10-Q

                                  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: January 2, 2004

                                       OR

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
             ACT OF 1934
                   For the transition period from           to

                        Commission file number: 001-13403

                         American Italian Pasta Company
             (Exact name of Registrant as specified in its charter)


                Delaware                                  84-1032638
      (State or other jurisdiction of                  (I.R.S. Employer
      incorporation or organization)                  Identification No.)

              4100 N. Mulberry Drive
              Kansas City, Missouri                         64116
 (Address of principal executive office)                  (Zip Code)

       Registrant's telephone number, including area code: (816) 584-5000

                                 Not Applicable
- --------------------------------------------------------------------------------

             (Former name, former address and former fiscal year, if
                           changed since last report)

     Indicate  by check mark  whether the  Registrant  has (1) filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

     The  number  of  shares   outstanding  as  of  February  10,  2004  of  the
Registrant's  Class A Common  Stock  was  17,992,438  and  there  were no shares
outstanding of the Class B Common Stock.




                                     Page 1

                         American Italian Pasta Company
                                    Form 10-Q
                          Quarter Ended January 2, 2004


                                Table of Contents


Part I - Financial Information                                            Page

     Item 1.  Consolidated Financial Statements (unaudited)

              Consolidated Balance Sheets at January 2, 2004
              and October 3, 2003.                                          3

              Consolidated Statements of Income for the three
              months ended January 2, 2004 and January 3, 2003.             4

              Consolidated Statement of Stockholders' Equity
              for the three months ended January 2, 2004.                   5

              Consolidated Statements of Comprehensive Income
              for the three months ended January 2, 2004
              and January 3, 2003.                                          6

              Consolidated Statements of Cash Flows for the
              three months ended January 2, 2004 and
              January 3, 2003.                                              7

              Notes to Consolidated Financial Statements                 8-10

     Item 2.  Management's Discussion and Analysis of                   10-16
              Financial Condition and Results of Operations

     Item 3.  Quantitative and Qualitative Disclosures About            16-17
              Market Risk

     Item 4.  Controls and Procedures                                      17

Part II - Other Information

     Item 1.  Legal Proceedings                                            17

     Item 2.  Changes in Securities                                        17

     Item 3.  Defaults Upon Senior Securities                              17

     Item 4.  Submission of Matters to a Vote of Security Holders          17

     Item 5.  Other Information                                            17

     Item 6.  Exhibits and Reports on Form 8-K                             18

Signature Page                                                             19




                                     Page 2

                         AMERICAN ITALIAN PASTA COMPANY

                           Consolidated Balance Sheets

                                                     January 2,      October 3,
                                                        2004            2003

                                                           (In thousands)
Assets                                              (Unaudited)
Current assets:
   Cash and temporary investments                      $5,315          $6,465
   Trade and other receivables                         47,851          51,730
   Prepaid expenses and deposits                       14,082          12,692
   Inventory                                           82,970          78,760
   Deferred income taxes                                2,435           2,435
                                                      -------         -------
Total current assets                                  152,653         152,082
Property, plant and equipment:
   Land and improvements                               15,062          14,867
   Buildings                                          133,828         132,035
   Plant and mill equipment                           372,272         355,767
   Furniture, fixtures and equipment                   25,967          25,266
                                                      -------         -------
                                                      547,129         527,935
   Accumulated depreciation                          (129,168)       (122,811)
                                                     --------        --------
                                                      417,961         405,124
   Construction in progress                            12,235          18,996
                                                      -------         -------
Total property, plant and equipment                   430,196         424,120
Brands and trademarks                                 186,767         186,147
Other assets                                            8,177           8,146
                                                     --------        --------
Total assets                                         $777,793        $770,495
                                                     ========        ========


Liabilities and stockholders' equity
Current liabilities:
   Accounts payable                                   $34,691         $42,416
   Accrued expenses                                    18,880          18,480
   Income tax payable                                     744           1,096
   Current maturities of long-term debt                 5,209           2,554
Total current liabilities                              59,524          64,546
Long-term debt                                        297,365         300,778
Deferred income taxes                                  64,532          61,666
Commitments and contingencies
Stockholders' equity:
   Preferred stock, $.001 par value:
      Authorized shares - 10,000,000                       --              --
      Issued and outstanding shares - none
   Class A common stock, $.001 par value:
      Authorized shares - 75,000,000                       20              20
      Issued and  outstanding  shares - 20,075,579 and
      18,052,461 at January 2, 2004 and 20,063,827 and
      18,040,709 at October 3, 2003
   Class B common stock, $.001 par value:
      Authorized shares - 25,000,000                       --              --
      Issued and outstanding shares - none
   Additional paid-in capital                         227,575         227,234
   Treasury stock                                     (46,585)        (46,585)
   Unearned compensation                                 (795)           (891)
   Retained earnings                                  172,622         164,495
   Accumulated other comprehensive gain/loss            3,535            (768)
                                                     --------        --------
Total stockholders' equity                            356,372         343,505
                                                     --------        --------
Total liabilities and stockholders' equity           $777,793        $770,495
                                                     ========        ========


          See accompanying notes to consolidated financial statements.


                                     Page 3

                         AMERICAN ITALIAN PASTA COMPANY

                        Consolidated Statements of Income

                                                        Three Months Ended
                                                   January 2,         January 3,
                                                      2004               2003
                                                           (In thousands)
                                                             (Unaudited)

Revenues                                            $101,599           $107,036
Cost of goods sold                                    69,745             73,459
                                                    --------           --------
Gross profit                                          31,854             33,577
Selling and marketing expense                         13,578             13,593
General and administrative expense                     3,249              2,812
Provision for acquisition and start-up expenses           --              1,428
                                                    --------           --------
Operating profit                                      15,027             15,744
Interest expense, net                                  2,897              2,427
                                                    --------           --------
Income before income tax expense                      12,130             13,317
Income tax expense                                     4,003              4,394
                                                    --------           --------
Net income                                          $  8,127           $  8,923
                                                    ========           ========

Earnings Per Common Share:
    Net income per common share                     $    .45           $    .50
                                                    ========           ========

    Weighted-average common shares outstanding        18,046             17,831
                                                    ========           ========

Earnings Per Common Share - Assuming Dilution:
    Net income per common share assuming dilution   $    .44           $    .49
                                                    ========           ========

    Weighted-average common shares outstanding        18,641             18,397
                                                    ========           ========



          See accompanying notes to consolidated financial statements.



                                     Page 4

                         AMERICAN ITALIAN PASTA COMPANY

                 Consolidated Statement of Stockholders' Equity


                                                             Three months ended
                                                               January 2, 2004
                                                            --------------------
                                                               (In thousands)
                                                                 (unaudited)
Class A Common Shares
  Balance, beginning of period                                        20,064
  Issuance of shares of Class A Common stock through option
   exercises & other issuances                                            12
                                                                    --------
  Balance, end of period                                              20,076
                                                                    ========

Class A Common Stock
  Balance, beginning and end of period                              $     20
                                                                    ========

Additional Paid-in Capital
  Balance, beginning of period                                      $227,234
  Issuance of shares of Class A Common stock through option
   exercises & other issuances                                           276
  Tax benefit from stock compensation                                     65
                                                                    --------
  Balance, end of period                                            $227,575
                                                                    ========


Treasury Stock
  Balance, beginning and end of period                              $(46,585)
                                                                    ========

Unearned Compensation
  Balance, beginning of period                                      $   (891)
  Earned compensation                                                     96
                                                                    --------
  Balance, end of period                                            $   (795)
                                                                    ========

Other Comprehensive Income
  Foreign currency translation adjustment
   Balance, beginning of period                                     $  1,751
   Change during the period                                            3,303
                                                                    --------
   Balance, end of period                                              5,054
                                                                    --------

  Interest rate swaps fair value adjustment
   Balance, beginning of period                                       (2,519)
   Change during the period                                            1,000
                                                                    --------
   Balance, end of period                                             (1,519)
                                                                    --------

  Total accumulated other comprehensive gain                        $  3,535
                                                                    ========

Retained Earnings
  Balance, beginning of period                                      $164,495
  Net income                                                           8,127
                                                                    --------
  Balance, end of period                                             172,622
                                                                    --------

Total Stockholders' Equity                                          $356,372
                                                                    ========


          See accompanying notes to consolidated financial statements.



