Form 10-Q

10-Q 1 form10q1_080608.htm Form 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 quarterly period ended December 28, 2007

          Or

     | |  Transition  Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934

                        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         (I.R.S. Employer Identification No.)
   of incorporation or organization)

        4100 N. Mulberry Drive, Suite 200                    64116
              Kansas City, Missouri                        (Zip Code)
    (Address of principal executive offices)

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

                                 NOT APPLICABLE
              (Former name, former address and former fiscal year,
                         if changed since last report)

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

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated  filer, a non-accelerated  filer, or a smaller reporting company.
See definitions of "large accelerated filer,"  "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

          Large accelerated filer | |               Accelerated filer |X|

           Non-accelerated filer | |             Smaller reporting company | |
(Do not check if a smaller reporting company)

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
                                                      Yes | | No |X|

     As of August 1, 2008, the Registrant had 19,357,415 shares of common stock,
par value $0.001 per share, outstanding.


                         AMERICAN ITALIAN PASTA COMPANY
                                    Form 10-Q
                     Fiscal Quarter Ended December 28, 2007


                                Table of Contents


Part I - Financial Information                                                                            Page

         Item 1.           Consolidated Financial Statements (unaudited)                                     1

                           Consolidated Balance Sheets at December 28, 2007 and September 28, 2007           1

                           Consolidated Statements of Operations for the three months ended                  2
                           December 28, 2007 and December 29, 2006

                           Consolidated Statement of Stockholders' Equity for the
                           three months ended December 28, 2007                                              3

                           Consolidated Statements of Comprehensive Income for the
                           three months ended December 28, 2007 and December 29, 2006                        4

                           Consolidated Statements of Cash Flows for the three months ended
                           December 28, 2007 and December 29, 2006                                           5

                           Notes to Consolidated Financial Statements                                        6

         Item 2.           Management's Discussion and Analysis of Financial Condition
                           and Results of Operations                                                        12

         Item 3.           Quantitative and Qualitative Disclosures About Market Risk                       18

         Item 4.           Controls and Procedures                                                          18

Part II - Other Information

         Item 1.           Legal Proceedings                                                                19

         Item 1A.          Risk Factors                                                                     21

         Item 2.           Unregistered Sales of Equity Securities and Uses of Proceeds                     21

         Item 3.           Defaults Upon Senior Securities                                                  22

         Item 4.           Submission of Matters to a Vote of Security Holders                              22

         Item 5.           Other Information                                                                22

         Item 6.           Exhibits                                                                         22

Signature Page

Exhibit Index


PART I.           FINANCIAL INFORMATION

ITEM 1.           CONSOLIDATED FINANCIAL STATEMENTS


                         AMERICAN ITALIAN PASTA COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                    Unaudited
                      (in thousands, except share amounts)

                                                              December 28, 2007     September 28, 2007
ASSETS
Current assets:
     Cash and cash equivalents                                       $  8,545              $ 16,635
     Short-term investments                                             6,630                     -
     Trade and other receivables, net                                  38,167                38,279
     Inventories                                                       56,444                44,443
     Prepaid expenses and other current assets                          9,364                 7,629
     Deferred income taxes                                              2,323                 2,381
                                                                    ---------             ---------
Total current assets                                                  121,473               109,367
Property, plant and equipment, net                                    313,863               316,109
Brands and trademarks                                                  83,416                83,282
Other assets                                                           18,924                19,205
                                                                    ---------             ---------
Total assets                                                        $ 537,676             $ 527,963
                                                                    =========             =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                               $  25,879             $  19,195
     Accrued expenses                                                  31,884                31,523
     Current portion of deferred revenues                                  99                    99
     Income taxes payable                                                   -                 1,082
     Current maturities of long-term debt                               2,011                 1,963
                                                                    ---------             ---------
Total current liabilities                                              59,873                53,862
Long-term debt, less current maturities                               239,900               240,000
Income taxes payable                                                    1,851                     -
Deferred income taxes                                                  34,913                35,286
Litigation settlement                                                  26,500                26,500
Deferred revenue, less current portion                                    372                   397
                                                                    ---------             ---------
Total liabilities                                                     363,409               356,045
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                                     21                    21
        Issued and outstanding shares -
        20,980,710 and 18,822,454, respectively, at
        December 28, 2007; 20,832,627 and 18,674,628,
        respectively, at September 28, 2007
     Class B common stock, par value $.001
        Authorized shares - 25,000,000                                      -                     -
        Issued and outstanding - none
     Additional paid-in capital                                       247,874               247,492
     Treasury stock, 2,158,256 shares at December 28,
        2007 and 2,157,999 shares at
        September 28, 2007, at cost                                  (52,030)              (52,029)
     Accumulated other comprehensive income                            16,594                15,352
     Accumulated deficit                                             (38,192)              (38,918)
                                                                    ---------             ---------
Total stockholders' equity                                            174,267               171,918
                                                                    ---------             ---------
Total liabilities and stockholders' equity                           $537,676             $ 527,963
                                                                    =========             =========

   See accompanying notes to the unaudited consolidated financial statements.

                                       1


                         AMERICAN ITALIAN PASTA COMPANY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                    Unaudited
                    (in thousands, except per share amounts)


                                                                       Three Months Ended
                                                           December 28, 2007        December 29, 2006

      Revenues                                                   $ 111,723               $  94,105
      Cost of goods sold                                            87,388                  69,818
                                                                 ---------               ---------
      Gross profit                                                  24,335                  24,287

      Selling and marketing expense                                  6,020                   4,843
      General and administrative expense                            10,160                   8,302

      Losses related to long-lived assets                                -                      23
                                                                 ---------               ---------
      Operating profit                                               8,155                  11,119
      Interest expense, net                                          7,088                   7,759
      Other income, net                                               (17)                    (58)
                                                                 ---------               ---------

      Income before income taxes                                     1,084                   3,418
      Income tax benefit                                             (310)                   (133)
                                                                 ---------               ---------
      Net income                                                 $   1,394               $   3,551
                                                                 =========               =========

      Net income  per common share (basic)                       $    0.07               $    0.19

      Weighted-average common shares outstanding (basic)            18,727                  18,635
                                                                 =========               =========

      Net income per common share (diluted)                      $    0.07               $    0.19

      Weighted-average common shares outstanding (diluted)          18,938                  18,834
                                                                 =========               =========

   See accompanying notes to the unaudited consolidated financial statements.

                                       2


                         AMERICAN ITALIAN PASTA COMPANY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                    Unaudited
                                 (in thousands)


                                                        Three Months Ended
                                                         December 28, 2007

Class A Common Shares
     Balance, beginning                                         20,833
     Issuance of shares of common stock                            148
                                                             ---------
     Balance, ending                                            20,981
                                                             =========

Class A Common Shares - par value
     Balance, beginning                                      $      21
     Issuance of shares of common stock                              -
                                                             ---------
     Balance, ending                                         $      21
                                                             =========

Additional Paid-in Capital
     Balance, beginning                                      $ 247,492
     Stock based compensation                                      382
                                                             ---------
     Balance, ending                                         $ 247,874
                                                             =========

Treasury Stock, at cost
     Balance, beginning                                      $(52,029)
     Purchases of treasury stock                                   (1)
                                                             ---------
     Balance, ending                                         $(52,030)
                                                             =========

Accumulated Other Comprehensive Income
     Foreign currency translation adjustment:
     Balance, beginning                                      $  15,352
     Change during the period                                    1,242
                                                             ---------
     Balance, ending                                         $  16,594
                                                             =========

Accumulated Deficit
     Balance, beginning                                      $(38,918)
     Additional tax related liabilities upon adoption
     of FIN 48                                                   (668)
     Net income                                                  1,394
                                                             ---------
     Balance, ending                                         $(38,192)
                                                             =========

Total Stockholders' Equity                                   $ 174,267
                                                             =========

    See accompanying notes to the unaudited consolidated financial statements

                                       3


                         AMERICAN ITALIAN PASTA COMPANY
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                    Unaudited
                                 (in thousands)


                                                                      Three Months Ended
                                                           December 28, 2007      December 29, 2006


        Net income                                              $ 1,394                $ 3,551


        Other comprehensive income:

                Foreign currency translation adjustments          1,242                  1,542
                                                                 ------                -------


        Comprehensive income                                    $ 2,636                $ 5,093
                                                                =======                =======

   See accompanying notes to the unaudited consolidated financial statements.

