<PAGE>
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 April 30, 1996
OR
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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COMMISSION FILE NUMBER 33-99834
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DAKOTA GROWERS PASTA COMPANY
(Exact name of registrant as specified in its charter)
NORTH DAKOTA
(State or other jurisdiction of
incorporation or organization)
ONE PASTA AVENUE
CARRINGTON, NORTH DAKOTA
(Address of principal executive offices)
45-0423511
(IRS Employer Identification Number)
58421
(Zip Code)
(701) 652-2855
(Registrant's telephone number, including area code)
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No
The number of shares outstanding of the issuer's classes of common
stock was 1,076 shares of membership stock, par value $125.00, and 4,904,034
shares of equity stock, par value $3.85, outstanding as of June 7, 1996.
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FINANCIAL STATEMENTS
DAKOTA GROWERS PASTA COMPANY
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30,
1996 July 31,
(Unaudited) 1995
----------- -----------
<C> <C>
<S> (000's omitted)
ASSETS
Current assets:
Cash and cash equivalents ...................... $ $ 155
Trade accounts receivable, less allowance for
cash discounts and doubtful accounts of
$91,000 and $46,000 .......................... 5,819 3,470
Inventories .................................... 7,008 6,687
Prepaid expenses and sundry receivables ........ 576 641
----------- -----------
Total current assets ........................ 13,403 10,953
Property and equipment, less accumulated
depreciation and amortization of $5,354,000 and
$3,548,000 ..................................... 34,169 35,147
Other assets ...................................... 1,998 1,742
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Total assets ................................ $49,570 $47,842
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LIABILITIES AND MEMBERS' INVESTMENT
Current liabilities:
Notes payable and current portion of long-term
debt ......................................... $ 71 $ 3,305
Accounts payable ............................... 3,241 2,753
Accrued liabilities ............................ 1,443 2,495
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Total current liabilities ................... 4,755 8,553
Long-term debt, net of current portion ............ 19,873 24,822
----------- -----------
Total liabilities ........................... 24,628 33,375
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Redeemable preferred stock:
Series A, 6%, $100 par value, issued 5,500
shares in 1996 and 7,000 shares in 1995 ...... 550 700
Series B, 2% non-cumulative, $100 par value,
issued 2,700 shares .......................... 270 270
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Total redeemable preferred stock ............ 820 970
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Members' investment:
Membership stock, $125 par value, issued 1,076
shares in 1996 and 979 shares in 1995 ........ 134 122
Equity stock, $3.85 par value, issued 4,904,034
shares in 1996 and 3,116,026 shares in 1995 .. 18,881 11,997
Additional paid in capital ..................... 3,611 782
Accumulated unallocated earnings ............... 1,496 596
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Total members' investment ................... 24,122 13,497
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Total liabilities and members' investment ... $49,570 $47,842
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</TABLE>
1
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DAKOTA GROWERS PASTA COMPANY
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
April 30,
(Unaudited)
-----------------------
(000's omitted)
1996 1995
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<C> <C>
<S>
Net revenues ...................................... $13,026 $ 9,538
Cost of product sold .............................. 11,138 8,552
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Gross proceeds .............................. 1,888 986
Marketing and general and administrative expenses . 480 284
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Operating proceeds .......................... 1,408 702
Other income (expense):
Interest income ................................ 20 10
Other income ................................... 31
Interest expense, net .......................... ( 490) ( 547)
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Income before income taxes ........................ 969 165
Income taxes expense .............................. 4 ( 12)
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Net income ........................................ 965 177
Dividends on preferred stock ...................... 8 7
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Earnings from patronage and non-patronage business
available for members ........................... $ 957 $ 170
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Earnings per average equity share outstanding ..... $ .26 $ .06
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</TABLE>
2
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DAKOTA GROWERS PASTA COMPANY
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
(Unaudited)
-----------------------
(000's omitted)
1996 1995
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<C> <C>
<S>
Net revenues ...................................... $35,861 $30,144
Cost of product sold .............................. 31,180 26,599