                                     Page 5

                         AMERICAN ITALIAN PASTA COMPANY

                 Consolidated Statements of Comprehensive Income


                                                         Three months ended
                                                     January 2,       January 3,
                                                        2004             2003
                                                           (In thousands)
                                                             (unaudited)


Net income                                             $ 8,127         $ 8,923

Other comprehensive income

  Net unrealized gains (losses) on
  qualifying cash flow hedges (net of
  income tax benefit (expense) of ($493)
  and $356, respectively)                                1,000            (726)

  Foreign currency translation adjustment
  (net of income tax benefit (expense) of
  ($1,626) and ($667), respectively)                     3,303           1,355
                                                       -------         -------

  Total other comprehensive income                       4,303             629
                                                       -------         -------

  Comprehensive income                                 $12,430         $ 9,552
                                                       =======         =======



          See accompanying notes to consolidated financial statements.



                                     Page 6

                         AMERICAN ITALIAN PASTA COMPANY

                      Consolidated Statements of Cash Flows

                                                          Three Months Ended
                                                      January 2,      January 3,
                                                         2004            2003
                                                            (In thousands)
                                                              (Unaudited)
Operating activities:
Net income                                             $ 8,127         $ 8,923
Adjustments to reconcile net income to net cash
provided by operations:
    Depreciation and amortization                        6,471           5,781
    Deferred income tax expense                          4,675           3,423
    Changes in operating assets and liabilities:
        Trade and other receivables                      4,313           3,104
        Prepaid expenses and deposits                   (1,764)         (1,615)
        Inventory                                       (3,894)         (3,370)
        Accounts payable and accrued expenses           (5,951)         11,654
        Income tax payable                              (1,070)           (737)
        Other                                              278          (1,448)
                                                       -------         -------
Net cash provided by operating activities               11,185          25,715

Investing activities:
Purchase of pasta brands                                  (992)         (6,877)
Additions to property, plant and equipment              (8,703)        (15,368)
                                                       -------         -------
Net cash used in investing activities                   (9,695)        (22,245)

Financing activities:
Additions to deferred debt issuance costs                  (50)         (1,106)
Proceeds from issuance of debt                              --           8,020
Principal payments on debt and capital lease
   obligations                                          (2,781)         (4,485)
Proceeds from issuance of common stock, net of
   issuance costs                                          276             122
Purchase of treasury stock                                  --         (10,633)
                                                       -------         -------
Net cash used in financing activities                   (2,555)         (8,082)

Effect of exchange rate changes on cash                    (85)            354
                                                       -------         -------

Net decrease in cash and temporary investments          (1,150)         (4,258)

Cash and temporary investments at beginning of period    6,465           8,247
                                                       -------         -------
Cash and temporary investments at end of period        $ 5,315         $ 3,989
                                                       =======         =======


          See accompanying notes to consolidated financial statements.




                                     Page 7

                         AMERICAN ITALIAN PASTA COMPANY
                   Notes to Consolidated Financial Statements

                                 January 2, 2004


1.  Basis of Presentation

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included.  Operating  results for the  three-month  period ended January 2,
2004 are not necessarily  indicative of the results that may be expected for the
year ended October 1, 2004. For further  information,  refer to the consolidated
financial  statements  and footnotes  thereto  included in the Company's  Annual
Report on Form 10-K for the year ended October 3, 2003.

American  Italian  Pasta  Company  (the  "Company"  or "AIPC") uses a 52/53 week
financial  reporting  cycle with a fiscal  year which ends on the last Friday of
September  or the first  Friday of October.  The  Company's  first three  fiscal
quarters end on the Friday last preceding  December 31, March 31, and June 30 or
the first Friday of the  following  month.  For purposes of this Form 10-Q,  the
first fiscal quarter of fiscal year 2004 included thirteen weeks of activity and
fiscal year 2003 included fourteen weeks of activity.

Inventories

Inventories are stated using product specific  standard costs which  approximate
the lower of cost, determined on a first-in,  first-out (FIFO) basis, or market.
Inventories consist of the following:

                                                      January 2,      October 3,
                                                         2004            2003
                                                           (In thousands)
   Finished goods                                      $70,015         $65,024
   Raw materials, packaging materials and
     work-in-process                                    12,955          13,736
                                                        ------          ------
                                                       $82,970         $78,760
                                                       =======         =======


2.  Stock Options/Earnings Per Share

A summary of the Company's stock option activity:

                                                Number of Shares
    Outstanding at October 3, 2003                 2,793,593
       Exercised                                      (9,351)
       Granted                                         1,500
       Canceled/Expired                              (82,340)
                                                     -------
    Outstanding at January 2, 2004                 2,703,402
                                                   =========

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 595,000 shares for the three-month  period ended January 2, 2004 and
566,000 shares for the three-month period ended January 3, 2003.

Pro forma  information  regarding  net  income and  earnings  per share has been
determined as if the Company had accounted for its employee  stock options under
the  fair  value   method  of  SFAS  No.  123,   "Accounting   for   Stock-Based
Compensation".


                                     Page 8

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options'  vesting  period.  The  Company's  pro
forma   information   follows  (in  thousands  except  for  earnings  per  share
information):


                                                 Three months ended
                                             January 2,       January 3,
                                                2004             2003

Net income, as reported                        $8,127           $8,923
Deduct: Total stock-based
   employee compensation
   expense determined under
   fair value based method
   for all awards, net of
   related tax effects                           (991)          (1,453)
                                               ------           ------

Pro forma net income                           $7,136           $7,470
                                               ======           ======

Earnings per share:
     Basic - as reported                       $  .45           $  .50
                                               ======           ======
     Basic - pro forma                         $  .40           $  .42
                                               ======           ======

     Diluted - as reported                     $  .44           $  .49
                                               ======           ======
     Diluted - pro forma                       $  .38           $  .41
                                               ======           ======


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.  In December
2002,  AIPC  received  payment from the  Department of Commerce in the amount of
$2.4 million, as the Company's  calculated share, based on tariffs liquidated by
the government from October 1, 2001 to September 30, 2002 on Italian and Turkish
imported  pasta.  The Company  did not receive a refund in the first  quarter of
fiscal year 2004.

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.

It is the Company's  understanding  that overpayments  under this program may be
recovered by U.S.  Customs for a number of reasons up to one year after  payment
is made. In fiscal 2003, the Company  recognized  the receipts  ratably over the
year.  In fiscal  2004,  the Company  will  recognize  the revenue in the period
received.

The legislation  creating the dumping and subsidy offset payment (referred to as
the Byrd  Amendment)  provides  for annual  payments  from the U.S.  government.
However it is not possible to reasonably  estimate the potential amount, if any,
to be received in future periods.

4.  Subsequent Events

On January 5, 2004, the Company  repurchased  the shares issued  pursuant to the
Mrs. Leeper's Specialty Pasta acquisition and agreed to pay an amount in lieu of
the  scheduled  cash earn out tied to sales and profit  growth over the next two
years.

On  January  12,  2004,  the  Company  announced  that the  Board  of  Directors
authorized the payment of a quarterly dividend of 18.75 cents per share, payable
to shareholders of record as of March 19, 2004, to be paid on April 5, 2004.



                                     Page 9

On January 16, 2004, the Company  completed an amendment to its revolving credit
facility.  The  amendment  increases the  permitted  restricted  payments in the
agreement to $40 million  plus 25% of  consolidated  net income,  and allows the
Company to pay dividends as announced.  In addition,  the amendment  revised the
maximum  leverage  ratios  allowable under the original  credit  agreement.  The
original  terms of the  facility,  other  than  those  addressed  above,  remain
generally the same.


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

The  discussion  set forth below,  as well as other  portions of this  Quarterly
Report,   contains   statements   concerning   potential  future  events.   Such
forward-looking  statements are based upon assumptions by our management,  as of
the  date of this  Quarterly  Report,  including  assumptions  about  risks  and
uncertainties  faced  by  AIPC.  Readers  can  identify  these   forward-looking
statements  by their use of such  verbs as  expects,  anticipates,  believes  or
similar verbs or conjugations  of such verbs.  If any of our  assumptions  prove
incorrect or should unanticipated  circumstances arise, our actual results could
materially differ from those anticipated by such forward-looking statements. The
differences  could be caused by a number of  factors or  combination  of factors
including,  but not limited to, those factors identified in our Annual Report on
Form  10-K  dated  December  30,  2003.  That  report  has been  filed  with the
Securities  and  Exchange   Commission  (the  "SEC"  or  the   "Commission")  in
Washington,  D.C. and can be obtained by contacting  the SEC's public  reference
operations  or  obtaining it through the SEC's web site on the World Wide Web at
http://www.sec.gov.  Readers are strongly  encouraged to consider  those factors
when  evaluating  any such  forward-looking  statement.  We will not  update any
forward-looking  statements in this Quarterly Report to reflect future events or
developments.