                                       4


                         AMERICAN ITALIAN PASTA COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    Unaudited
                                 (in thousands)

                                                                                   Three Months Ended
                                                                        December 28, 2007      December 29, 2006

OPERATING ACTIVITIES:
Net income                                                                $       1,394           $      3,551
Adjustments to reconcile net income to net cash
       provided by operating activities:
                Depreciation and amortization                                     6,029                  5,816
                Amortization of deferred financing fees                             324                    305
                Losses related to long-lived assets                                   -                     23
                Unrealized loss on short-term investment                             93                      -
                Provision for doubtful accounts                                     109                    128
                Provision for inventory obsolescence                                226                    440
                Stock-based compensation expense                                    382                    359
                Deferred income tax benefit                                       (315)                  (476)
                Changes in operating assets and liabilities:
                    Trade and other receivables                                     221                  (683)
                    Inventories                                                (12,095)                  (854)
                    Prepaid expenses and other current assets                   (1,734)                      9
                    Accounts payable and accrued expenses                         6,842                    551
                    Income taxes payable                                           (18)                     87
                    Other assets                                                  (393)                    138
                                                                          -------------           ------------
Net cash provided by operating activities                                         1,065                  9,394

INVESTING ACTIVITIES:
Additions to property, plant and equipment                                      (2,447)                (1,537)
Short-term investments under orderly liquidation                                (7,379)                      -
Redemption of short-term investments                                                656                      -
                                                                          -------------           ------------
Net cash used in investing activities                                           (9,170)                (1,537)

FINANCING ACTIVITIES:
Principal payments on debt                                                        (100)                (8,000)
Purchase of treasury stock                                                          (1)                   (64)

Deferred financing costs                                                             -                    (7)
                                                                          -------------           ------------
Net cash used in financing activities                                             (101)                (8,071)
Effect of exchange rate changes on cash                                             116                    106
                                                                          -------------           ------------
Net decrease in cash and cash equivalents                                       (8,090)                  (108)
Cash and cash equivalents, beginning of period                                   16,635                 22,805
                                                                          -------------           ------------
Cash and cash equivalents, end of period                                  $       8,545           $     22,697
                                                                          =============           ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
           Cash paid for interest                                         $       6,569           $      7,539
                                                                          =============           ============
           Cash paid for income taxes                                     $           -           $        142
                                                                          =============           ============

   See accompanying notes to the unaudited consolidated financial statements.

                                       5

AMERICAN ITALIAN PASTA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended December 28, 2007
are not necessarily indicative of the results that may be expected for the
fiscal year ended September 26, 2008. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended September 28,
2007.

American Italian Pasta Company (the "Company" or "AIPC") uses a 52/53 week
financial reporting cycle with a fiscal year that ends on the last Friday of
September or the first Friday of October. The Company's first three fiscal
quarters end on the Friday last preceding December 31, March 31, and June 30 or
the first Friday of the following month. For purposes of this Form 10-Q, all
fiscal quarters presented included 13 weeks of activity.

2. SHORT TERM INVESTMENTS

As of September 28, 2007, the Company had $9.2 million invested in the Columbia
Strategic Cash Portfolio Fund (Columbia Fund), administered by a subsidiary of
Bank of America, which is an enhanced money fund that allowed immediate
withdrawal of funds. On December 10, 2007, when the investment balance was $7.4
million, Columbia determined that the underlying securities had liquidity issues
and notified the Company that the fund would begin an orderly liquidation and
dissolution of assets to its investors. The balance in the Columbia Fund at
December 28, 2007 was $6.6 million. The underlying assets are valued at fair
value and as of December 28, 2007 the Company has recorded valuation losses on
this investment of $0.1 million. During the first quarter of 2008, the Company
received $0.2 million of interest from the Columbia Fund. Through June 27, 2008,
the Company has recovered approximately $3.8 million of the pre-liquidation
investment balance. The remaining investment of $3.6 million is to be recovered
as the liquidation progresses. The Company believes that the entire balance will
be recovered. During the nine-month period ended June 27, 2008, the Company has
received $0.3 million of interest income from the Columbia Fund. The underlying
assets are valued at fair value and as of June 27, 2008 the Company has recorded
valuation losses on this investment of $0.2 million.

3. INVENTORIES

Inventories are carried at standard costs adjusted for capitalized variances,
which approximate the lower of cost, determined on a first-in, first-out (FIFO)
basis, or market. The Company periodically reviews its inventory for
slow-moving, damaged or discontinued items and provides reserves to reduce such
items identified to their recoverable amount.

Inventories consist of the following (in thousands):

December 28, 2007 September 28, 2007

Finished goods $ 39,892 $ 30,713
Raw materials, additives, packaging materials and work-in-process 17,350 14,373
Reserves for slow-moving, damaged and discontinued inventory (798) (643)
--------- ---------
$ 56,444 $ 44,443
========= =========

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following (in thousands):

December 28, 2007 September 28, 2007

Land and improvements $ 11,938 $ 11,867
Buildings 112,864 112,434
Plant and mill equipment 351,695 348,617
Furniture, fixtures and equipment 30,890 30,848
--------- ---------
507,387 503,766
Accumulated depreciation (205,439) (199,369)
--------- ---------
301,948 304,397
Spare parts, net of reserve 8,372 8,154
Construction in progress 3,543 3,558
--------- ---------
$ 313,863 $ 316,109
========= =========

5. SHORT TERM DEBT

As of December 28, 2007, the Company had short-term debt comprised of two
revolving credit facilities at its Italian subsidiary of $1.4 million and $0.6
million that bear interest at 5.3% and 5.7%, respectively, and matured in
February and March 2008, respectively.

On January 29, 2008, the Company's Italian subsidiary entered into an additional
revolving credit facility that provided up to an additional $0.9 million. The
new revolving credit agreement matured on March 31, 2008, was renewed again and
matured in the third quarter. The interest on the credit facility was 5.3%.
These revolving credit facilities are secured by Italian accounts receivables
and other assets, and there is no additional borrowing capacity under these
three revolving credit facilities. The Company's U.S. credit facility (see note
6) limits the outstanding debt owed by its Italian subsidiary to $5.0 million in
the aggregate. The Company is in compliance with this limit as of December 28,
2007, and with the subsequent revolving credit facility.

6. LONG-TERM DEBT

As of December 28, 2007, the Company's term loan balance was $239.9 million and
its revolving credit facility had no outstanding balance (the U.S. credit
facility). The U.S. credit facility, as amended, is comprised of the term loan
and a $30 million revolving credit facility. The Company had outstanding letters
of credit under its revolving credit facility totaling approximately $4.8
million and $2.3 million as of December 28, 2007 and September 28, 2007,
respectively. Accordingly, under the U.S. facility the Company had additional
borrowing capacity of $25.2 million and $27.7 million as of December 28, 2007
and September 28, 2007, respectively. The U.S. credit facility is secured by
substantially all of our assets and provides for interest at either LIBOR rate
plus 600 basis points or at an alternate base rate calculated as prime rate plus
500 basis points. The interest rate in effect at December 28, 2007 was 11.2% on
the U.S. facility. Under the amended U.S. credit facility, we were required to
deliver our fiscal year 2005, 2006 and 2007 audited financial statements to the
lenders by June 30, 2008 at which time the interest rate would decrease to 550
points over LIBOR. During June 2008, the Company delivered the financial
statements to its lenders in accordance with the amended facility and, effective
July 3, 2008, the interest rate was decreased to 550 points over LIBOR.

The U.S. credit facility expires in March 2011 and does not require any
scheduled principal payments. Principal pre-payments are required if certain
events occur in the future, including the sale of certain assets, issuance of
equity and the generation of "excess cash flow" (as defined in the credit
agreement).

Our U.S. credit facility contains restrictive covenants which include, among
other things, financial covenants requiring minimum and cumulative earnings
levels and limitations on the payment of dividends, stock purchases and our
ability to enter into certain contractual arrangements. The Company was in
compliance with these financial covenants as of December 28, 2007 and September
28, 2007.

7. CONTINUED DUMPING AND SUBSIDY OFFSET ACT OF 2000

On October 28, 2000, the U.S. government enacted the "Continued Dumping and
Subsidy Offset Act of 2000" (the "Act"), commonly known as the Byrd Amendment,
which provided that assessed anti-dumping and subsidy duties


liquidated by the  Department of Commerce on Italian and Turkish  imported pasta
after October 1, 2000 would be distributed to affected domestic  producers.  The
legislation  creating the dumping and subsidy offset payment provides for annual
payments  from the U.S.  government.  The  Company  records  the Byrd  Amendment
payment as revenue in the quarter in which the amount,  and the right to receive
the payment, can be reasonably determined.

During the  three-month  periods ended  December 28, 2007 and December 29, 2006,
the Company received and recognized as revenue $4,640,000 and $2,959,000, all of
which was recorded in the first  quarter of fiscal 2008 and 2007,  respectively.
Effective   October  1,  2007,   the  Act  was   repealed,   resulting   in  the
discontinuation  of future  distributions  to affected  domestic  producers  for
duties  assessed  after such date.  It is not  possible to  reasonably  estimate
amounts,  if any,  to be  received  in the  future on duties  assessed  prior to
October 1, 2007.

8.   INCOME TAXES

In June 2006,  the Financial  Accounting  Standard  Board  ("FASB")  issued FASB
Interpretation No. 48 (FIN 48),  Accounting for Uncertainty in Income Taxes - an
interpretation  of FASB Statement No. 109,  Accounting for Income Taxes.  FIN 48
clarifies the  accounting  for  uncertainty  in income taxes in an  enterprise's
financial  statements in  accordance  with SFAS No. 109,  Accounting  for Income
Taxes. This  interpretation  prescribes a recognition  threshold and measurement
attribute for the  financial  statement  recognition  and  measurement  of a tax
position  taken or expected to be taken in a tax  return.  FIN 48 also  provides
guidance on derecognition of tax benefits,  classification on the balance sheet,
interest  and  penalties,   accounting  in  interim  periods,  disclosures,  and
transition.

