UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended: April 3, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-13403
AMERICAN ITALIAN PASTA COMPANY
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(Exact name of Registrant as specified in its charter)
DELAWARE 84-1032638
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1000 Italian Way, Excelsior Springs, Missouri 64024
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (816) 502-
6000
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the Registrant has (1) filed
all documents and reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding as of May 15, 1998 of the
Registrant's Class A Convertible Common Stock was 18,017,043 and
there were no shares outstanding of the Class B Common Stock.
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
Part I - Financial Information Page
Item 1. Financial Statements (unaudited)
Balance Sheets at March 31, 1998 and 3
September 30, 1997.
Statements of Income for the three months
ended March 31, 1998 and 1997. 4
Statements of Income for the six months ended
March 31, 1998 and 1997 5
Statements of Cash Flows for the six months
ended March 31, 1998 and 1997. 6
Notes to Financial Statements 7-9
Item 2. Management s Discussion and Analysis of
Financial Condition and Results of
Operations 10-16
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 16
Part II - Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
Signature Page 19
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
BALANCE SHEETS
March 31, September 30,
1998 1997
---- ----
(In thousands)
(Unaudited)
ASSETS
Current assets:
Cash and temporary investments $ 2,167 $ 2,724
Trade and other receivables 12,980 9,180
Prepaid expenses and deposits 2,195 1,028
Inventory 21,722 13,675
Deferred income taxes -- 635
-------- --------
Total current assets 39,064 27,242
Property, plant and equipment 181,499 130,845
Accumulated depreciation (32,988) (29,332)
148,511 101,513
Construction in progress 26,307 23,721
Total property, plant and equipment 174,818 125,234
Deferred income taxes -- 1,124
Other assets 735 4,575
Total assets $214,617 $158,175
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,407 $ 8,644
Income tax payable 1,910 134
Accrued expenses 7,218 5,447
Current maturities of long-term debt 1,134 829
Total current liabilities 19,669 15,054
Long-term debt 60,062 100,137
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares 10,000,000 -- --
Class A common stock, $.001 par value:
Authorized shares 75,000,000 16 11
Class B common stock, $.001 par value:
Authorized shares 25,000,000 -- --
Additional paid-in capital 142,046 55,324
Notes receivable from officers (236) (298)
Accumulated deficit (6,940) (12,053)
Total stockholders' equity 134,886 42,984
Total liabilities and stockholders' equity $214,617 $158,175
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See accompanying notes to financial statements.
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
Statements of Income
Three Months Ended
March 31,
1998 1997
---- ----
(In thousands)
(Unaudited)
Revenues $46,034 $32,117
Cost of goods sold 34,506 23,729
Plant expansion costs 421 --
--- --
Gross profit 11,107 8,388
Selling and marketing expense, including product
introduction costs in 1997 3,118 2,996
General and administrative expense 1,185 1,016
Operating profit 6,804 4,376
Interest expense, net 225 2,740
Income before income tax expense 6,579 1,636
Income tax expense 2,500 615
Net income $4,079 $1,021
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Earnings Per Common Share:
Net income per common share $.24 $.10
---- ----
Weighted-average common shares
outstanding 16,777 710,230
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Earnings Per Common Share - Assuming Dilution:
Net income per common share assuming
dilution $.23 $.10
---- ----
Weighted-average common shares
outstanding 17,572 10,335
------ ------
See accompanying notes to financial statements.