Results of Operations

Overview

We believe we are the  largest  producer  and one of the  fastest-growing  major
marketers of dry pasta in North America. We began operations in 1988. We believe
our singular  focus on pasta,  our  vertically-integrated  facilities and highly
efficient  production  facilities  focused primarily on specific market segments
and our highly skilled  workforce makes us a more efficient  company and enables
us to produce  high-quality pasta at very competitive costs. We believe that the
combination of our low cost structure, the addition of several new brands to our
portfolio of brands,  our scalable  production  facilities  and our key customer
relationships create opportunity for continued growth.

We generate revenues in two customer markets:  retail and institutional.  Retail
market  revenues  include  the  revenues  from  sales of our pasta  products  to
customers who resell the pasta in retail  channels.  These revenues  represented
73.8% and 75.9% of our total  revenue for the three months ended January 2, 2004
and January 3, 2003, respectively,  and include sales to club stores and grocery
retailers,  and  encompass  sales of our  private  label and  branded  products.
Institutional  market revenues  include revenues from product sales to customers
who use our pasta as an  ingredient  in food products or who resell our pasta in
the foodservice  market. It also includes revenues from  opportunistic  sales to
government  agencies  and  other  customers  that we  pursue  periodically  when
capacity is available to increase  production  volumes and thereby lower average
unit costs. The  institutional  market  represented 26.2% and 24.1% of our total
revenue  for the three  months  ended  January  2,  2004 and  January  3,  2003,
respectively.

Average sales prices in the retail and  institutional  markets vary depending on
customer-specific packaging and raw material requirements, product manufacturing
complexity  and other service  requirements.  Average  retail and  institutional
prices will also vary due to changes in the relative share of customer  revenues
and item specific sales volumes (i.e.,  product sales mix).  Generally,  average
retail sales prices are higher than institutional  sales prices.  Selling prices


                                    Page 10

of our branded  products are  significantly  higher than  selling  prices in our
other business units including  private label.  This results in higher revenues,
gross profits,  and gross margin  percentages  than our non-branded  businesses.
Revenues are reported net of cash discounts and product returns.

We seek to develop strategic  customer  relationships with food industry leaders
that have substantial pasta  requirements.  We have a long-term supply agreement
through December 31, 2006 with Sysco, and other similar  arrangements  with food
industry  leaders,  such as Sam's Club, that provide for the  "pass-through"  of
direct  material  cost changes as pricing  adjustments.  The  pass-throughs  are
generally limited to actual changes in cost and, as a result,  impact percentage
profitability  in periods of changing costs and prices.  The  pass-throughs  are
generally  effective  30 to 90 days  following  such cost  changes  and  thereby
significantly  reduce the  long-term  exposure of our  operating  results to the
volatility of raw material costs. These  pass-through  arrangements also require
us to pass on the benefits of any price decrease in raw material costs.

Our  cost  of  goods  sold  consists  primarily  of  raw  materials,  packaging,
manufacturing  (including  depreciation)  and distribution  costs. A significant
portion of our cost of goods sold is durum wheat. We purchase durum wheat on the
open market and,  consequently,  those  purchases are subject to fluctuations in
cost.   We  manage  our  durum  wheat  cost  risk   through   durum  wheat  cost
"pass-through"  agreements  in  long-term  contracts  and  other  noncontractual
arrangements  with  our  customers  as  mentioned  above  and  advance  purchase
contracts for durum wheat which are generally less than twelve months' duration.

Our capital asset strategy is to achieve  low-cost  production  through vertical
integration  and  investment  in  the  most  current   pasta-making  assets  and
technologies.  The manufacturing- and  distribution-related  capital assets that
have been or will be acquired to support  this  strategy  are  depreciated  over
their respective economic lives. Because of the capital-intensive  nature of our
business and our current and future  facilities  expansion plans, we believe our
depreciation  expense for production and distribution  assets may be higher than
that  of  many  of our  competitors.  Depreciation  expense  is a  component  of
inventory  cost and cost of goods sold.  Plant  expansion  and/or plant start-up
costs include  incremental  direct and indirect  manufacturing  and distribution
costs that are incurred as a result of construction,  commissioning and start-up
of new  manufacturing  capacity.  These costs are  expensed as incurred  but are
unrelated to current production and, therefore, reported as a separate line item
in the statement of operations when incurred. By locating our newest facility in
Arizona  closer to our  western  U.S.  customers,  we believe  we will  generate
significant  logistical  savings and provide  superior service to our west coast
customers,  while creating  additional  capacity to support the continued  rapid
growth of our business sourced from our existing plants.  We believe adding this
strategic location will further enhance our low-cost producer  leadership in the
industry.

Selling and marketing  costs increased  substantially  in both fiscal years 2002
and 2001, in line with the significant  expansion of our retail business.  These
costs constituted 13.4% and 12.7% of revenues for the three months ended January
2, 2004 and January 3, 2003.

In November 2000, we purchased the Mueller's(R) pasta brand and in July 2001, we
purchased  seven pasta brands from Borden Foods. In September 2002, we purchased
the Lensi brand,  and in October  2002, we purchased the Martha Gooch and LaRosa
brands. In addition,  we purchased the Golden Grain/Mission pasta brand and Mrs.
Leeper's  pasta  brand in  January  2003 and  February  2003,  respectively.  As
discussed  below,  the timing of these brand  acquisitions  had an impact on the
period to period comparisons.

Critical Accounting Policies

This  discussion and analysis  discusses our results of operations and financial
condition as reflected in our consolidated financial statements, which have been
prepared in accordance  with  accounting  principles  generally  accepted in the


                                    Page 11

United  States.  As  discussed  in Note 1 to our  October  3, 2003  consolidated
financial statements, the preparation of financial statements in conformity with
accounting  principles  generally  accepted in the United  States  requires  our
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the  financial  statements  and  reported  amounts of  revenues  and
expenses  during the reporting  periods.  On an ongoing  basis,  our  management
evaluates its estimates and judgments, including those related to the impairment
of  intangible  assets,  the method of  accounting  for stock  options,  and the
estimates used to record allowance for doubtful  accounts and  derivatives.  Our
management  bases its  estimates  and  judgments on its  substantial  historical
experience and other relevant  factors,  the results of which form the basis for
making  judgments about the carrying  values of assets and liabilities  that are
not  readily  apparent  from other  sources.  See Note 1 to our  October 3, 2003
consolidated  financial  statements  for a complete  listing of our  significant
accounting policies. Our most critical accounting policies are described below.

Impairment  Testing of  Intangible  Assets.  In  accordance  with  Statement  of
Financial  Accounting  Standards (SFAS) No. 142,  "Goodwill and Other Intangible
Assets," we do not amortize the cost of intangible assets with indefinite lives.
SFAS No. 142  requires  that we perform  certain  fair value  based tests of the
carrying value of indefinite lived intangible  assets at least annually and more
frequently should events or changes in circumstances  indicate that the carrying
amount  of an asset may not be fully  recoverable.  These  impairment  tests are
impacted by  judgments  as to future cash flows and brand  performance.  If such
assets are  considered  to be  impaired,  the  impairment  to be  recognized  is
measured by the amount by which the  carrying  amount of the assets  exceeds the
fair value of the assets.  Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.  Future events could cause
our management to conclude that impairment  indicators  exist and that the value
of intangible assets is impaired.

Stock Options.  We have elected to follow  Accounting  Principles  Board Opinion
(APB)  No.  25,   "Accounting  for  Stock  Issued  to  Employees,"  and  related
Interpretations  in accounting  for our employee  stock options and have adopted
the pro  forma  disclosure  requirements  under  SFAS No.  123  "Accounting  for
Stock-Based  Compensation."  Under APB No. 25, because the exercise price of our
employee stock options is equal to the market price of the  underlying  stock on
the date of grant, no compensation expense is recognized.