The Company  adopted FIN 48 effective  September  29,  2007.  As a result of the
adoption,   the  Company  recognized   additional  tax  related  liabilities  of
approximately  $0.7  million  resulting  in a reduction  to  beginning  retained
earnings.  In addition,  the Company reclassified  approximately $1.2 million of
income tax  liabilities  from a current  liability  classification  to a current
receivable  and a  non-current  liability  classification,  as  payment  of  the
liability  is not  anticipated  within one year of the balance  sheet date.  The
Company also recorded approximately $0.2 million of deferred tax assets relating
to the tax  benefits  associated  with  interest  expense and  federal  benefits
associated  with  state  tax  expenses,  which  was  fully  offset  due  to  the
application of a valuation allowance. As of September 29, 2007, the gross amount
of unrecognized tax benefits,  including  penalty and interest was approximately
$2.3  million.  If  recognized,  approximately  $2.1  million  would  affect the
Company's  effective  tax rate.  As of December  28,  2007,  the gross amount of
unrecognized tax benefits, including penalty and interest was approximately $2.3
million.  If recognized,  approximately  $2.1 million would affect the Company's
effective tax rate.

The Company  files  income tax  returns in the U.S.  federal  jurisdiction,  the
United Kingdom,  the  Netherlands,  Italy and various state  jurisdictions.  The
Company has also made an evaluation of the potential  impact of  assessments  by
state jurisdictions in which it has not filed tax returns.  The Internal Revenue
Service has examined and proposed  adjustments to the tax returns for the fiscal
years ended 2002  through  2004.  This  examination  was  concluded in the third
quarter  of  this  fiscal  year  with  no  material   change  from  the  amounts
anticipated.

As of the  September  29, 2007  adoption date of FIN 48, the federal tax returns
for the fiscal  years ended 2004  through  2007 remain  open,  although  the IRS
completed  an  examination  for the  fiscal  year  ended 2004  during  2008.  In
addition,  state and foreign tax returns for the fiscal years ended 2003 through
2007 are open to audit under the statute of  limitations.  As of the end of each
quarter of the current  fiscal year, it is not  anticipated  that any of the net
unrecognized tax benefits will be recognized in the next twelve months.

As permitted by FIN 48, we have classified interest and penalties as a component
of  income  tax  expense.  Estimated  interest  and  penalties  classified  as a
component  of income tax  expense  totaled $5  thousand  for the  quarter  ended
December 28, 2007.  Accrued  interest and  penalties  were $0.6 million and $0.6
million as of December 28, 2007 and September 29, 2007, respectively.

The Company  recorded an income tax benefit of $0.3 million for the three months
ended December 28, 2007. The benefit is attributable primarily to a reduction in
valuation  allowance  during  the  current  year  against  deductible  temporary
differences related to a tax benefit from foreign operations.

                                       8


9.   EQUITY INCENTIVE PLANS

Effective  October 1, 2005,  fiscal year 2006, the Company adopted  Statement of
Financial  Accounting  Standard No. 123 (revised  2004),  "Share Based  Payment"
(SFAS No. 123R) using the modified  prospective method. Under SFAS No. 123R, the
Company is required to recognize,  as expense,  the estimated  fair value of all
share based payments to employees.

Under SFAS No. 123R,  the Company  recognized  compensation  expense  related to
stock  option  awards and stock  appreciation  rights of $333,000  and  $163,000
during the first three month period ending  December 28, 2007 and the comparable
period in fiscal 2006, respectively.

A summary of the Company's stock option activity, and related information, is as
follows:

                                                                                                   Weighted
                                                                                                   Average
                                                                                                  Remaining
                                                                                Weighted         Contractual
                                                             Number of          Average              Term
                                                              Shares         Exercise Price       (in years)

Outstanding at September 28, 2007                              940,164          $ 30.19               4.3
     Cancelled/Expired                                        (70,815)          $ 18.30
                                                              --------
Outstanding at December 28, 2007                               869,349          $ 31.16               4.4
                                                              ========
Vested or expected to vest at December 28, 2007                860,413          $ 31.18               4.4
Exercisable at December 28, 2007                               799,534          $ 31.33               4.2

A summary of the  Company's  stock  appreciation  rights  activity,  and related
information, is as follows:


                                                                                                     Weighted
                                                                                                     Average
                                                                    Weighted         Aggregate      Remaining
                                                 Number of          Average          Intrinsic   Contractual Term
                                                   Shares        Exercise Price     Value           (in years)

Outstanding at September 28, 2007                 1,230,783          $7.00          $1,894,000         5.8
     Granted                                        928,002          $7.45
                                                -----------
Outstanding at December 28, 2007                  2,158,785          $7.20          $1,018,461         5.6
                                                ===========
Vested or expected to vest at December 28, 2007   1,799,776          $7.26          $  775,387         5.7
Exercisable at December 28, 2007                     94,822          $5.71          $  129,256         5.2

As of December  28,  2007,  the Company had  $4,080,000  of future  unrecognized
compensation costs related to stock options and stock appreciation rights. These
costs are  expected  to be  recognized  over a weighted  average  period of 3.10
years.

10.  RESTRICTED STOCK

During the three months ended  December 28,  2007,  the Company  issued  148,083
shares of restricted  stock to employees of the Company with a  weighted-average
grant date values of $7.78 under the Company's  2000 Equity  Incentive  Plan, as
amended (the "2000 Plan").  The Company has recorded  expense on the  restricted
stock as it vests equal to the fair value at the end of each  reporting  period,
in accordance with SFAS No. 123R. The Company maintains certain restricted stock
compensation  plans for  which  employees  are  allowed  to elect to have  taxes
withheld at amounts greater than minimum  required amounts  triggering  variable
accounting  treatment in fiscal 2007 and prior.  The awards  contained  either a
cliff or straight line vesting provision and,  therefore,  expense is recognized
over the  vesting  period.  The  compensation  expense  is  calculated  under an
accelerated   vesting  method  in  accordance  with  FASB   Interpretation   28,
"Accounting  for Stock  Appreciation  Rights and Other  Variable Stock Option or
Award Plans." The  compensation  cost recognized was $49,000 and $186,000 during
the three months ended December 28, 2007 and December 29, 2006, respectively. At
December 28, 2007,  unrecognized  cost related to restricted  stock awards total
approximately $2,097,000. These costs will be recognized over a weighted average
period of 2.8 years.

                                       9


The Company's restricted stock activity is as follows:

                                                                            Weighted Average
                                                                               Grant Date
                                                       Number of Shares        Fair Value
              Outstanding at September 28, 2007            226,326             $   7.77
              Granted                                      148,083                 7.78
              Vested                                         (450)                27.02
              Forfeited                                      (250)                37.05
                                                          --------             --------

              Balance at December 28, 2007                 373,709             $   7.73
                                                          ========             ========


11.  EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income  available to common
shareholders by the weighted average number of common shares outstanding for the
period.  Diluted earnings per share is computed by dividing net income available
to common shareholders,  increased by the weighted average number of outstanding
common  shares  and  incremental  shares  that may be issued  in future  periods
related to outstanding stock options and stock appreciation rights, if dilutive.
When calculating  incremental  shares related to outstanding  share options,  we
apply the  treasury  stock  method.  The  treasury  stock  method  assumes  that
proceeds,   consisting  of  the  amount  the  employee  must  pay  on  exercise,
compensation  cost  attributed to future  services and not yet  recognized,  and
excess tax  benefits  that would be credited to  additional  paid-in  capital on
exercise of the share options, are used to repurchase  outstanding shares at the
average  market price for the period.  The treasury stock method is applied only
to share grants for which the effect is dilutive.

The  computations  of basic and  diluted  earnings  per share are as follows (in
thousands, except share and per share data):

                                                             Three Months Ended
                                         December 28, 2007                       December 29, 2006
                                 -----------------------------------    -------------------------------------
                                              Weighted                               Weighted
                                              Average       Per                       Average
                                   Net        Shares       Share           Net        Shares         Net
                                  Income    Outstanding    Amount        Income     Outstanding     Amount

Basic earnings per share          $ 1,394       18,727     $ 0.07        $ 3,551       18,635       $ 0.19
                                  =======                  ======        =======                    ======

Effect of dilutive securities:

  Stock options and stock
    appreciation rights               211                                    199
                                                   ---                                --------
Diluted earnings per share        $ 1,394       18,938     $ 0.07        $ 3,551        18,834      $ 0.19
                                  =======   ==========     ======        =======      ========      ======

Anti-dilutive securities consisting of options to purchase the Company's Class A
common stock  accounting for 2,342,540  shares for the three-month  period ended
December  28,  2007,  and  1,095,678  shares for the  three-month  period  ended
December  29, 2006,  were  excluded  from the  calculation  of diluted  weighted
average common shares.

12.  LAWSUITS AND CONTINGENCIES

Governmental Investigations and Other Matters:

•    Beginning  in the  late  summer  of 2005,  the  Company  received  document
     requests  and formal  subpoenas  from the  Enforcement  Division of the SEC
     relating  to  its  accounting   practices,   financial   reporting,   proxy
     solicitation  and other  matters in  connection  with a formal,  non-public
     investigation  by the SEC staff of the  Company  and  certain  persons  and
     entities  employed by or  associated  with the Company.  The United  States
     Attorney's  Office for the Western  District  of Missouri  ("DOJ") has also
     been  investigating  these matters and has been  coordinating  with the SEC
     staff. The Company has had, and is continuing to have, discussions with the
     SEC staff,  and separately with the DOJ,  regarding the conclusion of their
     investigation activities and of their respective views of

                                       10


     appropriate basis on which to reach mutually acceptable  settlements.  Such
     settlements could result in a Deferred Prosecution  Agreement,  which could
     include the assignment of a corporate monitor,  continued  cooperation with
     any ongoing  investigations  and/or a monetary  fine.  Due to the status of
     ongoing discussions with the DOJ and SEC staff, the Company cannot estimate
     a range of possible  loss that could result from a monetary  fine,  if any.
     There can be no  assurance  that any  settlement  would not have a material
     adverse effect on our business,  financial condition, results of operations
     or cash flows. The Company is cooperating with these investigations.