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
Statements of Income
Six Months Ended
March 31,
1998 1997
---- ----
(In thousands)
(Unaudited)
Revenues $81,570 $61,664
Cost of goods sold 60,266 44,878
Plant expansion costs 687 --
Gross profit 20,617 16,786
Selling and marketing expense, including product
introduction costs in 1997 5,749 7,449
General and administrative expense 2,373 1,709
Operating profit 12,495 7,628
Interest expense, net 489 5,292
Income before income tax expense and
extraordinary item 12,006 2,336
Income tax expense 4,562 883
Income before extraordinary item 7,444 1,453
Extraordinary item:
Loss due to early extinguishment of long-term
debt, net of income taxes 2,332 --
Net income $5,112 $1,453
------ ------
Earnings Per Common Share:
Income per common share before
extraordinary item $.45 $.14
Extraordinary item:
Loss per common share due to early
extinguishment of long-term debt, net of
income taxes .14 --
Net income per common share $.31 $.14
---- ----
Weighted-average common shares
outstanding 16,602 10,230
------ -------
Earnings Per Common Share - Assuming Dilution:
Income per common share before extraordinary
item $.43 $.14
Extraordinary item:
Loss per common share due to early
extinguishment of long-term debt, net of
income taxes .13 --
Net income per common share assuming dilution $.30 $.14
---- ----
Weighted-average common shares outstanding 17,331 10,335
------ ------
See accompanying notes to financial statements.
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
Statements of Cash Flows
Six Months Ended
March 31,
1998 1997
---- ----
(In thousands)
(Unaudited)
Operating activities:
Net income $5,112 $1,453
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 4,009 3,614
Deferred income tax expense 2,553 511
Extraordinary loss due to early
extinguishment of long-term debt, net 2,332 --
Changes in operating assets and liabilities:
Trade and other receivables (3,800) 1,881
Prepaid expenses and deposits (524) (676)
Inventory (8,047) 1,038
Accounts payable and accrued expenses 3,634 (694)
Income tax payable 1,776 372
Other 52 (349)
-- -----
Net cash provided by operating activities 7,097 7,150
Investing activities:
Additions to property, plant and
equipment (54,340 (2,762)
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Net cash used in investing activities (54,340)(2,762)
Financing activities:
Additions to deferred debt issuance costs (325) --
Proceeds from issuance of debt 46,842 320
Net borrowings under revolving line of credit
facility -- (1,500)
Principal payments on debt and capital lease
obligations (86,612)(2,379)
Proceeds from issuance of common stock, net of
issuance costs 86,781 --
------ ---
Net cash provided by (used in)financing
activities 46,686 (3,559)
------ ------
Net increase (decrease) in cash and temporary
investments (557) 829
Cash and temporary investments at beginning of
period 2,724 1,818
----- -----
Cash and temporary investments at end of period $2,167 $2,647
====== ======
See accompanying notes to financial statements.
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
Notes to Financial Statements
March 31, 1998
1. Basis of Presentation
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three and six-month periods ended March
31, 1998 are not necessarily indicative of the results that may
be expected for the year ended September 30, 1998. These
financial statements should be read in conjunction with the
financial statements and footnotes thereto and management s
discussion and analysis thereof included in the Company s Annual
Report on Form 10-K for the year ended October 3, 1997 and
management s discussion and analysis included in Item 2 hereof.
American Italian Pasta Company (the Company or AIPC ) uses a
52/53 week financial reporting cycle with a fiscal year which
ends on the last Friday of September or the first Friday of
October. The Company s first three fiscal quarters end on the
Friday last preceding December 31, March 31, and June 30 or the
first Friday of the following month. For purposes of this Form
10-Q, the second fiscal quarter of fiscal years 1998 and 1997
both included thirteen weeks of activity and are described as the
three month periods ended March 31, 1998 and 1997.
2. Completion of Initial Public Offering
In October 1997, the Company completed an initial public offering
(the "Offering") of 7,900,000 shares of Class A Common Stock, par
value of $.001 per share, of which 5,310,000 shares were offered
by the Company and 2,590,000 shares were sold by certain selling
stockholders. The offering of 5,310,000 primary shares at $18
per share generated $95.6 million of gross proceeds. Net proceeds
of the offering were $86.7 million, after deducting the expenses
of the offering. The Company used the proceeds of the offering
to reduce outstanding debt.
3. 1997 Equity Incentive Plan
In October 1997, the Board of Directors adopted the 1997 Equity
Incentive Plan for all employees. Under the Plan, the Board or a
committee designated by the Board is authorized to grant
nonqualified stock options, incentive stock options, reload
options, stock appreciation rights, shares of restricted Common
Stock, performance shares, performance units and shares of Common
Stock. There are 2,000,000 shares of Common Stock reserved for
issuance under the Plan. On October 9, 1997, the Board of
Directors granted options to purchase 993,391 shares of common
stock at $18 per share. The stock options expire 10 years from
the date of grant and become exercisable over the next five years
in varying amounts depending on the terms of the individual
option agreements.
