ITEM 1. BUSINESS.
General -------
American Italian Pasta Company is the largest producer and one of the fastest-growing marketers of dry pasta in North America. We commenced operations in 1988 with the North American introduction of new, highly-efficient durum wheat milling and pasta production technology. We believe that our singular focus on pasta, vertically-integrated facilities, continued technological improvements and development of a highly-skilled workforce enables us to produce high-quality pasta at costs below those of many of our competitors. We believe that the combination of our cost structure, the age of competitive production capacity and our key customer relationships create significant opportunities for continued growth. During the fiscal year ended September 30, 2001, we had revenue of $310.8 million and net income of $26.3 million.
We produce more than 175 dry pasta shapes in vertically-integrated milling, production and distribution facilities, strategically located in Excelsior Springs, Missouri, Columbia, South Carolina, Kenosha, Wisconsin, and Verolanuova, Italy. The construction of the Missouri plant in 1988 represented the first use in North America of a vertically-integrated, high-capacity pasta plant using Italian milling and pasta production technology. We believe that this plant continues to be among the most efficient and highly-automated pasta facilities in North America. The South Carolina plant, which commenced operations in 1995, produces only pasta shapes conducive to high-volume production and employs a highly-skilled, self-managed work force. We believe that the South Carolina plant is the most efficient retail pasta facility in North America in terms of productivity and conversion cost per pound. The Wisconsin plant, which commenced operations in 1999, produces industrial pasta for the ingredient business segment. We believe the Wisconsin plant is the only pasta production facility in North America which is singularly focused on serving the rapidly growing ingredient pasta segment. The Italy plant, which commenced operations in 2001, serves private label markets in continental Europe and the United States.
The Company is incorporated in Delaware, our executive offices are located at 4100 N. Mulberry Drive, Suite 200, Kansas City, Missouri 64116, and our telephone number is (816)584-5000. Our web site is located at http://www.aipc.com. Information contained in our web site is not a part of this Annual Report.
Recent Developments -------------------
On November 13, 2001, we purchased the Mueller's pasta brand from Bestfoods. Mueller's is one of the largest pasta brands in the United States, with particularly strong distribution in the eastern part of the country. The acquisition encompassed the trademarks and other intangibles associated with the brand, the customer accounts and relationships, and certain tangible assets, primarily inventory.
Total consideration for the purchased assets, excluding approximately $5.2 million paid for tangible assets, was approximately $38.2 million, consisting of $17.6 million in cash and 686,666 shares of common stock valued at $30 per share.
On July 16, 2001, we purchased seven pasta brands from Borden Foods for $67.5 million, plus inventory, in a cash transaction. We acquired the Anthony's®, Globe/A-1®, Luxury®, Mrs. Grass®, Pennsylvania Dutch®, R&F® , and Ronco® brands, in addition to certain tangible assets. No manufacturing assets were included in the transaction.
We have agreed to honor Borden's marketing commitments through December, 2001; therefore, any major strategic changes to the business will not occur before the second quarter of our fiscal year 2002.
The purchase price was allocated to the net tangible and intangible assets acquired based on estimated fair values at the acquisition date.
Products and Brands -------------------
Our product line, comprising over 2,800 stock-keeping units ("SKUs"), includes long goods such as spaghetti, linguine, fettuccine, angel hair and lasagna, and short goods such as elbow macaroni, mostaccioli, rigatoni, rotini, ziti and egg noodles. In many instances, we produce pasta to our customers' specifications. We make over 175 different shapes and sizes of pasta products in over 180 package configurations, including bulk packages for institutional customers and smaller individually-wrapped packages for retail consumers. We contract with third parties for the production of certain specialized pasta shapes, such as stuffing shells and manicotti, which are necessary to offer customers a full range of pasta products. Purchased pasta represented less than 1% of our total unit volume in fiscal period 2001.
We believe that our state-of-the-art, Italian pasta production equipment is capable of producing the highest quality pasta. Our products are produced to satisfy the specifications of our customers as well as our own product specifications, which we believe are among the highest in the industry. Our pasta is distinguished by a rich, natural "wheaty" taste and a consistently smooth and firm ("al dente") texture with a minimum amount of white spots or dark specks. We evaluate the quality of our products in two ways. We conduct internal laboratory evaluation against competitive products on physical characteristics, including color, speck count, shape and consistency, and cooking performance, including starch release, protein content and texture, and our customers perform competitive product comparisons on a regular basis.