•    On October 28, 2005, the Company  received notice from the Employee Benefit
     Security  Administration of the U.S.  Department of Labor ("EBSA") that the
     EBSA was  commencing an  investigation  regarding its 401(k) plan. The EBSA
     visited  the  Company's  offices on January  18,  2006 to review  requested
     information  and  interview its Director of Human  Resources  regarding the
     401(k) plan. The Company is cooperating  with the EBSA and has provided the
     EBSA with all requested information.

•    During the Company's  ongoing  analysis of financial  matters,  it reviewed
     transactions  reported to the U.S.  Department  of Commerce (the "DOC") for
     the period July 1, 2002 through June 30, 2003 in the antidumping proceeding
     on pasta imported from Italy. Based on the data reported by the Company and
     its  Italian  subsidiary,   Pasta  Lensi,   S.r.l.,  the  DOC  revoked  the
     Anti-Dumping  Order ("AD Order")  with  respect to Pasta Lensi.  During its
     investigation,  information  came to the Company's  attention  that certain
     data reported to the DOC was incorrect and as a result, Pasta Lensi may not
     have been eligible for  revocation of the AD Order.  The Company  disclosed
     the issue to the DOC. Simultaneously, the Company provided this information
     to the DOJ, which requested further information on this matter. As a result
     of the Company's disclosure to the DOC, it published notice on February 22,
     2008 in the Federal Register of its preliminary  determination to reinstate
     Pasta Lensi in the existing  antidumping  duty order at a cash deposit rate
     of 45.6%. The preliminary determination applies, on a prospective basis, to
     all imports of subject  products  from and after  February 22, 2008. A cash
     deposit  rate of 45.6%  would  have a  significant  adverse  impact  to our
     working capital position. The Company has appealed this determination.  The
     Company has  substantially  mitigated  the impact of this order by changing
     its  ingredient to organic  semolina in March 2008,  thereby  manufacturing
     products for import into the U.S. that are exempt from the antidumping duty
     order.  Based on the  Company's  review,  the Company does not believe this
     order will have a material effect on its financial condition.

Each of these matters is ongoing and involves  various  risks and  uncertainties
that could have a material adverse effect on our business, results of operations
and financial condition.

Litigation Claims and Disputes:

•    Beginning in August, 2005, seven lawsuits containing similar allegations of
     misrepresentations   and  omissions   concerning  the  Company's  financial
     statements  and asserting  both  derivative and direct claims were filed in
     the United  States  District  Court for the  Western  District  of Missouri
     against  the  Company,  certain of its  current  and former  directors  and
     officers,  and its former  independent  registered  public accounting firm,
     Ernst & Young,  LLP. These lawsuits were consolidated into a single lawsuit
     asserting both  derivative  and direct claims.  On June 16, 2006, the Court
     dismissed the derivative  claims  because the  plaintiffs  failed to make a
     required  demand on the Company's  Board of Directors.  By  stipulation  of
     settlement  filed with the Court on October 29, 2007, the Company agreed to
     settle  all  claims  alleged  in  the  lawsuit,  including  those  alleging
     violations  of  the  Securities   Exchange  Act  of  1934  and  Rule  10b-5
     thereunder.  On February 12, 2008,  the Court granted final approval of the
     settlement.  The settlement of the federal  securities class action lawsuit
     was for $25 million,  comprised  of $11 million in cash,  to be provided by
     the Company's  insurers,  and $14 million in the Company's  common  shares.
     Under  the  terms of the  settlement,  on March  27,  2008,  class  counsel
     received  527,903 common shares in  satisfaction  of the Court approved fee
     award. The class will receive approximately 930,000 common shares,  subject
     to adjustment  upward or downward,  based upon the Company's stock price as
     provided in the  stipulation of settlement.  The settlement was recorded in
     the fourth quarter of fiscal year 2005.

•    In November 2005, a shareholder  derivative action was filed in the Circuit
     Court of Jackson County,  Missouri.  The plaintiff  alleges that certain of
     the Company's  former  officers and directors are liable to the Company for
     breaches  of  fiduciary  duties  and  aiding and  abetting  such  breaches,
     corporate waste, gross mismanagement,  unjust enrichment,  abuse of control
     based upon the Company's  accounting  practices  and  financial  reporting,

                                       11


     insider selling and  misappropriation  of information,  and that its former
     independent registered public accounting firm, Ernst & Young LLP, is liable
     for professional negligence and accounting malpractice, aiding and abetting
     breaches of fiduciary  duties and breach of contract.  The Company is named
     as a nominal defendant in this matter. The plaintiff seeks equitable relief
     and unspecified  compensatory and punitive damages.  On March 13, 2008, the
     Company reached an agreement in principle,  subject to court  approval,  to
     settle this  action.  The  proposed  settlement  requires  the  adoption of
     certain  governance  reforms by the Company and payment of $1.5  million in
     attorney's fees and costs to counsel for the plaintiff,  which payment will
     be made under our insurance  policies.  The  settlement was recorded in the
     first quarter of fiscal year 2006.

•    In September  2006,  another action was filed in the United States District
     Court  for  the  Western  District  of  Missouri.   The  plaintiff  asserts
     derivative  claims  against  certain of the  Company's  former and  current
     officers and directors for breaches of their  fiduciary  duties relating to
     the Company's accounting practices and financial reporting.  Plaintiff also
     asserts claims on behalf of a putative class against the Company's  current
     directors for failing to schedule or hold an annual  meeting for 2006.  The
     Company is named as a nominal  defendant.  The plaintiff seeks  unspecified
     monetary  damages on the Company's  behalf and an order  requiring  that an
     annual  meeting be scheduled  and held.  On February  12,  2007,  the Court
     stayed all further  proceedings in the suit until forty-five days after the
     Company's issuance of restated financial results,  and required the Company
     to provide monthly reports regarding the status of its restatement process.
     On March 13, 2008, the Company  reached an agreement in principle,  subject
     to court approval,  to settle this action on a consolidated  basis with the
     November 2005 shareholders derivative action described above.

•    On March 7,  2007,  a lawsuit  was  filed in the  Delaware  Chancery  Court
     against the Company  alleging that no annual  meeting of  shareholders  had
     been held  since  February  7, 2005,  and  requesting  that the  Company be
     compelled  to convene an annual  meeting.  Proceedings  in that  matter are
     currently  stayed by  agreement  of the  parties.  On March 13,  2008,  the
     Company reached an agreement in principle,  subject to court  approval,  to
     settle this action as part of the  resolution  of the other two  derivative
     actions.

Each of these  actions is  ongoing,  and the  Company  continues  to defend them
vigorously.  Although  the  Company  cannot  predict the outcome of any of these
actions,  an adverse result in one or more of them could have a material adverse
effect on its business, results of operations and financial condition.

From time to time and in the  ordinary  course of its  business,  the Company is
named as a defendant in legal proceedings  related to various issues,  including
worker's  compensation claims, tort claims and contractual  disputes.  While the
resolution of such matters may have an impact on the Company's financial results
for the  period  in which  they are  resolved,  the  Company  believes  that the
ultimate  disposition  of  these  matters  will  not,  individually  or  in  the
aggregate,  have a material  adverse  effect upon its  business or  consolidated
financial statements.

Indemnification and Pending Litigation Obligations:

The Company has  incurred  and will  continue  to incur  significant  expense on
behalf  of the  Company  and on behalf of the  several  individuals  to whom the
Company  has   indemnification   obligations   related  to  certain  claims  and
investigations  involving the Company and these  individuals.  In addition,  the
Company continues to incur significant  expense related to the completion of its
historical audits and SEC reporting  requirements.  The expenses the Company has
incurred  through  December 28, 2007, in connection  with all of these  matters,
including those  associated with its restatement and pending legal matters,  net
of insurance  proceeds,  were approximately $ 36.0 million,  which includes $4.0
million incurred during the three-month period ended December 28, 2007.

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

The  discussion  set forth below,  as well as other  portions of this  quarterly
report  on  Form  10-Q  ("Quarterly  Report"),  contains  statements  concerning
potential  future  events.  Such  forward-looking   statements  are  based  upon
assumptions  by our  management,  as of  the  date  of  this  Quarterly  Report,
including  assumptions about risks and uncertainties  faced by AIPC. Readers can
identify these forward-looking statements by their use of such verbs as expects,
anticipates,  believes or similar verbs or conjugations of such verbs. If any of
our assumptions prove

                                       12


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 for our fiscal year ended  September  28,  2007.  That report has been
filed  with  the   Securities  and  Exchange   Commission   (the  "SEC"  or  the
"Commission")  in  Washington,  D.C. and can be obtained by contacting the SEC's
public reference  operations or through the SEC's web site on the World Wide Web
at http://www.sec.gov. Readers are strongly encouraged to consider those factors
when  evaluating  any such  forward-looking  statements.  We will not update any
forward-looking  statements in this Quarterly Report to reflect future events or
developments.