Pro forma information regarding net income and earnings per share is required by
SFAS No. 123 and has been  determined  as if we had  accounted  for our employee
stock  options  under the fair value  method of SFAS No. 123. The fair value for
these  options was estimated at the date of grant using a  Black-Scholes  option
pricing  model  with  the  following  weighted-average  assumptions:   risk-free
interest  rate of 1.33% for  fiscal  2003 and 2004;  dividend  yield of zero for
fiscal 2003 and 2% for fiscal 2004; a volatility  factor of the expected  market
price of our  common  stock of .354 for  fiscal  2003  and  fiscal  2004;  and a
weighted-average expected life of the options of five years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options,  which have no vesting  restrictions and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
our employee  stock options have  characteristics  significantly  different from
those traded options,  and because changes in the subjective  input  assumptions
can materially  affect the fair value  estimate,  in management's  opinion,  the
existing models do not necessarily provide a reliable single measure of the fair
value of our employee stock options.

Accounts Receivable - Significant  Customers.  We generate  approximately 25% of
our  revenues  and   corresponding   accounts   receivable  from  sales  to  two
multi-national  customers.  If  our  primary  customers  experience  significant
adverse  conditions in their  industry or  operations,  our customers may not be
able to meet  their  ongoing



                                    Page 12

financial  obligations  to us for  prior  sales  or  complete  the  purchase  of
additional  products  from us under the terms of our existing  purchase and sale
commitments.

Allowance for Doubtful Accounts - Methodology. We evaluate the collectibility of
our accounts  receivable  based on a combination  of factors.  In  circumstances
where we are aware of a  specific  customer's  inability  to meet its  financial
obligations to us (e.g. bankruptcy filings,  substantial  down-grading of credit
scores),  we record a specific  reserve  for bad debts  against  amounts  due to
reduce the net recognized receivable to the amount we reasonably believe will be
collected. For all other customers, we recognize reserves for bad debts based on
the length of time the receivables are past due, and our historical  experience.
If circumstances  change (i.e.,  higher than expected  defaults or an unexpected
material  adverse  change in a major  customer's  ability to meet its  financial
obligations to us), our estimates of the  recoverability of amounts due us could
be reduced by a material amount.

Derivatives. We hold derivative financial instruments to hedge a variety of risk
exposures  including interest rate risks associated with variable rate long-term
debt and foreign  currency risks  associated  with our Italy  operations.  These
derivatives qualify for hedge accounting as discussed in detail in Note 1 to our
October 3, 2003  consolidated  financial  statements.  We do not  participate in
speculative  derivatives trading. Hedge accounting results when we designate and
document the hedging relationships involving these derivative instruments. While
we intend to continue to meet the conditions for hedge accounting, if hedges did
not  qualify  as  highly  effective  or if we did not  believe  that  forecasted
transactions  would occur, the changes in the fair value of the derivatives used
as hedges would be reflected in earnings.

To hedge foreign  currency risks, we use futures  contracts.  The fair values of
these instruments are determined from market quotes. These forward contracts are
valued in a manner  similar to that used by the market to value  exchange-traded
contracts;  that is, using standard  valuation  formulas with assumptions  about
future foreign currency exchange rates derived from existing exchange rates, and
interest rates observed in the market. To hedge interest rate risks, an interest
rate swap is used to  effectively  convert a portion  of  variable  rate debt to
fixed rate. This  instrument is valued using the market standard  methodology of
netting the discounted  future fixed cash receipts and the  discounted  expected
variable cash  payments.  The variable cash payments are based on an expectation
of future interest rates derived from observed  market interest rate curves.  We
have not changed our methods of calculating  these fair values or developing the
underlying assumptions. The values of these derivatives will change over time as
cash  receipts  and  payments  are made and as  market  conditions  change.  Our
derivative  instruments  are  not  subject  to  multiples  or  leverage  on  the
underlying commodity or price index. Information about the fair values, notional
amounts,  and contractual  terms of these  instruments can be found in Note 1 to
our October 3, 2003  consolidated  financial  statements  and the section titled
"Quantitative and Qualitative Disclosures About Market Risk."

We consider our budgets and forecasts in determining  the amounts of our foreign
currency to hedge.  We combine the forecasts  with  historical  observations  to
establish  the  percentage  of our  forecast  we are  assuming to be probable of
occurring,  and  therefore  eligible to be hedged.  The purchases are hedged for
exposures to fluctuations in foreign currency exchange rates.

We do not believe we are exposed to more than a nominal amount of credit risk in
our  interest  rate and  foreign  currency  hedges as the  counter  parties  are
established,  well-capitalized financial institutions. Our exposure is in liquid
currency  (Euros),  so there is minimal  risk that  appropriate  derivatives  to
maintain our hedging program would not be available in the future.


QUARTER ENDED JANUARY 2, 2004, COMPARED TO QUARTER ENDED JANUARY 3, 2003

Revenues.  Total revenues decreased $5.4 million, or 5.1%, to $101.6 million for
the  three-month  period  ended  January 2, 2004,  from  $107.0  million for the
three-



                                    Page 13

month period ended January 3, 2003.  Revenues decreased $11.0 million, or 10.3%,
due to volume  shortfalls  and increased  $6.2 million,  or 5.8%,  due to higher
average  selling  prices.  The  majority  of  the  volume  decrease  is due to a
thirteen-week  quarter in fiscal 2004 versus a  fourteen-week  quarter in fiscal
2003. In addition,  the continued  grocery  retailer  labor  strikes,  primarily
affecting high margin branded sales in  California,  reduced  revenue versus the
prior  quarter  by  an  estimated  $1.0  -  $1.5  million.  Also  impacting  the
comparability  of revenue is the $0.6 million  recognized  in the quarter  ended
January 3, 2003 related to the payment  received from the U.S.  government under
the Continued Dumping and Subsidy Offset Act of 2000 (CDO), while no such amount
was received or recognized in the quarter ended January 2, 2004.  (See note 3 to
the  consolidated  financial  statements.)  Finally,  revenues  were affected by
declining category sales due in part to current reduced  carbohydrate  awareness
trends in the American diet.

Revenues for the Retail market decreased $6.3 million, or 7.7%, to $75.0 million
for the  three-month  period ended  January 2, 2004,  from $81.3 million for the
three-month period ended January 3, 2003.  Revenues decreased $13.5 million,  or
16.6%,  due to volume  shortfall and increased  $7.8  million,  or 9.6%,  due to
higher  average  selling  prices.  Additionally,  as  indicated  above,  revenue
declined by $0.6 million or 0.7% due to a reduction in the revenue recognized on
payments received from the U.S. government under the CDO.

Revenues for the Institutional  market increased $0.8 million, or 3.3%, to $26.6
million for the three-month period ended January 2, 2004, from $25.8 million for
the three-month  period ended January 3, 2003.  Revenues increased $1.0 million,
or 3.7%, due to volume growth, and decreased $0.2 million,  or 0.4% due to lower
average selling prices and changes in sales mix.

Gross Profit. Gross profit decreased $1.7 million, or 5.1%, to $31.9 million for
the  three-month  period  ended  January 2, 2004,  from  $33.6  million  for the
three-month  period ended January 3, 2003. Gross profit was impacted by a number
of  factors  compared  to the  prior  year's  first  quarter;  primarily  volume
challenges,  delay of the  antidumping  payment from the Department of Commerce,
and higher durum costs along with certain  inflationary  cost factors,  and were
offset by higher average selling prices.

Gross  profit as a  percentage  of  revenues  stayed  the same at 31.4% for both
periods.

Selling and Marketing  Expense.  Selling and marketing expense was $13.6 million
for both  periods.  Selling and  marketing  expense as a  percentage  of revenue
increased to 13.4% for the three-month  period ended January 2, 2004, from 12.7%
for the comparable prior year period.

General  and  Administrative   Expense.   General  and  administrative  expenses
increased  $0.4  million,  or 15.5% to $3.2 million for the  three-month  period
ended January 2, 2004 from $2.8 million for the three-month period ended January
3, 2003.  This is  attributable  primarily  to  increased  MIS and  organization
related  costs,  and  the  costs  associated  with  Sarbanes-Oxley   compliance,
including legal and insurance  costs.  General and  administrative  expense as a
percentage  of  revenues  increased  to 3.2% for the  three-month  period  ended
January 2, 2004, from 2.6% for the comparable prior year period.