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Gross proceeds .............................. 4,681 3,545
Marketing and general and administrative expenses . 1,208 1,066
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Operating proceeds .......................... 3,473 2,479
Other income (expense):
Interest income ................................ 26 31
Other income ................................... 31
Interest expense, net .......................... (1,661) (1,534)
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Income before income taxes ........................ 1,869 976
Income taxes expense .............................. 4 ( 16)
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Net income ........................................ 1,865 992
Dividends on preferred stock ...................... 30 29
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Earnings from patronage and non-patronage business
available for members ........................... $ 1,835 $ 963
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Earnings per average equity share outstanding ..... $ .55 $ .31
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</TABLE>
3
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DAKOTA GROWERS PASTA COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
(Unaudited)
-----------------------
(000's omitted)
1996 1995
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<C> <C>
<S>
Cash flows from operating activities:
Net income ..................................... $ 1,865 $ 992
Add (deduct) non-cash items:
Depreciation and amortization ................ 1,817 1,772
Non-cash portion of patronage dividend ....... ( 286) ( 261)
Changes in assets and liabilities:
Trade receivables ............................ (2,349) 132
Inventories .................................. ( 321) (2,198)
Prepaid expenses and other assets ............ 84 124
Accounts payable ............................. 488 ( 9)
Other accrued liabilities .................... (1,052) ( 885)
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Net cash from (used in) operating activities 246 ( 333)
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Cash flows from investing activities:
Purchases of property and equipment ............ ( 828) (1,281)
Investment in St. Paul Bank for Cooperatives ... ( 171)
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Net cash used in operating activities ....... 246 ( 333)
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Cash flows from financing activities:
Issuance of short-term debt .................... 2,000
Issuance of long-term debt ..................... 577
Payments on long-term debt ..................... (8,183) ( 760)
Preferred stock retired ........................ ( 150)
Dividends on preferred stock ................... ( 30) ( 29)
Patronage distributions ........................ ( 935)
Membership stock issued ........................ 2
Membership stock retired ....................... ( 3)
Proceeds of stock offering, net of expenses .... 9,722
Subscriptions forfeited ........................ 1
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Net cash from financing activities .......... 246 ( 333)
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Net increase (decrease) in cash and cash
equivalents ..................................... ( 155)
Cash and cash equivalents, beginning of period .... 155
----------- -----------
Cash and cash equivalents, end of period .......... $ $
=========== ===========
</TABLE>
4
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DAKOTA GROWERS PASTA COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. Dakota Growers Pasta Company ("the Company" or "the Cooperative")
is organized as a farmers' cooperative for purposes of manufacturing food for
human consumption from durum and other grain products. Net proceeds are
allocated to patrons who are members on the basis of their participation in
the cooperative.
The ownership of membership stock, which signifies membership in the
Cooperative, is restricted to producers of agricultural products. The
ownership of equity stock is restricted to members of the Cooperative.
Preferred stock may be held by persons who are not members of the Cooperative.
NOTE 2. The financial information included herein as at April 30, 1996,
and for the three and nine months ended April 30, 1996 and 1995, is unaudited
and, in the opinion of the Company, reflects all adjustments (which include
only normal recurring accruals) necessary for a fair presentation of the
financial position as of those dates and the results of operations for those
periods. The information in the condensed Balance Sheet at July 31, 1995, was
derived from the Company's audited annual report for 1995. Reclassifications
may have been made consistent with current presentation. Such
reclassifications have no effect of the net result of operations.
NOTE 3. Inventories of $7,008,000 at April 30, 1996, include raw materials
of $2,817,000 and finished goods of $4,191,000. At July 31, 1995, inventories
of $6,687,000 included raw materials of $2,537,000 and finished goods of
$4,150,000.
NOTE 4. The Company's business is conducted on a cooperative basis.
Business conducted with its members constitutes patronage business as defined
by the Internal Revenue Code. For the nine months ended April 30, 1996 and
1995, net income allocable to patronage business totalled $1,947,000 and
$962,000, respectively. For the three months ended April 30, 1996, net income
allocable to patronage business was $1,039,000 compared to $176,000 for the
period ended in 1995.
