the Company's stock option activity:

                                                                        Number of Shares
     Outstanding at September 30, 2001                                       2,630,864
          Exercised                                                           (313,781)
          Granted                                                               91,490
          Canceled/Expired                                                     (30,314)
                                                                             ---------
     Outstanding at March 31, 2002                                           2,378,259
                                                                             =========

3.  Continued Dumping and Subsidy Offset Act of 2000

On October 28, 2000, the U.S. government enacted the "Continued Dumping and
Subsidy Offset Act of 2000" (the "Act") which provides that assessed
anti-dumping and subsidy duties liquidated by the Department of Commerce after
October 1, 2000 will be distributed to affected domestic producers. Accordingly,
in late December, AIPC received payment from the Department of Commerce of $7.6
million as the Company's calculated share, based on tariffs liquidated by the
government from October 1, 2000 to September 30, 2001 on Italian and Turkish
imported pasta.



According to Congressional documents, these payments to affected U.S. producers
are for the purpose of maintaining jobs and investments that might be affected
through unfair trade practices, and to offset revenues lost through foreign
companies' dumping practices and foreign governments' subsidy practices. There
are no specific requirements on how the funds are to be used by the Company
other than the funds are intended to benefit future periods. As such, the
Company used a significant portion to increase investment in long-term brand
building activities (for example, slotting to expand or recapture distribution;
cooperative advertising and consumer promotion reinforcing the long-term quality
tradition of the Company's brands), and continued strengthening of the Company's
organization.

The Company is recognizing the receipt ratably over the current fiscal year
which patterns the program year under which the payment was received.
Accordingly, during the first six months of 2002, the Company recognized $3.8
million of retail revenue, which equals 50% of the $7.6 million payment
received. The Company expects to recognize an additional 25%, or $1.9 million,
in each of the next two quarters of the fiscal year.

It is the Company's understanding that procedures will be established by U.S.
Customs to recover potential overpayments under this program to U.S. producers.
Overpayments may be recovered by U.S. Customs for a number of reasons up to one
year after payment is made. The Company has not received any claims of
overpayment.

At this time, indications are that the Company may receive additional payments
under this Act in subsequent years, along with others in the industry. It is not
possible to reasonably estimate the potential amount to be received in future
periods, or to state with certainty whether any payment will be received at all.


Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

The discussion set forth below, as well as other portions of this Quarterly
Report, contains statements concerning potential future events. Such
forward-looking statements are based upon assumptions by our management, as of
the date of this Quarterly Report, including assumptions about risks and
uncertainties faced by AIPC. Readers can identify these forward-looking
statements by their use of such verbs as expects, anticipates, believes or
similar verbs or conjugations of such verbs. If any 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, including 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 experience in the branded retail pasta
business, our ability to attract and retain key 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 to be materially different, refer to our
Annual Report on Form 10-K dated December 19, 2001, filed by the Company with
the Securities and Exchange Commission (Commission File No. 001-13403), 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

General

     Markets. We are the largest producer and one of the fastest-growing
marketers of dry pasta in North America. We produce and sell our pasta products
from three plants in the United States and one plant in Italy.

     Our customers are generally separated into two groups: Retail, which
includes our own product brands (e.g. Mueller's, Anthony's, Globe/A-1, Luxury,
Mrs. Grass, Pennsylvania Dutch, R & F, and Ronco), and our private label
business and comprised 73.6% and 74.9% of revenue for the three and six month
periods ended March 31, 2002, respectively; and Institutional, which includes
ingredient, food service and contract, and comprised 26.4% and 25.1% of revenue
for the three and six month periods ended March 31, 2002, respectively.

     Costs. Our primary costs are durum wheat, packaging materials, labor, and
selling and marketing (personnel, trade spending). Durum wheat is a cash crop,
the average monthly market price of which fluctuates. We manage our durum wheat
cost risk through cost pass-through mechanisms and other arrangements with our
customers and advance purchase contracts which are generally less than twelve
months' duration. Our labor costs remain relatively stable, but are declining as
a percentage of revenue.

