UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended: December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-13403
AMERICAN ITALIAN PASTA COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 84-1032638
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 ITALIAN WAY, EXCELSIOR SPRINGS, MISSOURI 64024
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (816) 502-6000
NOT APPLICABLE
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the Registrant has (1) filed all 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 January 26, 2000 of the
Registrant's Class A Convertible Common Stock was 18,300,058 and there were no
shares outstanding of the Class B Common Stock.
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
FORM 10-Q
QUARTER ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
Part I - Financial Information Page
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets at December 31, 1999
and September 30, 1999. 3
Consolidated Statements of Income for the three
months ended December 31, 1999 and 1998. 4
Consolidated Statements of Cash Flows for the
three months ended December 31, 1999 and 1998. 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
Part II - Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature Page 12
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1999 1999
---- ----
(IN THOUSANDS)
ASSETS (UNAUDITED)
Current assets:
Cash and temporary investments $ 1,650 $ 3,088
Trade and other receivables 21,852 22,018
Prepaid expenses and deposits 5,630 3,952
Inventory 28,954 25,227
Deferred income taxes 1,367 1,031
-------- --------
Total current assets 59,453 55,316
Property, plant and equipment:
Land and improvements 6,953 6,953
Buildings 75,737 75,677
Plant and mill equipment 222,740 219,725
Furniture, fixtures and equipment 7,239 7,239
-------- --------
312,669 309,594
Accumulated depreciation (55,227) (51,156)
-------- --------
257,442 258,438
Construction in progress 14,393 7,686
-------- --------
Total property, plant and equipment 271,835 266,124
Other assets 1,018 782
-------- --------
Total assets $332,306 $322,222
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,794 $ 15,187
Accrued expenses 8,676 9,763
Income tax payable 1,283 --
Current maturities of long-term debt 990 1,144
-------- --------
Total current liabilities 23,743 26,094
Long-term debt 84,709 81,467
Deferred income taxes 14,398 12,931
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 18 18
Class B common stock, $.001 par value:
Authorized shares - 25,000,000 -- --
Additional paid-in capital 176,764 175,030
Treasury stock (54) (26)
Notes receivable from officers (61) (71)
Retained earnings 32,789 26,779
-------- --------
Total stockholders' equity 209,456 201,730
-------- --------
Total liabilities and stockholders' equity $332,306 $322,222
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
DECEMBER 31,
1999 1998
---- ----
(IN THOUSANDS)
(UNAUDITED)
Revenues $ 59,141 $ 47,849
Cost of goods sold 43,087 35,750
-------- --------
Gross profit 16,054 12,099
Selling and marketing expense 3,878 3,096
General and administrative expense 1,484 1,255
-------- -------
Operating profit 10,692 7,748
Interest expense, net 1,228 435
-------- --------
Income before income tax expense 9,464 7,313
Income tax expense 3,454 2,706
-------- --------
Net income $ 6,010 $ 4,607
======== ========
Earnings Per Common Share:
Net income per common share $ .33 $ .25
======== ========
Weighted-average common shares outstanding 18,211 18,087
======== ========
Earnings Per Common Share - Assuming Dilution:
Net income per common share assuming dilution $ .32 $ .25
======== ========
Weighted-average common shares outstanding 18,766 18,571
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
DECEMBER 31,
1999 1998
---- ----
(IN THOUSANDS)
(UNAUDITED)
Operating activities:
Net income $ 6,010 $ 4,607
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 4,156 3,079
Deferred income tax expense 1,131 --
Changes in operating assets and liabilities:
Trade and other receivables 166 (905)
Prepaid expenses and deposits (1,678) (712)
Inventory (3,727) (485)
Accounts payable and accrued expenses (4,976) (2,709)
Income tax payable 2,323 1,319
Other (321) (82)
--------- ---------
Net cash provided by operating activities 3,084 4,112
Investing activities:
Additions to property, plant and equipment (8,286) (16,659)
--------- ---------
Net cash used in investing activities (8,286) (16,659)
Financing activities:
Proceeds from issuance of debt 3,500 10,000
Principal payments on debt and capital lease
obligations (412) (277)
Proceeds from issuance of common stock, net of
issuance costs 704 --
Other (28) 11
--------- ---------
Net cash provided by financing activities 3,764 9,734
--------- ---------
Net decrease in cash and temporary
investments (1,438) (2,813)
Cash and temporary investments at beginning of
period 3,088 5,442
--------- ---------
Cash and temporary investments at end of period $ 1,650 $ 2,629
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN ITALIAN PASTA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three-month period ended December 31, 1999 are not necessarily indicative
of the results that may be expected for the year ended September 30, 2000.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended October 1, 1999.