4. Revolving Credit Facility
In October 1997, the Company completed a restructuring of its
primary bank credit facility. The restructured facility initially
provides the Company with $150 million in credit on an unsecured,
revolving basis at interest rates which are indexed to LIBOR. As
a result of the restructuring, the Company incurred a first
quarter extraordinary charge of approximately $2.3 million, net
of tax, related to the write off of deferred debt issuance costs.
5. AIPC and Harvest States/Amber Milling Working Toward
Alliance
On May 7, 1998, the Company entered into a long-term supply
agreement with Amber Milling Company, a division of Harvest
States Cooperatives ( Harvest States ), one of the largest
agribusiness cooperatives in the United States. Under the
agreement, the Company will construct a pasta production facility
adjacent to Harvest States wheat mill in Kenosha, Wisconsin and
Harvest States will supply semolina and other raw materials to
the planned new plants. The Company estimates that it will
invest approximately $30 million in capital expenditures to
construct the new plant which will have an estimated production
capacity of approximately 150,000,000 pounds of pasta. The
commencement of this agreement is subject to a number of
conditions, including acquisition of certain properties
contiguous to the Harvest States property and completion of a
satisfactory engineering and environmental review of the site for
the new plant. The supply agreement with Harvest States is also
contingent upon final approval by the board of directors of the
Company.
6. New Accounting Pronouncement
The Company adopted Statement of Financial Accounting Standards
( SFAS ) No. 128, Earnings Per Share in its quarter ended on
December 31, 1997. SFAS No. 128 replaced the former reporting of
primary and fully diluted earnings per share with its required
reporting of basic and diluted earnings per share. Under the new
requirements, the dilutive effect of stock options is excluded
from basic earnings per share but included in the computation of
diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where necessary, restated to
conform to the SFAS No. 128 requirements.
<PAGE>
The following tables set forth the computation of the numerator
and denominator used in the calculation of basic and diluted
earnings per share:
Three Months Ended
March 31,
1998 1997
---- ----
(In thousands)
(Unaudited)
Numerator for basic and diluted earnings per
share $4,079 $1,021
====== ======
Denominator:
Denominator for basic earnings per share -
weighted average shares 16,777 10,230
Effect of dilutive securities:
Employee stock options 795 250
--- ---
Dilative potential common shares 795 250
--- ---
Denominator for diluted earnings per share -
adjusted weighted average shares 17,572 10,335
====== ======
Six Months Ended
March 31,
1998 1997
---- ----
(In thousands)
(Unaudited)
Numerator:
Income before extraordinary item $7,444 $1,453
Extraordinary item:
Loss due to early extinguishment of long-
term debt, net of income taxes 2,332 --
----- ---
Numerator for basic and diluted earnings per
share $5,112 $1,453
====== ======
Denominator:
Denominator for basic earnings per share -
weighted average shares 16,602 10,230
Effect of dilative securities:
Employee stock options 729 250
--- ---
Dilative potential common shares 729 250
--- ---
Denominator for diluted earnings per share -
adjusted weighted average shares 17,331 10,335
====== ======
Subsequent Event
In May 1998, the Company completed a secondary public offering of
6,210,000 shares of Class A Common Stock, par value of $.001 per
share, of which 1,000,000 shares were offered by the Company and
5,210,000 shares were sold by certain selling shareholders. The
offering of 1,000,000 primary shares at $30 per share generated
$30 million of gross proceeds. Net proceeds of the offering were
$27.9 million after deducting the expenses of the offering. The
Company used the net proceeds of the offering to reduce
outstanding debt. In connection with the offering, certain
executive officers exercised options to purchase 239,620 shares
from the Company.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The discussion set forth below, as well as other portions of this
Quarterly Report, contains statements concerning potential future
events. Such forward-looking statements are based upon
assumptions by the Company s management, as of the date of this
Quarterly Report, including assumptions about risks and
uncertainties faced by the Company. Readers can identify these
forward-looking statements by their use of such verbs as expects,
anticipates, believes or similar verbs or conjugations of such
verbs. If any management assumptions prove incorrect or should
unanticipated circumstances arise, the Company s 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 the Company s Current Report on
Form 8-K dated October 29, 1997, which is hereby incorporated by
reference. This report has been filed with the Securities and
Exchange Commission (the SEC or the Commission ) in
Washington, D.C. and can be obtained by contacting the SEC s
public reference operations or obtaining it through the SEC s web
site on the World Wide Web at http://www.sec.gov. Readers are
strongly encouraged to consider those factors when evaluating any
such forward-looking statement. The Company will not update any
forward-looking statements in this Quarterly Report to reflect
future events or developments.