The following table sets forth certain data from our Consolidated  Statements of
Operations,  expressed  as a  percentage  of  revenues,  for each of the periods
presented.

                                              ---------------------------------------------
                                                           Three Months Ended
                                              ---------------------------------------------
                                                December 28, 2007      December 29, 2006
          Revenues:
             Retail                                    78.1%                 76.4%
             Institutional                             21.9                  23.6
                                                   ---------             ---------

          Total revenues                              100.0                 100.0
          Cost of goods sold                           78.2                  74.2
                                                   ---------             ---------

          Gross profit                                 21.8                  25.8
          Selling and marketing expense                 5.4                   5.2
          General and administrative expense            9.1                   8.8
          Losses related to long-lived assets             -                     -
                                                   ---------             ---------

          Operating profit                              7.3                  11.8
          Interest expense, net                         6.3                   8.2
          Other income, net                               -                 (0.1)
                                                   ---------             ---------
          Income before income taxes                    1.0                   3.7
          Income tax benefit                          (0.2)                 (0.1)
                                                   ---------             ---------

          Net income                                    1.2%                  3.8%
                                                   =========             =========

Overview

We are a Delaware  Corporation and we were incorporated and commenced operations
in 1988.  We believe we are the largest  producer  and  marketer of dry pasta in
North America, by volume,  based on data available from A.C. Nielsen,  published
competitor  financial  information,  industry sources such as the National Pasta
Association,  suppliers, trade magazines and our own market research. We believe
our vertically-integrated  facilities and highly efficient production facilities
focused  primarily on specific market segments and our highly skilled  workforce
make us an  efficient  company  and enable us to produce  high-quality  pasta at
competitive  costs.  We believe that our product  strategy of offering  branded,
private  label,  imported  and  specialty  products,   our  scalable  production
facilities and our key customer relationships create competitive advantages.

We generate revenues in two customer markets:  retail and institutional.  Retail
market revenues  include the sales of our pasta products to customers who resell
the pasta in retail channels (including sales to grocery retailers, club stores,
mass merchant,  drug and discount stores) and encompasses  sales of our branded,
private label and imported products.  These revenues represented 78.1% and 76.4%
of our total  revenue for the three month  periods  ended  December 28, 2007 and
December 29, 2006,  respectively.  The  Institutional  market includes both food
service distributors that supply restaurants,  hotels, schools and hospitals, as
well as food  processors  that use  pasta  as a food  ingredient.  Food  service
customers   include   businesses  and   organizations   that  sell  products  to
restaurants,  healthcare facilities, schools, hotels and industrial caterers and
multi-unit  restaurant  chains that procure directly.  The institutional  market
represented  21.9% and 23.6% of our total  revenue for the three  month  periods
ended December 28, 2007 and December 29, 2006, respectively.

                                       13


Average  sales  prices  for  our   non-branded   products   vary   depending  on
customer-specific packaging and raw material requirements, product manufacturing
complexity  and other  service  requirements.  Average  prices  for our  branded
products  are also  based on  competitive  market  factors.  Average  retail and
institutional  prices  will also vary due to  changes in the  relative  share of
customer  revenues and item specific  sales volumes  (i.e.,  product sales mix).
Generally,  average  retail  sales  prices are higher than  institutional  sales
prices. Selling prices of our branded products are higher than selling prices in
our other business units,  including private label. Revenues are reported net of
cash discounts, product returns, and promotional and slotting allowances.

We have several  arrangements with institutional  customers that provide for the
"pass-through" of direct material cost and certain other cost changes as pricing
adjustments.  The  pass-throughs are generally limited to actual changes in cost
and, as a result,  impact margins in periods of changing  costs and prices.  The
pass-throughs are generally  effective 30 to 90 days following such cost changes
and  thereby  reduce the  long-term  exposure  of our  operating  results to the
volatility of raw material costs. These  pass-through  arrangements also require
us to pass on the benefits of any price decreases in raw material costs.

Our  cost  of  goods  sold  consists  primarily  of  raw  materials,  packaging,
manufacturing  costs  (including   depreciation)  and  distribution   (including
transportation)  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. Since mid-2006, durum prices have
increased  substantially  and we  anticipate  these  costs to remain at or above
these  historically  high levels  throughout  fiscal 2008. We manage some of our
durum wheat cost risk  through  cost  "pass-through"  arrangements  in long-term
contracts  as discussed  above and advance  purchase  contracts  for durum wheat
which are generally a few months.  For our non pass-through  customers,  we seek
price increases to cover our costs.

We  seek  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.  Depreciation  expense is a component of inventory cost and cost of goods
sold.

Critical Accounting Policies

This  discussion and analysis  encompass our results of operations and financial
condition as reflected in our consolidated financial statements, which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States.  The  preparation  of financial  statements in  conformity  with
accounting  principles  generally  accepted in the United  States  requires  our
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the  financial  statements  and  reported  amounts of  revenues  and
expenses  during the reporting  periods.  On an ongoing  basis,  our  management
evaluates its estimates and judgments, including those related to the impairment
of long-lived and intangible  assets,  the method of accounting for  share-based
compensation, and the estimates used to record allowances for doubtful accounts,
reserves  for  slow-moving,  damaged and  discontinued  inventory,  reserves for
obsolete  spare  parts,   promotional   allowances,   income  tax  accruals  and
derivatives.  Our  management  bases its  estimates  and  judgments  on relevant
factors,  the  results of which form the basis for  making  judgments  about the
carrying  values of assets and  liabilities  that are not readily  apparent from
other sources. See the critical accounting policies section in our Annual Report
on Form 10-K for the fiscal year ended September 28, 2007 for a complete listing
of our significant accounting policies. In addition to those critical accounting
policies, we adopted the following new critical accounting policy.

Income Taxes:  Effective September 29, 2007, we adopted the Financial Accounting
Standard Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty
in Income Taxes - an  interpretation  of FASB Statement No. 109,  Accounting for
Income Taxes.  FIN 48 prescribes a comprehensive  model for how companies should
recognize,   measure,  present,  and  disclose  in  their  financial  statements
uncertain tax positions taken or expected to be taken on a tax return. Under FIN
48, tax positions are initially  recognized in the financial  statements when it
is more likely than not the position will be sustained  upon  examination by the
tax authorities.  Such tax positions are initially and subsequently  measured as
the  largest  amount of tax  benefit  that is  greater  than 50% likely of being
realized upon ultimate settlement with the tax authority assuming full knowledge
of the position and all relevant facts.  Application of FIN 48 requires numerous
estimates  based  on  available  information.  We  consider  many  factors  when
evaluating and estimating our tax positions and tax benefits,  which may require
periodic  adjustments and which may not accurately  anticipate  actual

                                       14


outcomes.  The  cumulative  effect  of  applying  the  provisions  of FIN 48 was
reported as an  adjustment  to the opening  balance of  retained  earnings.  The
cumulative effect adjustment does not include items that would not be recognized
in  earnings,   such  as  the  effect  on  tax  positions  related  to  business
combinations.  For additional information related to our adoption of FIN 48, see
note 8 of these consolidated financial statements.

QUARTER ENDED DECEMBER 28, 2007 COMPARED TO QUARTER ENDED DECEMBER 29, 2006

Revenues:  Revenues increased $17.6 million, or 18.7%, to $111.7 million for the
three months ended December 28, 2007,  from $94.1 million for three months ended
December 29, 2006.  Revenues  increased  $0.8  million,  or 0.8%,  due to volume
increase,  and increased $15.1 million,  or 16.1%, due to higher average selling
prices.  Revenues  increased  by $1.7  million  due to an  increase  in payments
received from the U.S. government under the Continued Dumping and Subsidy Offset
Act of 2000.

Revenues for the Retail  market  increased  $15.3  million,  or 21.3%,  to $87.2
million for the three months ended December 28, 2007, from $71.9 million for the
three months ended December 29, 2006.  Revenues increased $2.4 million, or 3.3%,
due to volume  increase,  and  increased  $11.2  million  or 15.6% due to higher
average selling prices. Revenues increased by $1.7 million due to an increase in
payments  received  from the U.S.  government  under the  Continued  Dumping and
Subsidy Offset Act of 2000.

Revenues for the  Institutional  market increased $2.3 million or 10.3% to $24.5
million for the three months ended December 28, 2007, from $22.2 million for the
three months ended December 29, 2006.  Revenues decreased $1.3 million,  or 5.8%
due to volume losses and increased $3.6 million,  or 16.1% due to higher average
selling prices and changes in sales mix.

Cost of goods sold: Cost of goods sold increased $17.6 million or 25.2% to $87.4
million for the three months ended  December 28, 2007 from $69.8 million for the
three months ended December 29, 2006. As a percentage of revenues, cost of goods
sold increased to 78.2% for the three-month period ended December 28, 2007, from
74.2% for the three-month  period ended December 29, 2006. The cost increase was
primarily due to significantly higher durum,  commodity and transportation costs
as compared to the first quarter of fiscal year 2007.

Gross  profit:  Gross profit was $24.3 million for the three month periods ended
December 28, 2007 and December 29, 2006,  while gross profit as a percentage  of
revenues  decreased to 21.8% for the three month period ended  December 28, 2007
from 25.8% for the three month period ended  December 29, 2006.  The decrease in
gross  profit as a percent of revenue is directly  related to an increase in raw
material  and other  production  costs that were not  entirely  offset by higher
prices.  In addition,  we  experienced  a sales mix change  resulting in greater
growth in private label and ingredient versus branded  products.  This mix shift
lowered our gross profit.