     Selling and marketing costs have increased substantially over the last two
years in line with the significant expansion of our Retail business. These costs
increased 114.4% from FY1999 through FY2001, increasing from $14.9 million to
$31.8 million over this three-year period, and constituted 14.3% of revenues for
the six months ended March 31, 2002. We expect to continue to increase our
selling and marketing expenditures although not at the rate seen through FY
2001, because we have substantially completed the development of the selling and
marketing infrastructure needed to support our branded business. We expect
selling and marketing expense to exceed 10% of revenues for the foreseeable
future.

      Brand Acquisitions. In November 2000, we purchased the Mueller's
pasta brand from Bestfoods. In July 2001, we purchased seven pasta brands from
Borden Foods. As discussed below, the timing of these brand acquisitions had an
impact on the period to period comparisons.


Second quarter fiscal 2002 compared to second quarter fiscal 2001.

     Revenues. Total revenues increased $19.8 million, or 26.4%, to $94.8
million for the three-month period ended March 31, 2002, from $75.0 million for
the three-month period ended March 31, 2001. The increase for the three-month
period ended March 31, 2002 was primarily due to higher volume due to the
acquisitions along with strong organic volume growth. In addition to volume
growth, average prices were higher primarily due to the brand acquisitions. Also
included in Retail revenue is $1.9 million, which represents 25% of the $7.6
million Department of Commerce payment received in December 2001 (see Note 3 to
the Consolidated Financial Statements).

     Revenues for the Retail market increased $17.4 million, or 33.2%, to $69.8
million for the three-month period ended March 31, 2002, from $52.4 million for
the three-month period ended March 31, 2001. The increase


primarily reflects volume growth of 21.3%, much of which came from the brand
acquisitions, and the higher per unit selling prices of the acquired brands.

     Revenues for the Institutional market increased $2.4 million, or 10.7%, to
$25.0 million for the three-month period ended March 31, 2002, from $22.6
million for the three-month period ended March 31, 2001. This increase was
primarily a result of ingredient volume growth of 12.3%, along with growth in
our food service business, partially offset by lower contract volumes.

     Gross Profit. Gross profit increased $10.3 million, or 44.2%, to $33.7
million for the three-month period ended March 31, 2002, from $23.4 million for
the three-month period ended March 31, 2001. This increase was primarily
attributable to revenue growth associated with increased volumes and the higher
per unit selling prices of our branded products. Additionally, the gross margin
benefited from lower manufacturing costs and slightly lower durum costs. Gross
profit as a percentage of revenues increased to 35.6% for the three-month period
ended March 31, 2002 from 31.2% for the three-month period ended March 31, 2001.
The increase in gross profit as a percentage of revenues relates to incremental
gross profit on branded products subsequent to the acquisitions. For the
remainder of the 2002 year, we expect year-over-year increases in gross profit
to continue as a result of the brand acquisitions.

     Selling and Marketing Expense. Selling and marketing expense increased $5.8
million, or 82.9%, to $12.8 million for the three-month period ended March 31,
2002, from $7.0 million for the three-month period ended March 31, 2001. 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 brand acquisitions. Selling and marketing expense as a
percentage of revenues increased to 13.5% for the three-month period ended March
31, 2002, from 9.4% 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 support dedicated to the branded business.

     General and Administrative Expense. General and administrative expenses
increased $0.6 million, or 25.3% to $3.2 million for the three-month period
ended March 31, 2002 from $2.6 million for the three-month period ended March
31, 2001. General and administrative expense as a percentage of revenues
remained relatively the same at 3.4%. The majority of the increase relates to
personnel costs associated with the acquired brands.

     Operating Profit. Operating profit for the three-month period ended March
31, 2002, was $17.7 million, an increase of $3.9 million or 28.0% over the $13.8
million reported for the three-month period ended March 31, 2001, and increased
as a percentage of revenues to 18.6% for the three-month period ended March 31,
2002, from 18.4% for the three-month period ended March 31, 2001 as a result of
the factors discussed above.