Results of Operations
Second quarter fiscal 1998 compared to second quarterfiscal 1997.
Revenues. Total revenues increased $13.9 million, or 43.3%,
to $46.0 million for the three-month period ended March 31, 1998,
from $32.1 million for the three-month period ended March 31,
1997. The increase for the three-month period ended March 31,
1998 was primarily due to increases in unit volume, favorable
changes in sales mix and increases in average sales prices
related to the pass through of higher durum wheat costs.
Approximately $8.6 million in revenues for the three-month period
ended March 31, 1998 related to shipments of Mueller s brand
pasta for Bestfoods (formerly CPC International, Inc.).
Management expects increases in revenues as a result of the
phase-in of the Company s long-term supply agreement with
Bestfoods.
Revenues for the Retail market increased $14.4 million, or
81.4%, to $32.1 million for the three-month period ended March
31, 1998, from $17.7 million for the three-month period ended
March 31, 1997. The increase primarily reflects gains in private
label and Bestfoods volumes which are offset by lower sales
volumes of Pasta LaBella flavored pasta as the prior period
included introductory pipeline shipments.
Revenues for the Institutional market decreased $0.5
million, or 3.5%, to $13.9 million for the three-month period
ended March 31, 1998, from $14.4 million for the three-month
period ended March 31, 1997. This decrease was primarily a result
of decreases in opportunistic contract volumes versus the prior
period due to high capacity utilization in the current quarter as
a result of the Retail market gains and Mueller s volumes. Non-
contract Institutional market unit volumes and revenues increased
slightly between periods.
Gross Profit. Gross profit increased $2.7 million, or
32.1%, to $11.1 million for the three-month period ended March
31, 1998, from $8.4 million for the three-month period ended
March 31, 1997. This increase is generally related to the revenue
growth. Gross profit as a percentage of revenues decreased to
24.1% for the three-month period ended March 31, 1998 from 26.1%
for the three-month period ended March 31, 1997. The decrease in
gross profit as a percentage of revenues relates to generally
lower gross margin Bestfoods volumes, lower sales volumes of
higher margin flavored pasta products and plant expansion costs.
Management expects continued increases in gross profit as a
result of continued revenue increases. However, management
expects gross profit as a percentage of revenues to continue to
decrease based on the anticipated higher Bestfoods volumes and
further plant expansion costs.
Selling and Marketing Expense. Selling and marketing
expense increased $0.1 million, or 3.3%, to $3.1 million for the
three-month period ended March 31, 1998, from $3.0 million for
the three-month period ended March 31, 1997. Selling and
marketing expense as a percentage of revenues decreased to 6.7%
for the three-month period ended March 31, 1998, from 9.3% for
the comparable prior year period. The increase in selling and
marketing expense relates to the growth in retail market
revenues. However, this increase is offset by the reduction in
Pasta LaBella flavored pasta product introduction costs. The
Company did not incur product introduction costs for the three-
month period ended March 31, 1998, compared to $0.6 million of
such costs for the three-month period ended March 31, 1997. The
decrease in product introduction costs was due to the completion
of the flavored pasta product introduction in 1997.