Selling and marketing  expense:  Selling and marketing  expense  increased  $1.2
million, or 25.0%, to $6.0 million for the three-month period ended December 28,
2007,  from $4.8 million for  three-month  period ended  December 29, 2006.  The
increase  was due  principally  to the timing of  consumer  spending  and higher
brokerage costs.  Consumer  spending  increased $0.3 million or 68.3% during the
three-month  period  ending  December 28, 2007 from the  comparable  three-month
period ending December 29, 2006, while the total annual anticipated expenditures
is  consistent.  Brokerage  expenses  increased  $0.4  million  or 35%  for  the
three-month  period ended December 28, 2007 from the comparable period of fiscal
2007.  This change is due to an increase in broker  commissions  resulting  from
higher selling prices.

General and administrative expense: General and administrative expense increased
$1.9  million,  or 22.9%,  to $10.2  million  for the three month  period  ended
December  28,  2007,  from $8.3  million  for the  comparable  period last year.
General and  administrative  expenses as a percentage  of revenues  increased to
9.1% for the  three-month  period ended  December  28,  2007,  from 8.8% for the
three-month  period  ended  December 29,  2006.  This  increase is due to higher
workers compensation claims of $0.4 million and higher professional fees of $1.5
million.  During the  three-month  periods ending December 28, 2007 and December
29, 2006,  the Company was continuing to undergo the  investigation  process and
restatement of its historical financial statements. As a result of this process,
the  Company  incurred  certain  professional  fees  including  legal,  forensic
accounting, independent registered public accounting firm fees, public relations
and Alvarez & Marsal fees.  During the  three-month  period  ended  December 28,
2007, $4.0 million of  professional  fees related to the restatement and pending
legal  matters  were  recorded  compared to $3.1

                                       15


million  during the  comparable  quarter of fiscal  2006.  The  remainder of the
increase  in  professional  fees  is for  general  operations  unrelated  to the
restatement and pending legal matters.

Operating profit: Operating profit for the three-month period ended December 28,
2007,  was $8.2 million,  a decrease of $3.0 million as compared to an operating
profit of $11.1  million for the  three-month  period  ended  December 29, 2006.
Operating  profit  decreased as a percentage of revenues to 7.3% for three-month
period  ended  December 28, 2007,  from 11.8% for the  three-month  period ended
December 29, 2006, as a result of the factors discussed above.

Interest  expense,  net:  Interest  expense  for the  three-month  period  ended
December 28, 2007, was $7.1 million,  decreasing  8.6% from the $7.8 million for
the three-month  period ended December 29, 2006. The decrease is attributable to
lower average  borrowings  outstanding  and lower  interest  rates.  The average
interest rate in effect during the  three-month  period ended  December 28, 2007
and the  three-month  period  ended  December  29,  2006 was  11.2%  and  11.4%,
respectively.

Income tax benefit: Income tax benefit for the three-month period ended December
28, 2007 and December 29, 2006 was $0.3 million and $0.1 million,  respectively,
and reflects effective income tax rates of (28.6%) and (3.9%), respectively. The
effective  rate  is  substantially  below  statutory  rates  primarily  due to a
reduction in  valuation  allowance  during the current  year against  deductible
temporary differences related to a tax benefit from foreign operations.

Net income:  Net income for the three-month  period ended December 28, 2007, was
$1.4 million,  a decrease of $2.2 million from $3.6 million for the  three-month
period ended December 29, 2006, as a result of the factors  discussed above. Net
income as a percentage  of net  revenues was 1.2% versus 3.8% in the  comparable
three-month prior.

Diluted  income  per common  share was $0.07 for the  three-month  period  ended
December 28, 2007,  compared to $0.19 for the three-month  period ended December
29, 2006.

Liquidity and Capital Resources

Our primary  sources of liquidity are cash provided by operations and borrowings
under our credit facility.  Cash and cash  equivalents  totaled $8.5 million and
net working capital totaled $61.6 million at December 28, 2007.

As of September 28, 2007, we had $9.2 million invested in the Columbia Strategic
Cash  Portfolio Fund (Columbia  Fund),  administered  by a subsidiary of Bank of
America,  which is an enhanced money fund that allowed  immediate  withdrawal of
funds.  On December  10, 2007,  when the  investment  balance was $7.4  million,
Columbia  determined  that the underlying  securities  had liquidity  issues and
notified us that the fund would begin an orderly  liquidation and dissolution of
assets to its  investors.  The balance in the Columbia Fund at December 28, 2007
was $6.6  million.  The  underlying  assets  are  valued at fair value and as of
December  28,  2007 we  recorded  valuation  losses on this  investment  of $0.1
million.  During the first quarter of 2008, we received $0.2 million of interest
from the Columbia Fund.  Through June 27, 2008, we have recovered  approximately
$3.8 million of the pre-liquidation investment balance. The remaining investment
of $3.4  million is to be recovered as the  liquidation  progresses.  We believe
that the entire balance will be recovered.  During the  nine-month  period ended
June 27,  2008,  we have  received  $0.3  million of  interest  income  from the
Columbia Fund. The underlying assets are valued at fair value and as of June 27,
2008 we have recorded valuation losses on this investment of $0.2 million.

As of December 28, 2007, we had a $239.9 million term loan facility that matures
in March 2011.  In addition,  we had a $30 million  revolving  credit  facility.
There was no  principal  balance  outstanding  on the  revolving  facility as of
December  28,  2007.  However,  we had  outstanding  letters of credit  totaling
approximately   $4.8  million.   Both  of  these   facilities   are  secured  by
substantially all of our assets.

Our credit facility contains  restrictive  covenants which include,  among other
things, financial covenants requiring minimum and cumulative earnings levels and
limitations  on the payment of  dividends,  stock  purchases  and our ability to
enter into certain  contractual  arrangements.  We do not currently expect these
limitations to have a material  effect on business or results of operations.  We
were in compliance with the restrictive covenants at December 28, 2007.

                                       16


At this time, the current and projected  borrowings under our credit facility do
not exceed the facility's available commitment. Absent any significant increases
in our historical  levels of professional fees and  indemnification  obligations
expenditures,  we believe  that net cash  expected to be  provided by  operating
activities and the cash available  through our existing  credit facility will be
sufficient to meet our expected  capital and liquidity needs for the foreseeable
future.

Our net cash provided by operating activities totaled $1.1 million for the three
months  ended  December  28, 2007  compared to $9.4 million for the three months
ended  December  29,  2006,  a decrease of $8.3  million.  This  decrease is due
principally  to an increase in our  investment in inventory of $12.1 million due
to increased  production  and higher raw  material  costs.  In addition,  we had
increased advance payments on durum shipments of $2.7 million as of December 28,
2007 as compared to the comparable period in the prior fiscal year. The increase
in these  inventories is offset by higher accounts  payable and accrued expenses
of $6.8 million.

Cash  used  in  investing  activities  principally  relates  to  investments  in
production,  distribution,  milling and  management  information  system assets.
Capital  expenditures  were $2.4  million and $1.5  million for the three months
ended  December 28, 2007 and December 29, 2006,  respectively.  In addition,  we
received $0.7 million from the redemptions of short term investments  during the
three-month period ended December 28, 2007.

Net cash used in financing  activities  was $0.1 million during the three months
ended  December 28, 2007 and $8.1 million during the three months ended December
29, 2006.  The $0.1 million of cash used during the three months ended  December
28, 2007  represents a mandatory  principal  payment under the provisions of our
credit  facility.  The $8.1  million of cash used during the three  months ended
December 29, 2006 is primarily a result of an $8.0 million  voluntary  principal
payment on our long-term debt from excess cash reserves.

We currently use cash  generated from  operations to fund capital  expenditures,
repayment of debt and working capital requirements.

Impact of Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS
No. 157 defines fair value,  establishes a framework for measuring fair value in
generally accepted accounting principles ("GAAP"), and expands disclosures about
fair  value  measurements.  SFAS No.  157 does not  require  any new fair  value
measurements  in financial  statements,  but  standardizes  its  definitions and
guidance in GAAP. Thus, for some entities, the application of this statement may
change current  practice.  SFAS No. 157 will be effective  beginning  January 1,
2008.  Management  believes the adoption of this  pronouncement  will not have a
material impact on its consolidated financial statements.

In February  2007,  the FASB issued  SFAS No.  159,  "The Fair Value  Option for
Financial  Assets and Financial  Liabilities".  SFAS No. 159 permits entities to
choose to measure many financial  instruments,  and certain other items, at fair
value.  SFAS No. 159 applies to reporting  periods  beginning after November 15,
2007.  Management  believes the adoption of this  pronouncement  will not have a
material impact on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, "Business  Combinations".  This
statement   establishes  a  framework  to  disclose  and  account  for  business
combinations.  The  adoption  of the  requirements  of  SFAS  No.  141R  applies
prospectively  to business  combinations for which the acquisition date is on or
after  fiscal  years  beginning  after  December  15,  2008 and may not be early
adopted.  Management believes the adoption of this pronouncement will not have a
material impact on its consolidated financial statements.