Provision  for  Acquisition  and Plant  Start-up  Expenses.  The  provision  for
acquisition  and plant  start-up  expenses of $1.4 million for the quarter ended
January  3,  2003  consisted  of  incremental  costs  associated  with the brand
acquisitions and plant start-up costs related to the Arizona facility.

Operating Profit.  Operating profit for the three-month  period ended January 2,
2004, was $15.0 million,  decreasing $0.7 million or 4.6% from the $15.7 million
reported for the  three-month  period ended  January 3, 2003.  Operating  profit
increased as a percentage  of revenues to 14.8% for the quarter ended January 2,
2004,  from 14.7% for the  quarter  ended  January  3, 2003,  as a result of the
factors  discussed  above.  Included in operating  profit for the quarter  ended


                                    Page 14

January 3, 2003 is the impact of the $1.4 million charge for  incremental  costs
associated with the acquisitions and plant start-up expenses discussed above.

Interest Expense.  Interest expense for the three-month  period ended January 2,
2004, was $2.9 million,  increasing  $.5 million from the $2.4 million  reported
for the  three-month  period ended January 3, 2003.  The increase in interest is
attributable to higher average debt and lower capitalized interest compared to a
year ago when we were finishing our Tolleson facility.

Income Tax. Income tax expense for the three-month period ended January 2, 2004,
was $4.0 million, decreasing $0.4 million from the $4.4 million reported for the
three-month period ended January 3, 2003,  reflecting effective tax rates of 33%
in both periods.

Net Income. Net income decreased $0.8 million,  or 8.9%, to $8.1 million for the
three-month  period ended January 2, 2004 from $8.9 million for the  three-month
period  ended  January 3, 2003.  Included  in net income for the  quarter  ended
January 3, 2003 is the impact of the $1.4  million  ($956,000  after tax) charge
for incremental costs associated with the acquisitions and plant start-up costs.

Diluted  earnings  per common  share  were  $0.44 per share for the  three-month
period  ended  January 2, 2004  compared to $0.49 per share for the  three-month
period ended January 3, 2003. Included in the diluted earnings per share for the
quarter  ended  January  3, 2003 is the ($0.05  after  tax) per share  effect of
incremental  costs related to acquisitions  and plant start-up costs. Net income
as a percentage of net revenues was 8.0% versus 8.3% 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 $5.3 million,
and working capital totaled $93.1 million on January 2, 2004.

Our net cash  provided by operating  activities  totaled  $11.2  million for the
three-month  period  ended  January 2, 2004  compared  to $25.7  million for the
three-month  period ended  January 3, 2003.  This  decrease of $14.5 million was
primarily due to higher working capital requirements. Cash provided by operating
activities  for the quarter was  reduced by an  increase  in  inventory  of $3.9
million and a reduction in accounts  payable of $6.0  million.  The reduction in
payables is related to cost reduction programs and related supplier agreements.

Cash used in investing  activities  principally relates to the purchase of pasta
brands and investments in  manufacturing,  distribution,  milling and management
information  system  assets.  Capital  expenditures  were $8.7  million  for the
three-month  period  ended  January  2, 2004  compared  to $15.4  million in the
comparable prior year period. The majority of these  expenditures  relate to our
new  Arizona  manufacturing  facility.  Additionally,  we plan to spend  $11-$16
million  in the  remainder  of fiscal  year  2004,  primarily  for cost  saving,
maintenance, and capacity expansion projects.

Net cash used in  financing  activities  was $2.6  million  for the  three-month
period ended January 2, 2004  compared to net cash used in financing  activities
of $8.1  million for the  three-month  period  ended  January 3, 2003.  The $8.0
million  borrowing in fiscal 2003 relates to the purchase of treasury  stock. We
purchased  323,398 shares of Company stock for $10.6 million in the three months
ended January 3, 2003.  We made  principal  payments on our  long-term  debt and
capital  lease  obligations  of $2.8  million in the  three-month  period  ended
January 2, 2004 compared to $4.5 million in the comparable prior year period.

We continue to use our available credit facility as well as cash from operations
to  fund  capital   expenditures,   repayments  of  debt,  and  working  capital
requirements.  On January  12,  2004,  the Company  announced  that the Board of
Directors  authorized  the  payment of a  quarterly  dividend of 18.75 cents per
share,  payable to  shareholders  of record as of March 19, 2004,  to be paid on


                                    Page 15

April 5, 2004. Thus, we expect that future cash provided by operating activities
will  principally  be for  capital  expenditures,  repayments  of  indebtedness,
working capital requirements and dividends.


Selected Contractual
   Obligations at
  January 2, 2004                      Payments Due by Period
                     -----------------------------------------------------------
                         Total    Less than                               After
                                    1 year     1-3 years    4-5 years    5 years
                     -----------------------------------------------------------
Long term debt         $302,461     $5,170     $297,291     $     --     $    --

Capital lease
obligations                 113         39           74           --          --

Unconditional durum
purchase obligations     17,100     17,100
                         ------     ------     --------     --------    --------
Total contractual
cash obligations       $319,674    $22,309     $297,365     $     --    $     --
                       ========    =======     ========     ========    ========


We have current  commitments  for $17.1  million in raw material  purchases  for
fiscal year 2004. Additionally, we have $11-16 million in expenditures remaining
under the  previously  referenced  capital  programs.  We  expect to fund  these
commitments from operations and borrowing capacity under our credit facility. At
this time, the current and projected borrowings under the credit facility do not
exceed the facility's available  commitment.  The facility matures on October 2,
2006.  We  anticipate  that  any  borrowing  outstanding  at that  time  will be
satisfied with funds from operations or will be refinanced. We currently have no
other material commitments.

We believe that net cash provided by operating and financing  activities will be
sufficient to meet our expected  capital and liquidity needs for the foreseeable
future.


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 $110
million outstanding at January 2, 2004. The estimated fair value of the interest
rate swap agreements of ($2.3 million) is the amount we would be required to pay
to terminate the swap  agreements at January 2, 2004. If interest  rates for our
long-term  debt under our credit  facility  had  averaged  10% more and the full
amount  available under our credit facility had been  outstanding for the entire
year, our interest  expense would have increased,  and income before taxes would
have decreased by $0.6 million for the quarter ended January 2, 2004.

At January 2, 2004 we had a net investment in our Italy operations of (euro)43.7
million ($54.4 million). We hedge our net investment in our foreign subsidiaries
with euro  borrowings  under our credit facility in the U.S. At October 3, 2003,
long-term  debt includes  obligations  of (euro)37.5  million  ($47.0  million).
Interest  on our Euro debt is at  variable  rates and  based on  Euribor  market
rates.  Changes in the U.S.  dollar  equivalent  of  euro-based  borrowings  are
recorded as a component of the net  translation  adjustment in the  consolidated
statement of stockholder's equity.



                                    Page 16

The  functional  currency  for  our  Italy  operations  is  the  Euro.  We  have
transactional  exposure to various  other  European  currencies,  primarily  the
British  pound.  Our net exposure is  approximately  (euro)14.0  million  ($17.6
million). We occasionally use forward purchase contracts to hedge this exposure.
At January 2, 2004, we have outstanding  forward  contracts of (euro)6.0 million
and (pound)1.2 million.


Item 4.  CONTROLS AND PROCEDURES

     As of the end of the period, Mr. Webster, our CEO, and Mr. Schmidgall,  our
CFO,  evaluated  our  disclosure  controls  and  procedures  and,  based on this
evaluation, concluded that the Company's disclosure controls and procedures were
appropriate and effective in causing information required to be disclosed in our
reports  filed  under  the  Securities  Exchange  Act of  1934  to be  recorded,
processed,  summarized and reported within the required time periods. There have
been no  changes in our  internal  control  over  financial  reporting  that has
materially  affected or is reasonably  likely to materially  affect our internal
control over financial reporting.