     Interest Expense. Interest expense for the three-month period ended March
31, 2002, was $2.4 million, increasing $0.3 million or 16.8% from the $2.1
million reported for the three-month period ended March 31, 2001. The increase
related to borrowings associated with the brand acquisitions and capital
expenditures, offset by lower interest rates in the current year.

     Income Tax. Income tax expense for the three-month period ended March 31,
2002, was $5.2 million, comparable to the $4.0 million reported for the
three-month period ended March 31, 2001, and reflects effective income tax rates
of approximately 34.0% and 34.5%, respectively.

     Net Income. Net income for the three-month period ended March 31, 2002, was
$10.1 million, increasing $2.4 million or 30.8% from the $7.7 million reported
for the three-month period ended March 31, 2001. Diluted earnings


per share was $0.54 per share for the three-month period ended March 31, 2002,
an increase of 28.6% over the prior year quarter of $0.42 per share.

Six months fiscal 2002 compared to six months fiscal 2001.

     Revenues. Revenues increased $45.4 million, or 32.1%, to $186.8 million for
the six-month period ended March 31, 2002, from $141.4 million for the six-month
period ended March 31, 2001. The increase for the six-month period ended March
31, 2002 was primarily due to higher volume due to the acquisitions along with
strong organic growth. Volumes were up 25.4% over the prior year period. Volume
growth was led by private label (26.2%) and ingredient (18.4%). In addition to
volume growth, average prices were higher primarily due to the brand
acquisitions. Also included in Retail revenue is $3.8 million, which represents
50% of the $7.6 million Department of Commerce payment received in December 2001
(see Note 3 to the Consolidated Financial Statements).

     Revenues for the Retail market increased $39.4 million, or 39.3%, to $139.9
million for the six-month period ended March 31, 2002, from $100.5 million for
the six-month period ended March 31, 2001. The increase primarily reflects
volume growth of 30.3%, much of which came from the brand acquisitions, and the
higher per unit selling prices of the acquired brands.

     Revenues for the Institutional market increased $6.0 million, or 14.6%, to
$46.9 million for the six-month period ended March 31, 2002, from $41.0 million
for the six-month period ended March 31, 2001. This increase was primarily due
to volume growth in the ingredient market of 18.4% offset by lower contract
volumes.

     Gross Profit. Gross profit increased $24.1 million, or 56.7%, to $66.6
million for the six-month period ended March 31, 2002, from $42.5 million for
the six-month period ended March 31, 2001. This increase was primarily
attributable to revenue growth associated with increased volumes and the higher
per unit selling prices of our branded products. Additionally, gross margin
benefited from lower manufacturing costs. Gross profit as a percentage of
revenues increased to 35.6% for the six-month period ended March 31, 2002, from
30.0% for the six-month period ended March 31, 2001. The increase in gross
profit as a percentage of revenues relates to incremental gross profit on our
branded products subsequent to the acquisitions. For the remainder of the 2002
year, we expect year-over-year increases in gross profit to continue as a result
of our brand acquisitions.

     Selling and Marketing Expense. Selling and marketing expense increased
$14.1 million, or 112.1%, to $26.6 million for the six-month period ended March
31, 2002, from $12.6 million for the six-month period ended March 31, 2001.
Selling and marketing expense as a percentage of revenues increased to 14.3% for
the six-month period ended March 31, 2002, from 8.9% 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 brand acquisitions. Going forward, we expect
selling and marketing expenses to exceed 10% of net revenues due to the
additional promotional support dedicated to the branded business.

     General and Administrative Expense. General and administrative expense
increased $1.4 million, or 30.4%, to $6.2 million for the six-month period ended
March 31, 2002, from $4.7 million for the comparable prior period, and remained
relatively the same as a percentage of revenues at 3.3% and 3.4% for the
six-month periods ended March 31, 2002 and 2001, respectively. The majority of
the increase relates to personnel costs associated with the brand acquisitions.