In March  2008,  the FASB issued SFAS No.  161,  "Disclosures  about  Derivative
Instruments and Hedging Activities - An Amendment of SFAS No. 133". SFAS No. 161
requires  enhanced   disclosures  about  an  entity's   derivative  and  hedging
activities,  including how an entity uses derivative instruments, how derivative
instruments  and  related  hedged  items are  accounted  for under SFAS No. 133,
"Accounting  for  Derivative  Instruments  and  Hedging  Activities",   and  how
derivative  instruments  and related  hedged items affect an entity's  financial
position,  financial performance, and cash flows. The provisions of SFAS No. 161
are effective for financial  statements  issued for fiscal years beginning after
November 15, 2008,  and interim  periods  within those fiscal  years.  We do not
expect  the  adoption  of  SFAS  No.  161  to  have  a  material  impact  on its
consolidated financial statements.

                                       17


In December 2007, the SEC issued the Staff Accounting  Bulletin ("SAB") No. 110,
which amends SAB No. 107 by extending  the usage of a  "simplified"  method,  as
discussed in SAB No. 107, in  developing  an estimate of expected term of "plain
vanilla"  share  options  in  accordance  with  SFAS  No.  123  (revised  2004),
Share-Based  Payment.  This simplified  method continues to be permitted,  under
certain  circumstances,  for  companies  that do not  have  access  to  adequate
historical data about employee  exercise  behavior to estimate  expense on stock
options. Management believes that it has sufficient historical exercise data and
has  historically  recorded  expenses based on expectations of future  behavior.
Accordingly,  Management  does not  believe  SAB 110 will  have an impact on its
financial statements.

In May 2008,  the Financial  Accounting  Standards  Board  ("FASB")  issued FASB
Statement No. 162, "The Hierarchy of Generally Accepted Accounting  Principles."
This statement identifies the sources of accounting principles and the framework
for selecting the principles used in the preparation of financial  statements of
nongovernmental  entities  that  are  presented  in  conformity  with  generally
accepted  accounting  principles  ("GAAP") in the United States.  This statement
will be effective 60 days  following  the SEC's  approval of the Public  Company
Accounting  Oversight Board ("PCAOB") amendments to AU Section 411, "The Meaning
of Present Fairly in Conformity with Generally Accepted Accounting  Principles."
We do not expect the adoption of this statement to have a material impact on its
financial statements.

In  April  2008,  the  FASB  issued  FASB  Staff  Position  ("FSP")  FAS  142-3,
"Determination  of the Useful Life of  Intangible  Assets."  This FSP amends the
factors that should be considered in developing renewal or extension assumptions
used to determine  the useful life of a recognized  intangible  asset under FASB
Statement No. 142,  "Goodwill and Other  Intangible  Assets." The intent of this
FSP is to  improve  the  consistency  between  the useful  life of a  recognized
intangible  asset under Statement 142 and the period of expected cash flows used
to measure the fair value of the asset under FASB  Statement No. 141R, and other
U.S. generally  accepted  accounting  principles.  This FSP is effective for our
interim and annual financial statements beginning in fiscal 2010. The Company is
in the process of  evaluating  the impact,  if any, that the adoption of FSP No.
FAS 142-3 will have on its financial statements

Effect of Inflation

We continued to  experience  inflationary  cost  increases in certain  operating
costs, including raw materials,  utilities, freight, insurance and benefit costs
during the three month period ended December 28, 2007.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For  quantitative  and qualitative  disclosures  about market risk, see Item 7A,
"Quantitative  and  Qualitative  Disclosures  About Market  Risk," of our Annual
Report on Form 10-K for the year ended  September  28,  2007.  Our  exposures to
market risk have not changed materially since September 28, 2007.

ITEM 4. CONTROLS AND PROCEDURES

    (a)  Disclosure Controls and Procedures

         We maintain disclosure controls and procedures (as such term is defined
         in Rules  13a-15(e)  and  15d-15(e)  under the  Exchange  Act) that are
         designed to provide reasonable  assurance that information  required to
         be disclosed in the reports we file or submit under the Exchange Act is
         recorded,  processed,  summarized and reported  within the time periods
         specified in the SEC's rules and forms,  and that such  information  is
         accumulated and  communicated  to our  management,  including our Chief
         Executive Officer and our Chief Financial Officer,  as appropriate,  to
         allow timely decisions regarding required disclosure.  In designing and
         evaluating  the   disclosure   controls  and   procedures,   management
         recognized  that  any  controls  and  procedures,  no  matter  how well
         designed  and  operated,  can  provide  only  reasonable  assurance  of
         achieving the desired control  objectives,  and management  necessarily
         was  required to apply its  judgment  in  evaluating  the  cost-benefit
         relationship of possible controls and procedures.

         Our management,  with the  participation of our Chief Executive Officer
         and Chief Financial  Officer,  has evaluated the  effectiveness  of our
         disclosure  controls and  procedures as of December 28, 2007.  Based on

                                       18


         that evaluation and due to the existence of material  weaknesses in our
         internal control over financial reporting,  our Chief Executive Officer
         and Chief Financial Officer have concluded that our disclosure controls
         and procedures were not effective as of December 28, 2007.

         Management  believes all of the material  weaknesses,  except  internal
         audit, described under the caption "Item 9A -- Controls and Procedures"
         in the  Company's  Annual Report on Form 10-K for the fiscal year ended
         September  28,  2007  existed  as of  December  28,  2007,  and  we are
         continuing to address  deficiencies in the Company's internal controls.
         Certain of these  remediation  actions are described  under the caption
         "Item 9A -- Controls and Procedures" in the Company's  Annual Report on
         Form 10-K for the fiscal  year ended  September  28,  2007.  Efforts to
         remediate and test our internal  control over  financial  reporting are
         continuing  and are  expected  to continue  throughout  fiscal 2008 and
         beyond.

    (b)  Changes in Internal Control Over Financial Reporting

         There were no changes in our internal control over financial  reporting
         during the quarterly  period ended December 28, 2007,  that  materially
         affected,  or is reasonably expected to materially affect, our internal
         control over financial reporting, except as described below:

         During the first  quarter of fiscal 2008,  the Company hired a Director
         of Internal  Audit who reports  directly  to the Audit  Committee.  The
         Director  attends the Audit  Committee  meetings and is a member of the
         corporate hotline monitoring oversight.

         We have  engaged  in,  and are  continuing  to engage  in,  substantial
         efforts to improve our internal  control over  financial  reporting and
         disclosure  controls  and  procedures  related  to  many  areas  of our
         financial  statements and disclosures.  We continue to establish policy
         statements and process overviews in appropriate areas of accounting and
         financial  reporting  controls,   as  well  as  continuing  to  develop
         implementation procedures under each policy statement.


PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Pending Litigation; Indemnification Obligations

Since August, 2005, a number of substantially similar class action lawsuits have
been filed and  consolidated  into a single action in the United States District
Court for the Western  District of Missouri styled In re American  Italian Pasta
Company  Securities  Litigation  (Case No.  05-CV-0725-W-ODS).  The consolidated
amended  complaint names us as a defendant and certain of our former and current
officers and directors,  and our former independent registered public accounting
firm,  Ernst & Young LLP. It generally  alleges that the defendants  made public
statements concerning our financial results that were false and misleading.  The
plaintiffs seek unspecified  monetary damages for alleged  violations of Section
10(b) of the Securities Exchange Act of 1934, Rule 10b-5 promulgated thereunder,
and alleged violations of Section 20(a) of the Securities  Exchange Act of 1934.
The  consolidated   amended  complaint  also  asserted   purported   shareholder
derivative  claims  against  various  of our  current  and former  officers  and
directors for breaches of their fiduciary duties and unjust enrichment,  against
certain of our former  officers  for  violation of the  Sarbanes-Oxley  Act, and
against Ernst & Young LLP for professional  negligence,  accounting malpractice,
and aiding and abetting breaches of fiduciary duty. These allegations  generally
related to our accounting practices and financial reporting,  as well as claimed
improper insider trading and the claimed improper award of bonuses to certain of
our officers and  directors.  The court  subsequently  dismissed the  derivative
claims.  The  case  has  been  certified  as a class  action  on  behalf  of all
purchasers of our common stock on or after January 23, 2002, and who held shares
on August 9, 2005.

By a stipulation of settlement with us and our named former and current officers
and directors  ("settling  defendants"),  executed on October 26, 2007 and filed
with the Court on October 29,  2007,  lead counsel for  plaintiffs  and settling
defendants  agreed to settle the consolidated  action. On February 12, 2008, the
Court gave final  approval

                                       19


to the settlement. The settlement of the federal securities class action lawsuit
was for $25  million,  comprised  of $11 million in cash,  to be provided by our
insurers,  and  $14  million  in our  common  shares.  Under  the  terms  of the
settlement,  on March 27, 2008,  class counsel received 527,903 common shares in
satisfaction   of  the  Court  approved  fee  award.   The  class  will  receive
approximately  930,000 common shares,  subject to adjustment upward or downward,
based  upon  the  Company's  stock  price  as  provided  in the  stipulation  of
settlement.  The  settlement  was recorded in the fourth  quarter of fiscal year
2005.