Our U.S. production facilities are inspected twice each year by the American Institute of Baking ("AIB"), the leading United States baking, food processing and allied industries evaluation agency for sanitation and food safety. Our plants consistently achieve the AIB's highest "Superior" rating. We also implemented a comprehensive Hazard Analysis Critical Control Point ("HAACP") program in 1994 to continuously monitor and improve the safety, quality and cost-effectiveness of the Company's facilities and products. We believe that having an AIB rating of "Superior" and meeting HAACP standards have helped us attract new business and strengthen existing customer relationships.
Our European production facility, more specific our Italian plant, is our first ISO 9002 certified production facility. Similar to the U.S., the facility is inspected by a European representative similar to AIB, EFSIS, one of the recognized European Food Safety Bodies. Our facility received the "Higher Level" certification from EFSIS, the only European pasta plant to receive this accreditation. In addition, we have adopted the like HACCP and Food Safety Programs consistent with the U.S. facilities.
Marketing and Distribution --------------------------
We actively sell and market our products through approximately 30 employees and approximately 45 food brokers and distributors throughout the United States, Canada and Mexico. Our senior management is directly involved in the selling process in all customer markets. Our sales and marketing strategy is to provide superior quality, a complete product offering, distinctive packaging, marketing and promotional plans specifically tailored to the customers' needs, competitive pricing and superior customer service to attract new customers and grow existing customers' pasta sales. We have established a significant market presence in North America by developing strategic customer relationships with food industry leaders that have substantial pasta requirements. We have a long-term supply agreement with Sysco, the nation's largest marketer and distributor of food service products. We are also the primary supplier of pasta to Sam's Wholesale Club ("Sam's Club"), the largest club store chain in the United States, and we supply private label and branded pasta to 16 of the 20 largest grocery retailers in the United States, including Kroger, Albertson's, Ahold, Wal-Mart, Winn Dixie, Publix, Delhaize America, A & P, and H.E. Butt. We also have long-term supply agreements with several private label customers, and have
developed supply relationships with leading food processors, such as Pillsbury, General Mills and Kraft Foods, which use our pasta as an ingredient in their branded food products.
Our product offering has expanded to offer "Made in Italy" pasta from our Italian facility. This facility serves both the North American and European markets with Private Label, Industrial and Food Service sectors.
One of our core strengths has been the development of strong customer relationships and the establishment of a reputation as a technical and service expert in the pasta field. As part of our overall customer development strategy, we use our category management expertise to assist customers in their distribution and supply management decisions regarding pasta and new products. Our category management experts use on-line A.C. Nielsen's supermarket data to recommend pricing, SKU sets and shelf spacing to both private label and branded customers. Our representatives also assist food processors in incorporating our pasta as an ingredient in their customers' food products. We sponsor an annual "Pasta Technology Forum" which is a training and development program for our customers' production and new product personnel. In addition to technical education, we provide dedicated technical support to our institutional customers by making recommendations regarding the processing of pasta in their facilities. We believe that these value-added activities provide customers with a better appreciation and awareness of our products.
We consistently demonstrate our commitment to customer service through the development of enhanced customer service programs. Examples of these programs include our creation of an Efficient Customer Response ("ECR") model which uses Electronic Data Interchange ("EDI") and vendor replenishment programs to assist its key customers, and category management services for our private label and branded customers. These programs also enable us to more accurately forecast production and sales demand, enabling higher utilization of production capacities and lower average unit costs.
Our four primary distribution centers in North America are strategically located in South Carolina, Wisconsin, Missouri and Southern California to serve the national market. Additionally, we use public warehouses to facilitate the warehousing and distribution of our products. Our South Carolina and Missouri distribution centers are integrated with our production facilities. Finished products are automatically conveyed via enclosed case conveying systems from the production facilities to the distribution centers for automated palletization and storage until shipping. The combination of integrated facilities and multiple distribution centers enables us to realize significant distribution cost savings and provides lead time, fill rate and inventory management advantages to our customers. The operation of the Missouri and South Carolina distribution centers is outsourced under a long-term agreement with Lanter Company, a firm specializing in warehouse and logistics management services.
Our European facility uses two public warehouses to serve the European market (located in the U.K. and Germany) and the U.S. distribution centers for our U.S. import business.
Most of our customers use inventory management systems which track sales of particular products and rely on reorders being rapidly filled by suppliers. We work with our customers to forecast consumer demand which allows us to cost-effectively produce inventory stocks to the forecasted demand levels.