General and Administrative Expense. General and
administrative expense increased $0.2 million, or 20.0%, to $1.2
million for the three-month period ended March 31, 1998, from
$1.0 million for the comparable prior period. General and
administrative expense as a percentage of revenues decreased to
2.6% from 3.1%. The majority of the increase in general and
administrative expense relates to higher administrative costs
relating to legal and accounting fees, shareholder communications
expenses and other incremental costs related to being a public
company.
Operating Profit. Operating profit for the three-month
period ended March 31, 1998, was $6.8 million, an increase of
$2.4 million or 54.5% over the $4.4 million reported for the
three-month period ended March 31, 1997, and increased as a
percentage of revenues to 14.8% for the three-month period ended
March 31, 1998, from 13.6% for the three-month period ended March
31, 1997 as a result of the factors discussed above.
Interest Expense. Interest expense for the three-month
period ended March 31, 1998, was $0.2 million, decreasing $2.5
million or 92.6% from the $2.7 million reported for the three-
month period ended March 31, 1997. The decrease was primarily the
result of reduced borrowings under the Company s credit facility
as a result of the reduction of the Company s outstanding debt
with the $87 million in net proceeds realized from the Company s
October 1997 initial public offering of common stock and lower
interest rates as a result of the Company s October 1997 credit
facility restructuring.
Income Tax. Income tax expense for the three-month period
ended March 31, 1998, was $2.5 million, increasing $1.9 million
from the $0.6 million reported for the three-month period ended
March 31, 1997, and reflects an effective income tax rate of
approximately 38% in both periods.
Net Income. Net income for the three-month period ended
March 31, 1998, was $4.1 million, increasing $3.1 million or 310%
from the $1.0 million reported for the three-month period ended
March 31, 1997. Diluted earnings per share was $0.23 per share
for the three-month period ended March 31, 1998 compared to $0.10
per share in the comparable prior period.
Six months fiscal 1998 compared to six months fiscal 1997.
Revenues. Revenues increased $19.9 million, or 32.3%, to
$81.6 million for six-month period ended March 31, 1998, from
$61.7 million for the six-month period ended March 31, 1997. The
increase for the six-month period ended March 31, 1998 was
primarily due to increases in unit volume, favorable changes in
sales mix and increases in average sales prices related to the
pass through of higher durum wheat costs. Approximately $11.4
million in revenues related to initial shipments of Mueller s
brand pasta for Bestfoods (formerly CPC International, Inc.).
Management expects increases in revenues as a result of the
Company s long-term supply agreement with Bestfoods.
Revenues for the Retail market increased $20.3 million, or
59.2%, to $54.6 million for the six-month period ended March 31,
1998, from $34.3 million for the six-month period ended March 31,
1997. The increase primarily reflects gains in private label and
Bestfoods volumes which are offset by lower sales volumes of
Pasta LaBella flavored pasta as the prior period included
introductory pipeline shipments.
Revenues for the Institutional market decreased $0.4
million, or 1.5%, to $27.0 million for the six-month period ended
March 31, 1998, from $27.4 million for the six-month period ended
March 31, 1997. This decrease was primarily a result of decreases
in opportunistic contract volumes versus the prior period due to
high capacity utilization in the current period as a result of
the Retail market gains and Mueller s volumes. Non-contract
Institutional market unit volumes and revenues generally remained
consistent between periods.
Gross Profit. Gross profit increased $3.8 million, or
22.6%, to $20.6 million for the six-month period ended March 31,
1998, from $16.8 million for the six-month period ended March 31,
1997. This increase is generally related to the revenue growth
and is offset by $0.7 million in plant expansion costs. Gross
profit as a percentage of revenues decreased to 25.3% for the
six-month period ended March 31, 1998 from 27.2% for the six-
month period ended March 31, 1997. The decrease in gross profit
as a percentage of revenues relates to generally lower gross
margin Bestfoods volumes, lower sales volumes of higher margin
flavored pasta products and plant expansion costs. Management
expects continued increases in gross profit as a result of
continued revenue increases. However, management expects gross
profit as a percentage of revenues to continue to decrease based
on the anticipated higher Bestfoods volumes and related revenue
share and further plant expansion costs.