In November 2005, a shareholder derivative action styled Haag v. Webster, et al.
(Case  No.  05-CV-33137)  was  filed in the  Circuit  Court of  Jackson  County,
Missouri.  The petition names as defendants  certain of our former  officers and
directors and our former independent  registered public accounting firm, Ernst &
Young LLP. We are named as a nominal  defendant.  The petition  alleges that the
defendants  are liable to us for  breaches  of  fiduciary  duties and aiding and
abetting such breaches, corporate waste, gross mismanagement, unjust enrichment,
and  abuse  of  control  based  upon  our  accounting  practices  and  financial
reporting; that certain former and current officers and directors are liable for
breaches  of  fiduciary  duties for  insider  selling  and  misappropriation  of
information;  and that Ernst & Young is liable for  professional  negligence and
accounting  malpractice,  aiding and abetting  breaches of fiduciary  duty,  and
breach  of  contract.  The  petition  seeks  equitable  relief  and  unspecified
compensatory and punitive damages. The proposed settlement requires the adoption
of certain  governance  reforms by the Company  and  payment of $1.5  million in
attorney's  fees and costs to counsel for the  plaintiff,  which payment will be
made under our  insurance  policies.  The  settlement  was recorded in the first
quarter of fiscal year 2006.

On  September  6, 2006,  an action  styled  Chaiet v.  Allen,  et al.  (Case No.
06-744-CV-W-DW)  was filed in the United States  District  Court for the Western
District of Missouri. The complaint asserts claims against certain of our former
and current  officers  and  directors  for  breaches of their  fiduciary  duties
relating to our  accounting  practices and financial  reporting.  Plaintiff also
asserts claims on behalf of a putative  class against our current  directors for
failing  to  schedule  or hold an annual  meeting  for  2006.  We are named as a
nominal  defendant.  The complaint  seeks  unspecified  monetary  damages on our
behalf and an order  requiring that an annual meeting be scheduled and held. The
defendants have moved to dismiss this lawsuit as well. On February 12, 2007, the
court stayed all future proceedings in the matter until forty-five days after we
issue restated  financial  results,  and required us to provide  monthly reports
regarding the status of its restatement  process.  On March 13, 2008, we reached
an agreement, in principle,  subject to court approval, to settle this action on
a consolidated basis with the Haag action.

On March 7, 2007, a suit styled Zaleon v.  American  Italian Pasta Company (C.A.
No. 2775-N) was filed in the Delaware Chancery Court against us alleging that no
annual  meeting of  shareholders  had been held  since  February  7,  2005,  and
requesting  that we be compelled to convene an annual  meeting.  Proceedings  in
that matter are currently stayed by agreement of the parties. The agreement,  in
principle, to settle the other two derivative actions will resolve this action.

SEC and DOJ Investigations

Since July 2005, we have been in communication with the staff of the Enforcement
Division  of the  SEC  about  the  matters  under  investigation  by  our  Audit
Committee. In late July 2005, the SEC staff issued a voluntary request to us for
a wide range of  documents  relating  to,  among other  things,  our  accounting
practices,  financial reporting and other public disclosures, 2004 restructuring
program,  internal control weaknesses  identified in our prior SEC filings,  and
compensation  and  benefits  information  for  certain  persons  employed  by or
associated  with us during  the time  period  under  investigation  by the Audit
Committee.

On January 31,  2006,  as part of a formal,  non-public  investigation,  the SEC
staff  issued a subpoena to us,  expressly  incorporating  its earlier  document
requests and requesting additional documents and information  concerning,  among
other things, actual or potential errors in our financial statements,  budgeting
process,  communications  with investors,  and  compensation  for and securities
transactions  by certain  persons  employed by or associated  with us during the
time period under investigation by the Audit Committee. Since that time, the SEC
staff has issued  additional  subpoenas  to us,  seeking  additional  documents,
testimony,  and  information  relating to the same or similar  subject  matters.
Representatives  of the DOJ have  been  coordinating  with the SEC staff in this
investigation.

We are cooperating with these  investigations  and have provided  information to
the SEC staff and the DOJ in response to the  subpoenas  and  requests.  We have
had, and are continuing to have,  discussions with the SEC staff,

                                       20

and separately with the DOJ, regarding the conclusion of their investigation
activities and of their respective views of appropriate bases on which to reach
mutually acceptable settlements. Such settlements could result in a Deferred
Prosecution Agreement, which could include the assignment of a corporate
monitor, continued cooperation with any ongoing investigations and/or a monetary
fine. Due to the status of ongoing discussions with the DOJ and SEC staff, the
Company cannot estimate a range of possible loss that could result from a
monetary fine, if any. There can be no assurance that any settlement would not
have a material adverse effect on our business, financial condition, results of
operations or cash flows. We have been cooperating with these investigations.

Department of Commerce Matter

In 1996, an investigation by the International Trade Administration of the DOC
revealed that Italian and Turkish producers were engaging in unfair trade
practices by selling pasta at less than fair value in the U.S. markets and
benefiting from subsidies from their respective governments. The International
Trade Commission ("ITC") subsequently determined that the unfair trade practices
caused or would cause material injury to U.S. manufacturers. As a result, the
ITC imposed anti-dumping duties (the "AD Order") and countervailing duties (the
"CV Order") on certain imported pasta from Italy and Turkey (collectively, the
"AD/CV Orders"). In 2001, the AD/CV Orders were extended five years through
2006. In September 2007, the ITC extended the AD/CV Orders for another five
years through 2011. Under the AD/CV Orders, U.S. importers of certain pasta from
Italian and Turkish producers are assessed anti-dumping and countervailing
duties at rates determined by the DOC for the relevant foreign producer. Each
foreign producer may undergo an annual administrative review which may result in
an increase or decrease of the producer's rate.

During its ongoing analysis of financial matters, we reviewed transactions
reported to the DOC for the period July 1, 2002 through June 30, 2003 in the
antidumping proceeding on pasta imported from Italy. Based on the data reported
by us and our Italian subsidiary, Pasta Lensi, S.r.l., the DOC revoked the AD
Order with respect to Pasta Lensi. During our investigation, information came to
our attention that certain data reported to the DOC was incorrect and as a
result, Pasta Lensi may not have been eligible for revocation of the AD Order.
We disclosed the issue to the DOC and simultaneously, we provided this
information to the DOJ, which requested further information on this matter. As a
result of our disclosure to the DOC, it published notice on February 22, 2008 in
the Federal Register of its preliminary determination to reinstate Pasta Lensi
in the existing antidumping duty order at a cash deposit rate of 45.6%. The
preliminary determination applies, on a prospective basis, to all imports of
subject products from and after February 22, 2008. A cash deposit rate of 45.6%
would have a significant adverse impact to our working capital position. We have
appealed this determination. We have substantially mitigated the impact of this
order by changing our ingredient to organic semolina in March 2008, thereby
manufacturing products for import into the U.S. that are exempt from the
antidumping duty order. Based on our review, we do not believe this order will
have a material adverse effect on our financial condition.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in Part I,
Item 1A, of the company's Annual Report on Form 10-K for the fiscal year ended
September 28, 2007.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides the information with respect to purchases made by
the Company of shares of its common stock during the first fiscal quarter of
2008:

Total Number of
Total Number of Shares Purchased
Shares Average Price as Part of Publicly
Period Purchased(1) Paid per Share Announced Plan

September 29 - October 26 97 $ 9.00 -
October 27 - November 23 - - -
November 24 - December 28 - - -
----------- ------------ ------------
Total 97 $ 9.00 -
=========== ============ ============


(1)  Shares  received  as payment  for taxes  related  to vesting of  restricted
     stock.

On October 4, 2002 the Company's Board of Directors authorized up to $20 million
to implement a common stock  repurchase  plan. There were no purchases under the
plan during the first  fiscal  quarter of 2008.  There is  $7,881,000  available
under the Common Stock repurchase plan.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

        Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not applicable.

ITEM 5. OTHER INFORMATION

        Not applicable.

ITEM 6.                            EXHIBITS
-------  -----------------------------------------------------------------------

3.1      Amended and Restated Bylaws dated October 7, 2007, as amended.

4.8.3    Second  Amendment to Amended and Restated Credit Agreement, dated as of
         December  27,  2007 (incorporated  by reference to  Exhibit  4.1 to the
         Company's 8-K filed December 31, 2007).

10.5.11  Employment  agreement  dated  November 6, 2007 between  the Company and
         John P.  Kelly   (incorporated  by  reference  to  Exhibit  10/1 to the
         Company's Form 8-K filed November 8, 2007).

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

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

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

                                       22


                                   SIGNATURES


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

                                       American Italian Pasta Company



Date:  August 6, 2008                  /s/ John P. Kelly
                                       -----------------------------------------
                                       John P. Kelly
                                       President and Chief Executive Officer





Date:  August 6, 2008                  /s/ Paul R. Geist
                                       -----------------------------------------
                                       Paul R. Geist
                                       Executive Vice President and Chief
                                       Financial Officer



                         AMERICAN ITALIAN PASTA COMPANY
                                  EXHIBIT INDEX



Exhibit
Number                       Description of Exhibit
-------  -----------------------------------------------------------------------

3.1      Amended and Restated Bylaws dated October 7, 2007, as amended.

4.8.3    Second  Amendment to Amended and Restated Credit Agreement, dated as of
         December  27,  2007 (incorporated  by reference to  Exhibit  4.1 to the
         Company's 8-K filed December 31, 2007).

10.5.11  Employment  agreement  dated  November 6, 2007 between  the Company and
         John P.  Kelly   (incorporated  by  reference  to  Exhibit  10/1 to the
         Company's Form 8-K filed November 8, 2007).

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

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

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