Pasta Production ----------------
Pasta's primary ingredient is semolina, which is extracted from durum wheat through a milling process. Durum wheat is used exclusively for pasta. Durum wheat used in United States pasta production generally originates from Canada, North Dakota, Montana, Arizona and California. Durum wheat used in Europe generally originates from Italy, France, Spain, Canada, U.S., Greece and Syria. Each variety of durum wheat has its own unique set of protein, gluten content, moisture, density, color and other attributes which affect the quality and other characteristics of the semolina. We blend semolina from different wheat varieties as needed to meet customer specifications.
Our ability to produce high-quality pasta generally begins with purchasing durum wheat directly from farmers and grower-owned cooperatives in Canada, North Dakota, Montana, Arizona and California. This purchasing method ensures that the extracted semolina meets our specifications. We have several sources for durum wheat and are not dependent on any one supplier or sourcing area. As a result, we believe that we have adequate sources of supply for durum wheat. We occasionally buy and sell semolina to balance our milling and production requirements. We are one of only two major producers of pasta in North America that own vertically integrated milling and production facilities.
Durum wheat is a cash crop whose average monthly market price fluctuates. Until February 1998 durum wheat did not have a related futures market to hedge against such price fluctuations. As of February 12, 1998, durum futures began trading on the Minneapolis grain exchange. Because in our view, these futures contracts have limited liquidity and other less desirable quality specifications we have not used them as a durum cost hedge. We manage our durum wheat cost risk through cost pass-through mechanisms and other arrangements with our customers and advance purchase contracts for durum wheat which are generally less than twelve months' duration. Long-term supply agreements and other customer arrangements which allow for the pass-through of durum wheat cost changes in certain circumstances represented approximately 80% of our total revenue base.
Durum wheat is shipped to our production facilities in Missouri and South Carolina directly from North Dakota, Montana and Canada under a long-term rail contract with our most significant rail carrier, the Canadian Pacific Rail System. Under the agreement, we are obligated to transport specified wheat volumes. If we do not meet the volumes, we must reimburse the carrier for certain of its costs. Currently, we are in compliance with such volume obligations.
We purchase the raw material requirements (including semolina and semolina/flour blends) for our Kenosha, Wisconsin facility from CENEX/Harvest States under the terms of a long-term supply agreement. We believe the quality of the purchased raw materials is consistent with our internally milled products. We also believe the terms of the CENEX/Harvest States supply agreement are favorable versus other market options.
In Europe, we purchase our semolina requirements from Italian mills to meet our specific quality and customer needs.
We purchase our packaging supplies, including poly-cellophane, paperboard cartons, boxes and totes from third parties. We believe we have adequate sources of packaging supplies.
Trademarks and Patents ----------------------
We hold a number of federally registered and common law trademarks which we consider to be of considerable value and importance to our business including: AIPC American Italian Pasta Company, American Italian, and Pasta LaBella. The Company has registered the AIPC, American Italian Pasta Company, Pasta LaBella, Montalcino, Calabria, Heartland and other trademarks with the U.S. Patent and Trademark Office. Additionally, the Company has registered the proprietary flavoring process for Pasta LaBella flavored pasta. As a result of the Mueller's acquisition and the purchase of the seven brands from Borden Foods (see "Recent Developments"), we now own several additional trademarks, including Mueller's, Anthony's, Globe/A-1, Luxury, Mrs. Grass, Pennsylvania Dutch, R & F, and Ronco.
Dependence on Major Customers -----------------------------
Historically, a limited number of customers have accounted for a substantial portion of our revenues. During the fiscal years ended September 30, 2001, 2000 and 1999, Sysco accounted for approximately 13%, 15% and 16%, respectively, and sales to Sam's Club accounted for approximately 6%, 12% and 13%, respectively, of our revenues. During fiscals 2000 and 1999, sales to Bestfoods accounted for approximately 23% and 29% of our revenues.
With our acquisition of the Mueller's brand on November 14, 2000, we no longer have revenues arising from transactions with Bestfoods. We expect to continue to rely on a limited number of major customers for a substantial portion of our revenues in the future. We have an exclusive supply contract with Sysco (the "Sysco Agreement") through June 2003, with a renewal option by Sysco for one additional three-year period. We do not have long-term supply contracts with a substantial number of our other customers, including Sam's Club. Accordingly, we are dependent upon our other customers to sell our products and to assist us in promoting market acceptance of, and creating demand for, our products. An adverse change in, or termination or expiration without renewal of, our relationships with or the financial viability of one or more of our major customers could have a material adverse effect on our business, financial condition and results of operations.