PART II - OTHER INFORMATION

Item 1.     Legal Proceedings
- -------------------------------
            Not applicable

Item 2.     Changes in Securities
- -------------------------------
            Not applicable

Item 3.     Defaults Upon Senior Securities
- -------------------------------
            Not applicable

Item 4.     Submission of Matters to a Vote of Security Holders
- -------------------------------
            Not applicable

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



                                    Page 17

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


            10.1      Amendment to the 2000 Equity Incentive Plan.

            10.2      Consulting Agreement dated January 1, 2004 between the
                      Company and David E. Watson.

            31.1      Certification Pursuant to Section 302 of the Sarbanes-
                      Oxley Act of 2002.

            31.2      Certification Pursuant to Section 302 of the Sarbanes-
                      Oxley Act of 2002.

            32.       Certification Pursuant to Section 906 of the Sarbanes-
                      Oxley Act of 2002.


            (b) Reports on Form 8-K.

                We furnished a report on Form 8-K on November 7, 2003 announcing
                fourth quarter earnings.



                                    Page 18

                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                      American Italian Pasta Company



February 10, 2004                   /s/ Timothy S. Webster
- ----------------------------        ------------------------------------------
Date                                Timothy S. Webster
                                    President and Chief Executive Officer
                                    (Principal Executive Officer)



February 10, 2004                   /s/ Warren B. Schmidgall
- ----------------------------        ------------------------------------------
Date                                Warren B. Schmidgall
                                    Executive Vice President and Chief
                                    Financial Officer
                                    (Principal Financial and
                                    Accounting Officer)



                                    Page 19

EX-10

                                                                    Exhibit 10.1

                                  AMENDMENT TO
                         AMERICAN ITALIAN PASTA COMPANY
                           2000 EQUITY INCENTIVE PLAN

     Warren B. Schmidgall, Secretary of American Italian Pasta Company,
certifies as follows:

     The American Italian Pasta Company 2000 Equity Incentive Plan (the "Plan")
is amended as follows:

     1. The second sentence of Section 1.1 of the Plan is amended to read as
follows:

     "This Plan permits the grant of Nonqualified Stock Options, Incentive Stock
Options, SARs, and Restricted Stock."

     2. The definition of "Award" in the Plan is amended to read as follows:

     "Award" means, individually or collectively, a grant under this Plan of
Nonqualified Stock Options, Incentive Stock Options, SARs or Restricted Stock.

     3. The definition of "Company" in the Plan is amended by deleting the
second sentence thereof.

     4. The definitions of "Performance Period," "Performance Share," and
"Performance Unit" in the Plan are deleted.

     5. Section 4.1(b) and 4.1(d) of the Plan is amended by deleting the number
"1,000,000" and replacing it with the number "1,800,000."

     6. A new paragraph 4.1(e) is added to read as follows:

     (e) Notwithstanding anything to the contrary in this Section 4.1, in no
event shall grants of Restricted Stock after the date of this amendment exceed
the sum of the number of Shares available for issuance under this Plan prior to
approval of the amendment to Section 4.1(b) and 4.1(d) herein by the
stockholders of the Company (the "Approval Date"), plus any Shares which become
available through forfeiture or cancellation of Awards granted prior to the
Approval Date, plus 200,000 Shares.

     7. Section 4.3 is amended by deleting the reference to Section 8.1.

     8. Section 5.1 is amended by deleting the number "500,000" and replacing it
with the number "400,000."

     9. Section 7.1 is amended by deleting the number "500,000" and replacing it
with the number "200,000."

     10. Section 8 is deleted in its entirety and shall be reserved for
numbering purposes.

     Except as stated herein, the Plan is confirmed as written.

     This Amendment has been adopted by the Board of Directors as of the 19th
day of December, 2003. The amendment to Section 4.1(b) and 4.1(d) is effective
as of February 19, 2004, subject to approval of the Company's stockholders.

     Pursuant to a Unanimous Written Consent dated January 12, 2004, the Board
of Directors adopted the following amendment to the 2000 Equity Incentive Plan.

          Section 5.5 "Exercisability of Options" is hereby amended by
          adding the following sentence to the end of such Section:

          "Unless specifically authorized by the Committee in an Award
          Agreement or otherwise, no Option shall fully vest over a period
          of less than five years."


Date:  January 12, 2004                        /s/ Warren B. Schmidgall
                                               ---------------------------------
                                               Secretary

EX-10

                                                                    Exhibit 10.2


                         AMERICAN ITALIAN PASTA COMPANY

                        INDEPENDENT CONTRACTOR AGREEMENT



     THIS  AGREEMENT  (this  "Agreement"),  dated  December  18,  2003 is by and
between  American  Italian  Pasta  Company  ("AIPC"),  and David E.  Watson,  an
individual  ("Watson")  (collectively  "the parties") and supersedes any and all
prior oral or written  agreements  between the parties  with respect to Watson's
employment  by AIPC other than Sections 4, 5 and 6 of his  Employment  Agreement
dated September 1, 2002.

                                   WITNESSETH:

     WHEREAS,  AIPC is engaged in the business of durum wheat  milling and pasta
product production/marketing; and

     WHEREAS,  Watson is currently  employed by AIPC, but Watson and AIPC desire
to terminate Watson's employment and AIPC desires to engage Watson to consult on
strategic planning and development resources; and

     WHEREAS, Watson desires to be engaged by AIPC in the aforesaid capacity.

     NOW,  THEREFORE,  in  consideration  of the promises  and mutual  covenants
contained  herein and other good and  valuable  consideration,  the  receipt and
sufficiency  of  which is  hereby  acknowledged,  the  parties  hereby  agree as
follows:

     1.   Term.

          1.1 Subject to the provisions of Section 7 and Section 1.2 hereof, the
term of this  Agreement  (the "Term")  will  commence as of January 1, 2004 (the
"Effective Date") and terminate on December 31, 2005.

          1.2 This  Agreement  will renew  automatically  for successive one (1)
year terms  beginning  January  1, 2006,  unless  either  party  gives the other
written  notice of  non-renewal  at least six (6) months prior to the end of any
term.

          1.3 The  provisions  of Sections 4, 5 and 6, below,  will  survive and
continue to be enforceable regardless of any termination of this Agreement.

     2.   Services.

          2.1 Watson shall consult with AIPC on such matters as may be requested
by the Chief Executive Officer of AIPC from time to time.

          2.2 Watson will, to the reasonable  satisfaction of AIPC, at all times
faithfully,  industriously, and to the best of Watson's ability, experience, and
talents  perform  all of the  services  that may be  required of and from Watson
pursuant to the terms hereof.

     3.   Compensation.

          3.1 Cash Compensation.  AIPC shall pay Watson, and Watson shall accept
from AIPC,  in full payment for Watson's  services  hereunder,  an annual fee of
$25,000.  In addition,  the Company agrees to utilize Watson's  services under a
consulting  arrangement  which will provide to Watson an  additional  amount for
consulting services that when combined with the annual retainers of $25,000 (for
two years) equals,  but does not exceed  $250,000.  In the event that all or any
part of the  additional  $200,000 is not paid to Watson by December 31, 2005, it
shall be paid to Watson on January 3, 2006.

          3.2 Employee Benefits.  AIPC agrees to cover the cost of COBRA benefit
continuation  under  AIPC's  health,  medical,  supplemental  medical  and  life
insurance  plans or programs  provided to the  Employee by Employer  pursuant to
Section 3.7 hereof  ("Employee  Welfare Plans") at the time of such  termination
for  a  period  of  up to 18  months.  Should  the  cost  of  this  coverage  be
characterized as taxable income to Watson, an additional payment will be made to
cover the  individual  taxation on this  taxable  amount.  Should this  contract
terminate  prior to the  18-month  period of time,  benefit  eligibility  ceases
immediately.

          3.3  Reimbursement  of Business  Expenses.  AIPC  agrees to  reimburse
Watson for reasonable  travel and meal expenses  incurred in the  performance of
Watson's services.

          3.4 Stock Options and Restricted Shares.

               (a)  Prior to the execution of this Agreement,  Watson held 2,500
                    shares of Restricted  Stock,  with scheduled vesting through
                    August 27,  2005.  Subject to Watson's  compliance  with the
                    terms  of  this  Agreement,  such  Restricted  Shares  shall
                    continue  to be held by Watson  and shall  continue  to vest
                    equally over an extended time period until August 27, 2007.

               (b)  Prior  to the  execution  of  this  Agreement,  Watson  held
                    unvested  options to acquire  25,000  shares of AIPC  common
                    stock. Subject to Watson's compliance with the terms of this
                    Agreement,  these  25,000  options  shall  continue  to vest
                    during the "Term" of this agreement (December 31, 2005). Any
                    of  such  options  not  vested  during  the  "Term"  will be
                    cancelled and be null and void.