American Italian Pasta Company (the "Company" or "AIPC") uses a 52/53 week
financial reporting cycle with a fiscal year which ends on the last Friday of
September or the first Friday of October. The Company's first three fiscal
quarters end on the Friday last preceding December 31, March 31, and June 30
or the first Friday of the following month. For purposes of this Form 10-Q,
the first fiscal quarter of fiscal years 2000 and 1999 both included thirteen
weeks of activity and are described as the three-month periods ended December
31, 1999 and 1998.
2. Earnings Per Share
Dilutive securities, consisting of options to purchase the Company's
Class A common stock, included in the calculation of diluted weighted average
common shares were 555,000 shares for the three-month period ended December
31, 1999 and 484,000 shares for the three-month period ended December 31,
1998.
A summary of the Company's stock option activity:
Number of Shares
----------------
Outstanding at September 30, 1999 1,944,708
Exercised (123,259)
Granted 511,750
Canceled/Expired (6,437)
---------
Outstanding at December 31, 1999 2,326,762
=========
<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, and amended November 2, 1999, which is hereby
incorporated by reference, and any amendments thereto and the factors set
forth under the heading "Year 2000 Compliance" below. 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
REVENUES. Total revenues increased $11.3 million, or 23.6%, to $59.1
million for the three-month period ended December 31, 1999, from $47.8
million for the three-month period ended December 31, 1998. The increase for
the three-month period ended December 31, 1999 was primarily due to volume
growth of 35.6% over the prior year, offset by lower average selling prices.
Average selling prices were lower due to changes in sales mix and the pass-
through of lower durum wheat costs. Management expects continued increases
in revenues as a result of increasing Retail and Institutional volumes,
however, increases will be partially offset by higher growth rates of lower-
priced ingredient products, and may be impacted by revenue pass-throughs
associated with durum wheat cost fluctuations.
Revenues for the Retail market increased $8.7 million, or 25.3%, to
$42.9 million for the three-month period ended December 31, 1999, from $34.3
million for the three-month period ended December 31, 1998. The increase
primarily reflects volume growth of 32.6% over the comparable period, offset
by lower average selling prices. The pass-through of lower durum wheat costs
was the primary cause of a 5.5% reduction in average selling prices.
Revenues for the Institutional market increased $2.6 million, or 19.2%,
to $16.2 million for the three-month period ended December 31, 1999, from
$13.6 million for the three-month period ended December 31, 1998. This
increase was primarily a result of volume growth of 41.7% over the comparable
period, offset by lower average selling prices. The pass-through of lower
durum wheat costs, along with changes in sales mix generated by rapid growth
of ingredient revenues, created a 15.7% reduction in average selling prices.
GROSS PROFIT. Gross profit increased $4.0 million, or 32.7%, to $16.1
million for the three-month period ended December 31, 1999, from $12.1
million for the three-month period ended December 31, 1998. Gross profit
increased generally as a result of the volume and revenue gains referenced
above. Gross profit as a percentage of revenues increased to 27.1% for the
three-month period ended December 31, 1999 from 25.3% for the three-month
period ended December 31, 1998. The increase in gross profit as a percentage
of revenues relates to lower raw material costs and lower operating costs per
unit. Management expects increases in gross profit to continue as a result
of volume and related revenue increases.