NOTE 5. The Company allocates its patronage earnings and patronage
distributions based on patronage business (bushels of durum delivered, which
approximates one bushel of durum per equity share). For presentation
purposes, it has calculated net income per share by dividing earnings from
patronage and non-patronage business available for members (net income less
preferred dividends) by the weighted average number of equity shares
outstanding during the period. The weighted average number of equity shares
was 3,314,694 for the nine months ended April 30, 1996, 3,712,029 for the
three months ended April 30, 1996, and 3,116,026 for the 1995 periods
presented.
A patronage allocation of $935,000, $.308 per bushel, representing the
allocation of 1995 fiscal earnings authorized by the Board of Directors in
October 1995, was distributed November 3, 1995.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company is a North Dakota agricultural cooperative and has 1,076
members at April 30, 1996. Membership in the Company is limited to
agricultural producers whose operations are located within the states of North
Dakota, Minnesota or Montana. The Company mills durum wheat into semolina,
which is sold or used for the manufacture of the Company's pasta products.
The pasta products are then marketed and sold by the Company. The Company
also sells by-products of the milling process.
The cost of durum, ingredients, packaging and freight constitute a major
portion of the cost of product sold. These costs will increase or decrease
with changes in sales volumes. The cost of production is also significantly
impacted by changes in durum wheat prices.
QUARTER ENDED APRIL 30, 1996 COMPARED TO QUARTER ENDED APRIL 30, 1995
Revenues increased by $3,488,000, or 37%. The increase was primarily
volume driven, as overall pasta volumes sold increased 41% and flour and by-
products volumes increased 31%. Retail sales volumes were up 58% over the
same quarter last year, primarily due to the roll out of six significant new
private label programs. Pricing in the retail segment remains competitive;
the average prices were off 15% from last year's period. Volume increases
were also experienced in the food service and ingredient segments, with a 21%
improvement in food service sales and a 47% increase in ingredients. The
increase in the food service segment was predominantly driven by greater sales
to existing customers. While most of the larger ingredient customers had
sales increases for the quarter, over half of the increase in this segment was
the result of the addition of a new customer. As with the retail segment, a
7% decline in the average price in the ingredient segment reflects the
competitive environment in this segment. A run up in the by-product markets,
especially for mill feed, also had a positive impact on the quarter.
Cost of product sold was up $2,586,000 due to a 29% increase in durum
bushels ground and increased pasta production. These two items totalled over
$2.0 million of the increase. The average cost of durum was up $.50 per
bushel, accounting for most of the remaining change.
Marketing and general and administrative expenses increased $196,000,
primarily due to settling an insurance claim for less than previously
anticipated.
Interest expense decreased $57,000 due to a $4.9 million decline in average
borrowings, the result of the temporary pay down of debt utilizing the
proceeds of the stock offering.
As a result of the above, net income increased 545% from $177,000 to
$965,000.
NINE MONTHS ENDED APRIL 30, 1996 COMPARED TO NINE MONTHS ENDED APRIL 30, 1995
Revenues increased 19%, or $5,717,000, primarily as a result of higher
sales volumes. Retail sales increased 28% over the same period last year,
while food service and ingredient sales were up 16% and 14%, respectively.
Sales of flour and by-products were up 29%. In the retail segment, the
increased sales were the result of the roll out of six new significant private
label accounts (three in the latter part of last fiscal year and three in
6
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fiscal year 1996), increased government bid sales and increased co-pack
opportunities, partially offset by reduced sales to two major private label
accounts. The food service increase was the result of the roll out of three
new significant accounts in the latter part of fiscal year 1995 plus five
additional account this year, together with increased sales to existing
customers and increased government food service sales. Most of the ingredient
increase resulted from a new customer added in April 1995, while several other
large ingredient customers showed sales increases over the nine months ended
last year. Overall, pasta sales volumes are up 20%; however, the impact of
increased sales was partially offset by average prices which were lower than
last year.