               (c)  Any  options  that have  vested  prior to or during the Term
                    will be eligible for exercise throughout the Term as well as
                    through the  Noncompetition  Period  (January 1, 2008).  Any
                    vested  options  not  exercised  by  January 1, 2008 will be
                    cancelled.

     4.   Non-Competition, Nonsolicitation and Nondisparagement.

          4.1 Watson  acknowledges and recognizes the highly  competitive nature
of the business of AIPC and its  affiliates and  accordingly  agrees as follows:
from the day  hereof


                                      -2-

through January 1, 2008 (the "Noncompetition  Period"),  Watson will not, in any
area in the world where AIPC  conducts  business,  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 other  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 pasta products for human
consumption. Such said businesses shall include, but not be limited to, Barilla,
New World Pasta and Dakota Growers.

          4.2 During the  Noncompetition  Period,  Watson  will not  directly or
indirectly  induce or  attempt  to  induce  any  employee  of AIPC or any of its
affiliates to engage in any activity in which Watson is prohibited from engaging
by Section 4.1 hereof or to terminate his or her employment  with AIPC or any of
its  affiliates,  will not  directly or  indirectly  assist or attempt to assist
others in engaging in any of the  activities in which Watson is prohibited  from
engaging by Section 4.1 hereof,  and will not directly or  indirectly  employ or
offer employment to any person who was employed by AIPC or any of its affiliates
unless  such  person  shall  have  ceased to be  employed  by AIPC or any of its
affiliates for a period of at least 12 months.

          4.3 During the  Noncompetition  Period,  Watson  will not  directly or
indirectly  induce or attempt to induce any  customer or supplier of AIPC or any
of its  affiliates  to move,  reduce or not increase its trade or business  with
AIPC or any of its affiliates.

          4.4 (a) Watson  acknowledges  and agrees that  disparaging or critical
statements made by Watson about AIPC or its board members, officers or employees
would be uniquely  detrimental  to the  interests  of both  parties.  Therefore,
during the  Noncompetition  Period,  Watson  agrees to refrain  from  making any
disparaging or critical statements about AIPC or its board members,  officers or
employees.

              (b) AIPC acknowledges and  agrees  that  disparaging  or  critical
statements  made by AIPC, its board members,  officers or employees about Watson
would be uniquely  detrimental  to the  interests  of both  parties.  Therefore,
during  the  Non-competition  period,  AIPC,  its board  members,  officers  and
employees  agree to refrain from making any  disparaging or critical  statements
about Watson.

          4.5  Notwithstanding  any provision of this Agreement to the contrary,
from and after any breach by Watson of the  provisions  of Section 4.1, 4.2, 4.3
or 4.4,  AIPC shall  cease to have any  obligations  to make  payments to Watson
under this Agreement.  Watson  acknowledges  that the restrictions  contained in
Sections 4.1, 4.2, 4.3 and 4.4 are reasonable and appropriate.  However,  in the
event that a court of competent  jurisdiction  determines that such restrictions
are not  reasonable  and  therefore  unenforceable,  the parties agree that such
court may modify the  restrictions  in order for,  but only to the least  extent
necessary for, the  restrictions to be enforced by such court. In the event such
court  finds  that any such  restriction  cannot  be  modified  so as to make it
enforceable,   such   restriction   may  be   deleted  by  such  court  and  the
enforceability of all other restrictions will be unaffected by such deletion.


                                      -3-

     5.     Confidentiality.  Watson  acknowledges  that, in and as a result of
Watson's  engagement  by  AIPC,  Watson  has been  and  will be  making  use of,
acquiring,  and/or adding to  confidential  information  of a special and unique
nature and value  relating to such  matters as AIPC's  trade  secrets,  systems,
procedures,  manuals,  confidential reports, and lists of customers and/or other
services  rendered by AIPC,  the  equipment  and methods  used and  preferred by
AIPC's  customers,  and  the  prices  paid  by  such  customers.  As a  material
inducement  to AIPC to enter  into  this  Agreement,  and to pay to  Watson  the
compensation referred to in Section 3 hereof, Watson covenants and agrees Watson
shall  not,  at any time  during  or after  the  Term,  directly  or  indirectly
disclose, divulge, or use for Watson's own benefit or purposes or the benefit or
purposes of any other person,  firm,  partnership,  joint venture,  association,
corporation,  or other business  organization,  entity, or enterprise other than
AIPC and any of its  subsidiaries or affiliates any trade secrets,  information,
data,  or other  confidential  information  relating to  customers,  development
programs,  costs,  prices,  marketing,  trading,  investment,  sales activities,
promotion,  credit  and  financial  data,  manufacturing  processes,   financing
methods,  plans,  or the  business  and  affairs  of  AIPC  generally  or of any
subsidiary or affiliate of AIPC, provided, however, that the foregoing shall not
apply to  information  that is not unique to AIPC or that is generally  known to
the  industry or the public  other than as a result of breach of this  covenant.
Watson  agrees that,  upon  termination  of Watson's  engagement by AIPC for any
reason,  Watson will return to AIPC immediately all memoranda,  books,  manuals,
training  materials,  records,  computer  software,  papers,  plans,  contracts,
agreements,  information,  letters,  and other data,  and all copies  thereof or
therefrom,  in any way  relating  to the  business  of AIPC and its  affiliates,
except that Watson may retain personal  notes,  notebooks,  and diaries.  Watson
further  agrees that Watson will not retain or use for  Watson's  account at any
time any trade names,  trademark, or other proprietary business designation used
or owned in connection with the business of AIPC or its affiliates.

     6.   Specific Performance and Survival.

          6.1 Watson  acknowledges  and agrees that AIPC's remedies at law for a
breach or  threatened  breach of any of the  provisions  of  Section 4 hereof or
Section 5 hereof would be inadequate  and, in recognition  of this fact,  Watson
agrees that, in the event of such a breach or threatened  breach, in addition to
any remedies at law, AIPC, without posting any bond, shall be entitled to obtain
equitable  relief in the form of  specific  performance,  temporary  restraining
order, temporary or permanent injunction, or any other equitable remedy that may
then be available.

          6.2 The  parties  agree  that  the  terms of  Sections  4, 5 and 6 are
independent  of and separable  from the other  provisions of this  Agreement and
that the  termination  of this  Agreement  for any  reason  will not  affect the
continued  existence and  enforceability  of Sections 4, 5 and 6. Those Sections
will survive and continue to be fully binding on and enforceable  against Watson
and AIPC after any termination of this Agreement.


                                      -4-

     7.   Termination.

          7.1 AIPC may terminate  this Agreement at any time and with or without
any cause or reason. If AIPC does so, any remaining compensation will be due and
payable within 30 days of said termination date. Thereafter,  AIPC shall have no
payment or other obligation to Watson.

          7.2  Watson  may  terminate  this  Agreement  at any  time and with or
without  any cause or  reason.  If Watson  does so,  AIPC  shall have no further
payment or other obligation to Watson.

          7.3 In the event of any termination of this Agreement,  the provisions
of Sections 4, 5 and 6 shall survive and remain enforceable.

     8.   Miscellaneous.

          8.1 Burden and Benefit.  This  Agreement  shall be binding  upon,  and
shall  inure  to the  benefit  of,  AIPC and  Watson,  their  respective  heirs,
personal, and legal representatives, successors, and assigns.

          8.2 Governing  Law. In view of the fact that the  principal  office of
AIPC is located in the State of Missouri,  the parties understand and agree that
the construction and  interpretation of this Agreement shall at all times and in
all  respects be governed by the laws of the State of  Missouri,  that the state
and  federal  courts  situated  in the State of  Missouri  shall have  exclusive
jurisdiction over any claims arising under or in relation to this Agreement, and
that the  parties  consent to  personal  jurisdiction  in such state and federal
courts.

          8.3 Headings.  The headings of the Sections of this  Agreement are for
reference  only and not to limit,  expand,  or otherwise  affect the contents of
this Agreement.