SELLING AND MARKETING EXPENSE. Selling and marketing expense increased
$0.8 million, or 25.3%, to $3.9 million for the three-month period ended
December 31, 1999, from $3.1 million for the three-month period ended
December 31, 1998. Selling and marketing expense as a percentage of revenues
remained relatively the same, increasing to 6.6% for the three-month period
ended December 31, 1999, from 6.5% for the comparable prior year period.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
remained consistent between periods, and decreased as a percentage of
revenues from 2.6% to 2.5%.
OPERATING PROFIT. Operating profit for the three-month period ended
December 31, 1999, was $10.7 million, increasing $3.0 million or 38.0% over
the $7.7 million reported for the three-month period ended December 31, 1998,
and increased as a percentage of revenues to 18.1% for the three-month period
ended December 31, 1999, from 16.2% for the three-month period ended December
31, 1998 as a result of the factors discussed above.
INTEREST EXPENSE. Interest expense for the three-month period ended
December 31, 1999, was $1.2 million, increasing $0.8 million from the $0.4
million reported for the three-month period ended December 31, 1998. The
increase reflects higher borrowings and reduced interest expense
capitalization. Specifically, interest expense capitalization was reduced as
construction in progress as of December 31, 1998 was $37.7 million, compared
to $14.4 million as of December 31, 1999. Interest capitalized for the
quarter totaled $.2 million, compared to $.5 million in the prior-year
quarter.
INCOME TAX. Income tax expense for the three-month period ended
December 31, 1999, was $3.5 million, increasing $0.7 million from the $2.7
million reported for the three-month period ended December 31, 1998,
reflecting effective tax rates of 36.5% and 37%, respectively.
NET INCOME. Net income for the three-month period ended December 31,
1999, was $6.0 million, increasing $1.4 million or approximately 30.5% from
the $4.6 million reported for the three-month period ended December 31, 1998.
Diluted earnings per common share were $0.32 per share for the three-month
period ended December 31, 1999 compared to $0.25 per share for the three-
month period ended December 31, 1998.
Financial Condition and Liquidity
The Company's primary sources of liquidity are cash provided by
operations and borrowings under its credit facility. Cash and temporary
investments totaled $1.7 million, and working capital totaled $35.7 million
on December 31, 1999.
The Company's net cash provided by operating activities totaled $3.1
million for the three-month period ended December 31, 1999 compared to $4.1
million for the three-month period ended December 31, 1998. This decrease of
$1.0 million was primarily due to increases in working capital requirements.
Cash used in investing activities principally relates to the Company's
investments in manufacturing, distribution and milling assets. Capital
expenditures were $8.3 million for the three-month period ended December 31,
1999 compared to $16.7 million in the comparable prior year period. The
decrease in such spending for the three-month period ended December 31, 1999
was a result of the Company's completion of its third plant in Kenosha,
Wisconsin and its 1999 South Carolina and Missouri capital expansion
programs, which the Company completed during fiscal year 1999. Currently,
the Company is in the process of completing a fourth plant in Verolanuova,
Italy and plans to spend approximately $35-40 million, of which approximately
$5.0 million has been spent to date. The Company anticipates completion of
this project during the fiscal year ending September 30, 2001. Additionally,
the Company plans to spend approximately $25 million in fiscal year 2000,
primarily for cost saving and maintenance projects, of which approximately
$3.0 million has been spent to date. The Company anticipates completion of
these projects during the fiscal year ending September 30, 2000.
Net cash provided by financing activities was $3.8 million for the
three-month period ended December 31, 1999 compared to $9.7 million for the
three-month period ended December 31, 1998. The Company continues to use its
available credit facility, as well as cash from operations, to fund capital
expansion programs as necessary.
The Company currently uses cash to fund capital expenditures, repayments
of debt and working capital requirements. The Company expects that future
cash requirements will principally be for capital expenditures, repayments of
indebtedness and working capital requirements.