     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 brand acquisition.

     Operating Profit. Operating profit for the six-month period ended March 31,
2002, was $33.7 million, an increase of $10.4 million or 44.5% over the $23.3
million reported for the six-month period ended March 31, 2001, and increased as
a percentage of revenues to 18.1% for the six-month period ended March 31, 2002,
from 16.5% for the six-month period ended March 31, 2001 as a result of the
factors discussed above. Excluding the impact of the $1.8 million charge for
acquisition-related costs, operating profit for the prior six-month period
totaled $25.2 million. Operating profit as a percentage of net revenues,
excluding the non-recurring charge, was 17.8% versus 18.1% in the current year.

     Interest Expense. Interest expense for the six-month period ended March 31,
2002, was $5.0 million, increasing $1.4 million or 38.2% from the $3.6 million
reported for the six-month period ended March 31, 2001. The increase related to
borrowings associated with the brand acquisitions and capital expenditures,
offset by lower interest rates in the current year.

     Income Tax. Income tax expense for the six-month period ended March 31,
2002, was $9.8 million, increasing $3.0 million from the $6.8 million reported
for the six-month period ended March 31, 2001, and reflects effective income tax
rates of approximately 34.2% and 34.5%, respectively.

     Net Income. Net income for the six-month period ended March 31, 2002, was
$18.9 million, increasing $6.0 million or approximately 46.2% from the $12.9
million reported for the six months ended March 31, 2001. Excluding the impact
of the $1.8 million charge for non-recurring acquisition costs, net income for
the six months ended March 31, 2001, totaled $14.1 million. Diluted earnings per
common share were $1.02 per share for the six-month period ended March 31, 2002
compared to $0.72 per share for the six-month period ended March 31, 2001.
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 10.1% in the current 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
$4.7 million, and working capital totaled $62.9 million at March 31, 2002.

     Our net cash provided by operating activities totaled $25.2 million for the
six-month period ended March 31, 2002 compared to $29.2 million for the
six-month period ended March 31, 2001. The decrease in the net cash provided by
operations is due to higher working capital requirements, offset by an increase
in net income before non-cash charges.

     Cash used in investing activities principally relates to our investments in
manufacturing, distribution and milling assets. Capital expenditures were $29.6
million for the six-month period ended March 31, 2002 compared to $17.0 million
in the comparable prior year period. The primary increase was related to capital
expenditures for our new Arizona manufacturing facility. The total cost of this
facility is expected to be approximately $45 million, and will be completed in
early fiscal 2003. In addition to the new Arizona facility, we plan to spend
approximately $10 million in the remainder of fiscal year 2002, primarily for
cost savings projects, maintenance projects, and capacity


expansion projects. We anticipate completion of these projects during the fiscal
year ending September 30, 2002.

     Net cash provided by financing activities was $3.9 million for the
six-month period ended March 31, 2002 compared to $18.0 million for the
six-month period ended March 31, 2001. In the prior year, borrowings under our
revolver increased by $20.0 million to fund the Mueller's pasta brand purchase
and the purchase of treasury stock.