Primarily as the result of a 22% increase in durum bushels ground and a
$.48 per bushel increase in average durum expense, cost of product sold was up
$4,581,000. Increased packaging, ingredient and freight costs attributable to
the increased sales also contributed to the increase.
Due to settling an insurance claim for less than previously anticipated and
increased personnel costs, partially offset by reduced bad debt expense,
marketing and general and administrative expenses increased by $142,000.
Interest expense for the year has increased by $127,000 as the result of
higher average interest rates, predominantly during the first quarter.
As a result of the above, net income increased $873,000, or 88%, over last
year.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended April 30, 1996, the Company received
$9,725,000 net proceeds from its stock offering, and has used the proceeds for
mill expansion expenditures and temporary debt reduction. This has decreased
liabilities at April 30, 1995 from $33.4 million to $24.6 million, and has
increased equity as a percentage of total capitalization from 37% to 56%. The
Company anticipates re-issuing a portion of the debt in late 1996 upon the
completion of planned capital expansion projects.
For the nine months ended April 30, 1996, operations provided positive cash
flow as earnings before depreciation more than offset the increase in trade
receivables associated with greater sales.
Purchases of property and equipment has totalled $828,000 for the period,
$341,000 of which is for the mill expansion project scheduled for completion
in late 1996. Additional projects are underway to enhance pasta production
capabilities and improve packaging efficiencies. At this time, the Company
anticipates spending an additional $5.6 million on these projects through the
end of the calendar year, less than $750,000 of which will be spent in the
fiscal year ended July 31, 1996.
In April 1996, the Company renewed its loan agreement with the St. Paul
Bank for Cooperatives. In addition to establishing the seasonal line of
credit at $5,000,000, provisions were modified allowing for interest rate
breaks and more flexibility as long as certain equity, working capital and
cash flow ratios continue to be maintained. As of April 30, 1996, there were
no borrowings outstanding against the seasonal line.
7
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<PAGE> 9
Part II
Item 5. Other Information
The Board of Directors elected on April 18, 1996, to terminate the stock
offering. A total of 81 membership shares and 1,788,008 equity shares were
sold. The Company will file an amendment to de-register the remaining 419
membership shares and 281,992 equity shares.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT
NO. DESCRIPTION
------- -----------
27 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and not filed.
(b) Reports on Form 8-K
None
8
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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.
Dakota Growers Pasta Company
<TABLE>
<S> <C>
Date: June 7, 1996 /s/ Timothy J. Dodd
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Timothy J. Dodd (President and
General Manager, and Principal
Executive Officer)
Date: June 7, 1996 /s/ Thomas P. Friezen
------------ ----------------------------------
Thomas P. Friezen (Vice President,
Finance and Principal Financial
and Accounting Officer)
</TABLE>
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEET AND STATEMENTS OF INCOME FILED AS PART OF THE ANNUAL
REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL
REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JUL-31-1996 JUL-31-1996
<PERIOD-START> FEB-01-1996 AUG-01-1995
<PERIOD-END> APR-30-1996 APR-30-1996
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 5,910 5,910
<ALLOWANCES> 91 91
<INVENTORY> 7,008 7,008
<CURRENT-ASSETS> 13,403 13,403
<PP&E> 39,523 39,523
<DEPRECIATION> 5,354 5,354
<TOTAL-ASSETS> 49,570 49,570
<CURRENT-LIABILITIES> 4,755 4,755
<BONDS> 19,873 19,873
550 550
270 270
<COMMON> 19,015 19,015
<OTHER-SE> 5,107 5,107
<TOTAL-LIABILITY-AND-EQUITY> 49,570 49,570
<SALES> 13,026 35,861
<TOTAL-REVENUES> 13,026 35,861
<CGS> 11,138 31,180
<TOTAL-COSTS> 11,138 31,180
<OTHER-EXPENSES> 480 1,208
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 490 1,661
<INCOME-PRETAX> 969 1,869
<INCOME-TAX> 4 4
<INCOME-CONTINUING> 965 1,865
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 965 1,865
<EPS-PRIMARY> .26 .55
<EPS-DILUTED> .26 .55
</TABLE>