Selling and Marketing Expense. Selling and marketing
expense decreased $1.7 million, or 23.0%, to $5.7 million for the
six-month period ended March 31, 1998, from $7.4 million for the
six-month period ended March 31, 1997. Selling and marketing
expense as a percentage of revenues decreased to 7.0% for the
six-month period ended March 31, 1998, from 12.0% for the
comparable prior year period. The decrease was primarily due to
the absence of product introduction costs incurred in the
Company s fiscal 1997 retail introduction of Pasta LaBella
flavored pasta. The Company did not incur product introduction
costs for the six-month period ended March 31, 1998, compared to
$2.0 million of such costs for the six-month period ended March
31, 1997. The decrease in product introduction costs was due to
the completion of the flavored pasta launch in 1997.
General and Administrative Expense. General and
administrative expense increased $0.7 million, or 41.2%, to $2.4
million for the six-month period ended March 31, 1998, from $1.7
million for the comparable prior period, an increase as a
percentage of revenues from 2.8% to 2.9%. The majority of the
increase in general and administrative expense relates to the
one-time realization of a $0.3 million property tax abatement in
South Carolina during the six-month period ended March 31, 1997.
The benefit was realized in fiscal year 1997 as a result of the
Company s reaching certain capital expansion levels in Columbia,
S.C. which qualified the Company for incremental property tax
abatements. There was no such incremental benefit in 1998. The
additional increase in administrative costs relates to increases
in legal and accounting fees, shareholder communication expenses
and other incremental costs related to being a public company.
Operating Profit. Operating profit for the six-month period
ended March 31, 1998, was $12.5 million, an increase of $4.9
million or 64.5% over the $7.6 million reported for the six-month
period ended March 31, 1997, and increased as a percentage of
revenues to 15.3% for the six-month period ended March 31, 1998,
from 12.4% for the six-month period ended March 31, 1997 as a
result of the factors discussed above.
Interest Expense. Interest expense for the six-month period
ended March 31, 1998, was $0.5 million, decreasing $4.8 million
or 90.6% from the $5.3 million reported for the six-month period
ended March 31, 1997. The decrease was primarily the result of
reduced borrowings under the Company s credit facility as a
result of the $87 million in net proceeds realized from the
Company s October 1997 initial public offering of common stock
and lower interest rates as a result of the Company s October
1997 credit facility restructuring.
Income Tax. Income tax expense for the six-month period
ended March 31, 1998, was $4.6 million, increasing $3.7 million
from the $0.9 million reported for the six-month period ended
March 31, 1997, and reflects an effective income tax rate of
approximately 38%.
Extraordinary Item. During the six-month period ended March
31, 1998, the Company incurred a $2.3 million (net of tax)
extraordinary loss due to the write-off of deferred debt issuance
costs in conjunction with the extinguishment and restructuring of
the Company s principal bank credit agreement. There was no such
item for the six-month period ended March 31, 1997.
Net Income. Net income for the six-month period ended March
31, 1998, was $5.1 million, increasing $3.6 million or 240% from
the $1.5 million reported for the six-month period ended March
31, 1997. Diluted earnings per common share before the
extraordinary item was $0.43 per share for the six-month period
ended March 31, 1998 compared to $0.14 per share for the six-
month period ended March 31, 1997. Diluted earnings per share
after the extraordinary item was $0.30 per share for the six-
month period ended March 31, 1998 compared to $0.14 per share in
the comparable prior year period.
Financial Condition and Liquidity
The Company s primary sources of liquidity are cash provided
by operations and borrowings under its credit facility. The
Company received approximately $86.7 million in net proceeds from
the October 1997 initial public offering, which was used to
reduce indebtedness. Cash and, temporary investments totaled
$2.2 million, and working capital totaled $19.4 million at March
31, 1998.
The Company s net cash provided by operating activities
totaled $7.1 million for the six-month period ended March 31,
1998 compared to $7.2 million for the six-month period ended
March 31, 1997. The decrease in the net cash provided by
operations due to the improvement in operations in 1998 was
offset by increases in net working capital investments.