The Company has current commitments for $10.0 million in raw material
purchases for fiscal year 2000 and has approximately $57.0 million in
expenditures remaining under the previously referenced capital programs. The
Company anticipates the current capital programs will be fully funded by the
end of fiscal year 2001. The Company expects to fund these commitments from
operations and borrowings under the credit facility. The credit facility
currently has a credit commitment of $140 million and has annual scheduled
commitment reductions which began 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.
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
- --------------------
The Company completed all Year 2000 readiness work and experienced no
significant problems. The Company had anticipated some surge in certain
customer volumes during the quarter which did not occur, but was able to
replace those volumes with Contract sales. The Company increased raw
material and finished good inventories anticipating potential Year 2000
issues, and as a result, the Company has somewhat higher than normal
inventories, and higher prepaid expenses associated with the purchase of
durum wheat. The Company anticipates inventories will return to normal
levels over the remainder of the fiscal year.
The Company incurred expenses of approximately $330,000 in fiscal year
1998 and approximately $250,000 in fiscal year 1999, to resolve the Company's
Year 2000 compliance issues. All expenses incurred in connection with Year
2000 compliance were expensed as incurred, other than acquisitions of new
software or hardware, which were capitalized.
The Company does not expect to incur any material expenditures in the
future related to Year 2000 issues.
The Company does not believe it has any continued exposure to the Year
2000 issues.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk through financial instruments such
as long-term debt is not material. There have been no significant changes in
market risk since September 30, 1999.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------------------------------
Not applicable
Item 2. Changes in Securities
- ----------------------------------
Not applicable
Item 3. Defaults Upon Senior Securities
- --------------------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
- ----------------------------------------------------------------
Not applicable
Item 5. Other Information
- ------------------------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
- ---------------------------------------------
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a Form 8-K on October 29, 1999, regarding
the fourth quarter and fiscal year 1999 results and
announcement of its first international expansion.
The Company filed a Form 8-K on November 17, 1999 regarding
the filing of certain executive officers' employment
agreements and amendments to certain executive officers'
employment agreements.
The Company filed a Form 8-K/A on November 2, 1999, amending
the Form 8-K filed on October 29, 1997 which sets forth on
Exhibit 99 cautionary statements identifying significant
factors that could cause the Company's actual operating
results or management's plans to materially differ from
those projected in any forward-looking statements, whether
oral or written, made by or on behalf of the Company.
<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
January 27, 2000 /s/ Timothy S. Webster
- ------------------------- -----------------------------------
Date Timothy S. Webster
President and Chief Executive Officer
(Principal Executive Officer)
January 27, 2000 /s/ Warren B. Schmidgall
- ------------------------- -----------------------------------
Date Warren B. Schmidgall
Senior Vice President and Chief
Financial Officer
(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
December 31, 1999; Statements of Operations for
the quarter ended December 31, 1999; the
Statements of Cash Flows for the quarter ended
December 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND THE NOTES THERETO
<MULTIPLIER> 1000
<PERIOD-START> OCT-02-1999
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-29-2000
<PERIOD-END> DEC-31-1999
<CASH> 1650
<SECURITIES> 0
<RECEIVABLES> 22036
<ALLOWANCES> 184
<INVENTORY> 28954
<CURRENT-ASSETS> 59453
<PP&E> 312669
<DEPRECIATION> 55227
<TOTAL-ASSETS> 332306
<CURRENT-LIABILITIES> 23743
<BONDS> 84709
0
0
<COMMON> 18
<OTHER-SE> 209438
<TOTAL-LIABILITY-AND-EQUITY> 332306
<SALES> 59141
<TOTAL-REVENUES> 59141
<CGS> 43087
<TOTAL-COSTS> 48449
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1228
<INCOME-PRETAX> 9464
<INCOME-TAX> 3454
<INCOME-CONTINUING> 6010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6010
<EPS-BASIC> 0.33
<EPS-DILUTED> 0.32
</TABLE>