          8.4 Entire Agreement;  Modification.  Except as to AIPC's Stock Option
Plans,  any  instrument  relating  to an  Option  or  Restricted  Share  granted
thereunder and written agreements signed by both of the parties hereto from time
to time after the date hereof,  this Agreement contains the entire agreement and
understanding  by and between AIPC and Watson with respect to the subject matter
hereof,  and  any  representations,  promises,  agreements,  or  understandings,
written or oral, not herein contained shall be of no force or effect. No change,
waiver,  or  modification  of any provision of this Agreement  shall be valid or
binding  unless the same is in writing and duly  executed by both parties and no
evidence of any waiver or modification  shall be offered or received in evidence
of any proceeding, arbitration, or litigation between the parties hereto arising
out of or affecting this Agreement,  or the rights or obligations of the parties
hereunder,  unless such waiver or modification  is in writing,  duly executed as
aforesaid, and the parties further agree that the provisions of this Section 8.4
may not be waived except as set forth herein.

          8.5 Waiver of Breach.  The waiver by AIPC of a breach of any provision
of this Agreement by Watson shall not operate or be construed as a waiver of any
subsequent breach by Watson.


                                      -5-

          8.6 Notice.  For the purpose of this Agreement,  notices and all other
communications  provided for in the  Agreement  shall be in writing and shall be
deemed  to have been  duly  given  when  delivered  or  mailed by United  States
registered mail,  return receipt  requested,  postage prepaid,  addressed to the
respective  addresses  set  forth  on the  execution  page  of  this  Agreement,
provided,  however,  that all notices to AIPC shall be directed to the attention
of the Board of  Directors of AIPC with a copy to the  Secretary of AIPC,  or to
such other address as either party may have furnished to the other in writing in
accordance herewith,  except that notice of change of address shall be effective
only upon receipt.

          8.7  Withholding  Taxes.  AIPC may withhold  from any amounts  payable
under this Agreement such federal,  state, and local taxes as may be required to
be withheld pursuant to any applicable law or regulation.

          8.8 Counterparts.  This Agreement may be signed in counterparts,  each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.

     IN WITNESS WHEREOF, AIPC and Watson have duly executed this Agreement as of
the day and year first hereof written.


                                       WATSON:



                                       Signature: /s/ David E. Watson
                                                 -------------------------------
                                       Printed Name:  David E. Watson
                                       Address: 6708 N.W. Monticello Terrace
                                                Kansas City, MO  64152




                                       AMERICAN ITALIAN PASTA COMPANY



                                       By:  /s/ Timothy S. Webster
                                          --------------------------------------
                                       Printed Name:  Timothy S. Webster
                                       Address: 4100 North Mulberry Drive
                                                Suite 200
                                                Kansas City MO 64116-0696



                                      -6-

EX-31

                                                                    Exhibit 31.1

                                CERTIFICATIONS*

I, Timothy S. Webster, certify that:

     1.   I have reviewed this quarterly report on Form 10-Q of American Italian
          Pasta Company;

     2.   Based on my  knowledge,  this  report  does  not  contain  any  untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this report,  fairly  present in all material
          respects the financial condition, results of operations and cash flows
          of the  registrant  as of,  and for,  the  periods  presented  in this
          report;

     4.   The registrant's other certifying officer(s) and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined  in  Exchange  Act  Rules  13a-15(e)  and  15d-15(e))  for the
          registrant and have:

          a.   Designed such disclosure controls and procedures,  or caused such
               disclosure  controls  and  procedures  to be  designed  under our
               supervision to ensure that material  information  relating to the
               registrant,  including  its  consolidated  subsidiaries,  is made
               known to us by others within those entities,  particularly during
               the period in which this report is being prepared;

          b.   [Paragraph omitted in accordance with SEC transition instructions
               in SEC Release 34-47986]

          c.   Evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls   and   procedures   and  present  in  this  report  our
               conclusions  about the  effectiveness of the disclosure  controls
               and  procedures,  as of the  end of the  period  covered  by this
               report based on such evaluation; and

          d.   Disclosed in this report any change in the registrant's  internal
               control  over  financial   reporting  that  occurred  during  the
               registrant's  most recent  financial  quarter  (the  registrant's
               fourth fiscal  quarter in the case of an annual  report) that has
               materially  affected,  or  is  reasonably  likely  to  materially
               affect,   the   registrant's   internal  control  over  financial
               reporting; and

     5.   The  registrant's  other  certifying  officer(s) and I have disclosed,
          based on our most recent evaluation of internal control over financial
          reporting,  to the  registrant's  auditors and the audit  committee of
          registrant's  board of directors (or persons performing the equivalent
          functions):

          a.   All  significant  deficiencies  and  material  weaknesses  in the
               design or operation of internal control over financial  reporting
               which are reasonably  likely to adversely affect the registrant's
               ability  to  record,  process,  summarize  and  report  financial
               information; and

          b.   Any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal control over financial reporting.

Date: February 10, 2004


                                        /s/ Timothy S. Webster
                                        ---------------------------------------
                                        Timothy S. Webster
                                        President and Chief Executive Officer

                                CERTIFICATIONS*

I, Warren B. Schmidgall, certify that:

     1.   I have reviewed this quarterly report on Form 10-Q of American Italian
          Pasta Company;

     2.   Based on my  knowledge,  this  report  does  not  contain  any  untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this report,  fairly  present in all material
          respects the financial condition, results of operations and cash flows
          of the  registrant  as of,  and for,  the  periods  presented  in this
          report;

     4.   The registrant's other certifying officer(s) and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined  in  Exchange  Act  Rules  13a-15(e)  and  15d-15(e))  for the
          registrant and have:

          a.   Designed such disclosure controls and procedures,  or caused such
               disclosure  controls  and  procedures  to be  designed  under our
               supervision to ensure that material  information  relating to the
               registrant,  including  its  consolidated  subsidiaries,  is made
               known to us by others within those entities,  particularly during
               the period in which this report is being prepared;

          b.   [Paragraph omitted in accordance with SEC transition instructions
               in SEC Release 34-47986]

          c.   Evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls   and   procedures   and  present  in  this  report  our
               conclusions  about the  effectiveness of the disclosure  controls
               and  procedures,  as of the  end of the  period  covered  by this
               report based on such evaluation; and

          d.   Disclosed in this report any change in the registrant's  internal
               control  over  financial   reporting  that  occurred  during  the
               registrant's  most recent  financial  quarter  (the  registrant's
               fourth fiscal  quarter in the case of an annual  report) that has
               materially  affected,  or  is  reasonably  likely  to  materially
               affect,   the   registrant's   internal  control  over  financial
               reporting; and

     5.   The  registrant's  other  certifying  officer(s) and I have disclosed,
          based on our most recent evaluation of internal control over financial
          reporting,  to the  registrant's  auditors and the audit  committee of
          registrant's  board of directors (or persons performing the equivalent
          functions):

          a.   All  significant  deficiencies  and  material  weaknesses  in the
               design or operation of internal control over financial  reporting
               which are reasonably  likely to adversely affect the registrant's
               ability  to  record,  process,  summarize  and  report  financial
               information; and

          b.   Any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal control over financial reporting.

Date: February 10, 2004


                                           /s/ Warren B. Schmidgall
                                           -------------------------------------
                                           Warren B. Schmidgall
                                           Executive Vice President &
                                           Chief Financial Officer

EX-32

                                                                      Exhibit 32
                                                                                                                                                     Exhibit 32
                            CERTIFICATION PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly  Report of American  Italian Pasta Company
(the "Company") on Form 10-Q for the quarterly  period ended January 2, 2004, as
filed with the  Securities  and  Exchange  Commission  on the date  hereof  (the
"Report"), the undersigned,  in the capacities and dates indicated below, hereby
certify  pursuant to 18 U.S.C.  ss. 1350, as adopted  pursuant to ss. 906 of the
Sarbanes-Oxley  Act of  2002,  that,  to our  knowledge:  (1) The  Report  fully
complies  with the  requirements  of  Section  13(a) or 15(d) of the  Securities
Exchange Act of 1934;  and (2) The  information  contained in the Report  fairly
presents,  in all material  respects,  the  financial  condition  and results of
operations of the Company.


                                           /s/ Timothy S. Webster
                                           -------------------------------------
                                           Timothy S. Webster
                                           President and Chief Executive Officer
February 10, 2004



                                           /s/ Warren B. Schmidgall
                                           -------------------------------------
                                           Warren B. Schmidgall
                                           Executive Vice President and
                                           Chief Financial Officer
February 10, 2004