     We currently use cash from operations and borrowings 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 $27.9 million in raw material purchases for
fiscal years 2002 and 2003. Additionally, we have approximately $52.0 million,
including the new Arizona facility, in expenditures remaining under our current
capital expenditure programs. Included in this total, is $42 million for the
Arizona facility, which is expected to be spent over the remainder of fiscal
2002 and early in fiscal 2003. We expect to fund these commitments from
operations and borrowings under our credit facility. The credit facility
currently has available a credit of approximately $80 million. At this time, the
current and projected borrowings under the credit facility do not exceed the
facility's available commitment. The facility matures on October 2, 2006. We
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
relates to interest rate risk associated with variable rate borrowings and
foreign currency exchange rate risk associated with borrowings denominated in
foreign currency. We occasionally utilize simple derivative instruments such as
interest rate swaps to manage our mix of fixed and floating rate debt. We had
various fixed interest rate swap agreements with notional amounts of $145
million outstanding at March 31, 2002. The estimated fair value of the interest
rate swap agreements of $(508,000) is the amount we would be required to pay to
terminate the swap agreements at March 31, 2002. If interest rates for our
long-term debt under our credit facility had averaged 10% more and the full
amount available under our credit facility had been outstanding for the entire
year, our interest expense would have increased, and income before taxes would
have decreased by $0.6 million for the quarter ended March 31, 2002. We hedge
our net investment in our foreign subsidiaries with euro borrowings under our
credit facility. Changes in the U.S. dollar equivalent of euro-based borrowings
are recorded as a component of the net translation adjustment in the
consolidated statement of stockholders' equity.

     The functional currency for our Italy operation is the Euro. At March 31,
2002, long-term debt includes obligations of 63.3 million Euros ($55.0 million)
under a credit facility which bears interest at a variable rate based upon the
Euribor rate.

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 6, 2002.

There were two matters submitted to a vote of security
holders. The first matter was for the election of directors.
Each of the persons named in the Proxy Statement as a nominee
for director was elected. Following are the voting results on
each of the nominees for director:

Election of Directors Votes For Votes Withheld
Jonathan E. Baum 16,089,038 111,523
Robert H. Niehaus 16,140,270 60,291
Richard C. Thompson 16,140,639 59,922

The following directors continued in office:

Serving Until 2003 Serving Until 2004
Horst W. Schroeder Tim M. Pollak
Mark C. Demetree John P. O'Brien
Timothy S. Webster William R. Patterson
James A. Heeter

The second matter was the ratification of the Board of
Directors' selection of Ernst & Young LLP to serve as the
Company's independent auditors for the fiscal year 2002. The
shareholders cast 16,099,689 votes in the affirmative and
88,797 votes in the negative and shareholders holding 12,075
votes abstained from voting on the ratification of Ernst &
Young LLP as the Company's independent auditors for the fiscal
year 2002.





Item 5.    Other Information
-------------------------------
           Not applicable


Item 6.    Exhibits and Reports on Form 8-K
-------------------------------
           (a)      Exhibits.

                    10. Letter Agreement among American Italian Pasta Company
                    and Bay State Milling Company dated March 28, 2002. (We have
                    omitted certain information from the Agreement and filed it
                    separately with the Securities and Exchange Commission
                    pursuant to our request for confidential treatment under
                    Rule 24b-2. We have identified the omitted confidential
                    information by the following statement, "Confidential
                    portions of material have been omitted and filed separately
                    with the Securities and Exchange Commission," as indicated
                    throughout the document with an asterisk in brackets
                    ([*])).

           (b)      Reports on Form 8-K.

                    None



                                   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 6, 2002                         /s/ Timothy S. Webster
---------------------------         ----------------------------------------------------
Date                                Timothy S. Webster
                                    President and Chief Executive Officer
                                    (Principal Executive Officer)



May 6, 2002                         /s/ Warren B. Schmidgall
---------------------------         ----------------------------------------------------
Date                                Warren B. Schmidgall
                                    Executive Vice President and Chief Financial
                                    Officer
                                    (Principal Financial and Accounting Officer)





                                  EXHIBIT INDEX


Exhibit No.         Description
-----------         -----------------------------------------------------

10.                 Letter Agreement among American Italian Pasta Company and
                    Bay State Milling Company dated March 28, 2002. (We have
                    omitted certain information from the Agreement and filed it
                    separately with the Securities and Exchange Commission
                    pursuant to our request for confidential treatment under
                    Rule 24b-2. We have identified the omitted confidential
                    information by the following statement, "Confidential
                    portions of material have been omitted and filed separately
                    with the Securities and Exchange Commission," as indicated
                    throughout the document with an asterisk in brackets
                    ([*])).