Cash used in investing activities principally relates to the
Company s investments in manufacturing, distribution and milling
assets. Capital expenditures were $54.3 million for the six-
month period ended March 31, 1998 compared to $2.8 million in the
comparable prior fiscal year period. The increase in spending
for the six-month period ended March 31, 1998 was a result of the
Company s expenditures toward its estimated $86.0 million South
Carolina and Missouri capital expansion programs, which the
Company expects to complete during fiscal year 1998. Total
spending to date related to the aforementioned capital expansion
programs is $71.0 million.
Net cash provided by financing activities was $46.7 million
for the six-month period ended March 31, 1998 compared to net
cash used of $3.6 million for the six-month period ended March
31, 1997. The $46.7 million is primarily a result of (1) $86.7
million in net proceeds from the October 1997 initial public
offering and (2) $46.8 million proceeds from issuance of debt
(net of $0.3 million deferred debt issuance costs) offset by
(3)$86.6 million debt repayment.
The Company currently uses cash to fund capital
expenditures, repayments of debt and working capital
requirements. The Company expects that future cash requirements
will continue to be principally for capital expenditures,
repayments of indebtedness and working capital requirements.
The Company has current commitments for $35.0 million in raw
material purchases for fiscal year 1998 and has approximately
$15.0 million in expenditures remaining under the previously
referenced $86.0 million capital expansion programs. The Company
anticipates the capital expansion programs will be fully funded
by the end of fiscal year 1998. Subject to final approval by the
Company s Board of Directors, the signed agreement with Harvest
States could result in capital expenditures of approximately $30
million. The Company expects to fund these commitments from
operations and borrowings under the credit facility. The credit
facility currently has a credit commitment of $150 million and
has scheduled commitment reductions which begin at the end of
fiscal year 1999. At this time, the current and projected
borrowings under the credit facility do not exceed the facility s
available commitment. The facility matures at the end of fiscal
year 2002. The Company anticipates that any borrowing
outstanding at that time will be satisfied with funds from
operations or will be refinanced. The Company currently has no
other material commitments.
In May 1998, the Company completed a secondary public offering
of 6,210,000 shares of Class A Common Stock, par value of $.001
per share, of which 1,000,000 shares were offered by the Company
and 5,210,000 shares were sold by certain selling shareholders.
The offering of 1,000,000 primary shares at $30 per share
generated $30 million of gross proceeds. Net proceeds of the
offering were $27.9 million after deducting the expenses of the
offering. The Company used the net proceeds of the offering to
reduce outstanding debt. In connection with the offering,
certain executive officers exercised options to purchase 239,620
shares from the Company.
Management believes that net cash provided by operating and
financing activities will be sufficient to meet the Company s
expected capital and liquidity needs for the foreseeable future.
Year 2000 Compliance
--------------------
Many computer software and hardware systems currently are
not, or will or may not be, able to read, calculate or output
correctly using dates after 1999, and such systems will require
significant modifications in order to be year 2000 compliant.
This issue may adversely affect the operations and financial
performance of the Company because its computer systems are an
integral part of the Company s manufacturing and distribution
activities as well as its accounting and other information
systems and because the Company will have to divert financial
resources and personnel to address this issue.
The Company has reviewed its computer hardware and software
systems and has recently begun upgrading those systems that it
has identified as not being year 2000 compliant. The existing
systems will be upgraded either through modification or
replacement. The Company currently anticipates this upgrading to
be completed during the current calendar year. The Company has
alternate plans in the event that critical system upgrading is
not completed on time.
Although the Company is not aware of any material
operational impediments associated with upgrading its computer
hardware and software systems to be year 2000 compliant, the
Company cannot make any assurances that the upgrade of the
Company s computer systems will be completed on schedule, that
the upgraded systems will be free of defects or that the
Company s alternate plans will meet the Company s needs. If any
such risks materialize, the Company could experience material
adverse consequences, material costs or both.
Year 2000 compliance may also adversely affect the
operations and financial performance of the Company indirectly by
causing complications of, or otherwise affecting, the operations
of any one or more of the Company s suppliers and customers. The
Company intends to contact its significant suppliers and
customers in the first half of calendar year 1998 in an attempt
to identify any potential year 2000 compliance issues with them.
The Company is currently unable to anticipate the magnitude of
the operational or financial impact on the Company of year 2000
compliance issues with its suppliers and customers.
The Company incurred approximately $80,000 in the second
fiscal quarter of 1998 and expect to incur approximately $120,000
in each fiscal quarter beginning with the third quarter 1998
through the first quarter of 1999 to resolve the Company s year
2000 compliance issues. All expenses incurred in connection with
year 2000 compliance will be expensed as incurred, other than
acquisitions of new software or hardware, which will be
capitalized.
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS
Not Applicable
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------------------
Not applicable
Item 2. Changes in Securities
---------------------------------
Not applicable
Item 3. Defaults Upon Senior Securities
-------------------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------------------
The Annual Meeting of Shareholders was held on February
25, 1998.
There were two matters submitted to a vote of security
holders. The first matter was for the election of
directors. Each of the persons named in the Proxy
Statement as a nominee for director was elected.
Following are the voting results on each of
the nominees for director:
Election of Directors Votes For Votes Withheld
David Y. Howe 15,153,200 15,364
John P. O Brien 15,153,200 15,364
William R. Patterson 15,153,200 15,364
The second matter was for the ratification of the Board
of Directors selection of Ernst & Young LLP to serve as
the Company s independent auditors for the fiscal year
1998. The shareholders cast 15,159,368 votes in the
affirmative and 5,350 votes in the negative and
shareholders holding 3,850 votes abstained from
voting on the ratification of Ernst & Young LLP as
the Company's independent auditors for the fiscal year
1998.
Item 5. Other information
-----------------------------
On May 7, 1998, the Company entered into a long-term supply
agreement with Amber Milling Company, a division of Harvest
States Cooperatives ( Harvest States ), one of the largest
agribusiness cooperatives in the United States. Under the
agreement, the Company will construct a pasta production facility
adjacent to Harvest States wheat mill in Kenosha, Wisconsin and
Harvest States will supply semolina and other raw materials to
the planned new plants. The Company estimates that it will
invest approximately $30 million in capital expenditures to
construct the new plant which will have an estimated production
capacity of approximately 150,000,000 pounds of pasta. The
commencement of this agreement is subject to a number of
conditions, including acquisition of certain properties
contiguous to the Harvest States property and completion of a
satisfactory engineering and environmental review of the site for
the new plant. The supply agreement with Harvest States is also
contingent upon final approval by the board of directors of the
Company.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------------------
(a) Exhibits.
EX-27 Financial Data Schedule
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
American Italian Pasta Company
May 15, 1998 /S/ Timothy S. Webster
--------------------- ------------------------------
Date Timothy S. Webster
President and Chief Executive Officer
(Principal Executive Officer)
May 15, 1998 /S/ David E. Watson
--------------------- ------------------------------
Date David E. Watson
Executive Vice President and Chief
Financial Officer, Treasurer and
Secretary
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -------------------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM Balance
Sheets at March 31, 1998; Statements of
operations for the six months ended
March 31, 1998; the Statements of Cash
Flows for the six months ended March 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO
SUCH FINANCIAL STATEMENTS AND THE NOTES
THERETO
<MULTIPLIER> 1000
<PERIOD-START> OCT-04-1997
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-02-1998
<PERIOD-END> APR-03-1998
<CASH> 2167
<SECURITIES> 0
<RECEIVABLES> 13137
<ALLOWANCES> 157
<INVENTORY> 21722
<CURRENT-ASSETS> 39064
<PP&E> 181499
<DEPRECIATION> 32988
<TOTAL-ASSETS> 214617
<CURRENT-LIABILITIES> 19669
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 134870
<TOTAL-LIABILITY-AND-EQUITY> 214617
<SALES> 81570
<TOTAL-REVENUES> 81570
<CGS> 60953
<TOTAL-COSTS> 69975
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 489
<INCOME-PRETAX> 12006
<INCOME-TAX> 4562
<INCOME-CONTINUING> 7444
<DISCONTINUED> 0
<EXTRAORDINARY> 2332
<CHANGES> 0
<NET-INCOME> 5112
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.30
</TABLE>