Pursuant to the Sysco Agreement, we are the primary supplier of pasta for Sysco and have the exclusive right to supply pasta to Sysco for sale under Sysco's name. Sysco, which operates from approximately 65 operations and distribution facilities nationwide, provides products and services to approximately 350,000 restaurants, hotels, schools, hospitals, and other institutions, as well as the U.S. government. Sysco exercised its option to renew its agreement for an additional three years through June 30, 2003, and has an option to renew the agreement for one additional three-year period. Our products are sold to Sysco on a cost-plus basis, with annual adjustments based on the prior year's costs. Under the Sysco Agreement, we may not supply pasta products to any business other than Sysco in the United States, Mexico or Canada that operates as, or sells to, institutions and businesses which provide food for consumption away from home (i.e. food service businesses) without Sysco's prior consent. Sysco has honored us as one of its top 10 suppliers out of its over 1,500 supplier base for five consecutive years. The Sysco Agreement may be terminated by Sysco upon certain events, including a substantial casualty to or condemnation of our Missouri plant.
Competition -----------
We operate in a highly competitive environment against numerous well-established national, regional and foreign companies, and many smaller companies. Our competitors include both independent pasta producers and pasta divisions and subsidiaries of large food products companies. We compete in the procurement of raw materials, the development of new products and product lines, the improvement and expansion of previously introduced products and product lines and the production, marketing and distribution of its products. Some of these companies have longer operating histories, significantly greater brand recognition and financial and other resources. Our products compete with a broad range of food products, both in the retail and institutional customer markets. Competition in these markets generally is based on product quality and taste, pricing, packaging and customer service and logistics capabilities. We believe that we currently compete favorably with respect to these factors.
Our direct competitors include large multi-national companies such as New World Pasta LLC, and regional U.S. producers of retail and institutional pasta such as Dakota Growers Pasta Co., Philadelphia Macaroni Co. Inc. and A. Zerega's Sons, Inc., each an independent producer, and foreign companies such as Italian pasta producers De Cecco and Barilla. Barilla owns a plant in Iowa for its U.S. production. We also compete against food processors such as Kraft Foods, General Mills, Inc., American Home Food Products Corporation, Campbell Soup Company and Stouffers Corp., that produce pasta internally as an ingredient for use in their food products. For sales in Europe, our Italian plant competes with Barilla and other small regional pasta producers.
Our competitive environment depends to a significant extent on the aggregate industry capacity relative to aggregate demand for pasta products. Over the past years, the North American pasta production capacity has contracted. Borden completed the sale of its pasta business during 2001. AIPC bought seven Borden pasta brands, while New World Pasta purchased the remainder of the Borden brands and all of the Borden manufacturing facilities. Subsequently, New World Pasta announced that it is closing three of its North American pasta manufacturing facilities. AIPC management estimates the closing of these plants represents a 200 million lb. reduction in the North American pasta production capacity.
Several foreign producers, based principally in Italy and Turkey, aggressively targeted the U.S. pasta market in the mid-nineties. In 1996, a U.S. Department of Commerce investigation revealed that several 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. Effective July 1996, the U.S. International Trade Commission of the Department of Commerce ("Commerce"), imposed anti-dumping and countervailing duties on Italian and Turkish imports ("the 1996 Anti-dumping Order"). The Anti-dumping Order was extended five years through 2006. Accordingly, all Italian and Turkish producers, (including our Italian subsidiary), are assessed duties of 15% on U.S. imports, subject to review by Department of Commerce. Once reviewed by Commerce, an importer's duties may increase or decrease depending on Commerce findings. Such duties enable us and our domestic competitors to compete more favorably against Italian and Turkish producers in the U.S. pasta market. Bulk imported pasta and pasta produced in the U.S. by foreign firms are generally not subject to such anti-dumping and countervailing duties. Foreign pasta producers generally may avoid such duties by importing bulk pasta into the United States and repackaging it in U.S. facilities for distribution. A leading branded Italian producer, Barilla, completed a pasta production plant in Ames, Iowa in 1999.
Pasta Industry and Markets --------------------------
Although we have some sales in the competitive European markets, the majority of all revenues in fiscal 2001 were for sales in North America.
North American pasta consumption was between 4.0 to 4.5 billion pounds in 2001. The pasta industry consists of two primary customer markets: (i) Retail, which includes grocery stores, club stores and mass merchants that sell branded and private label pasta to consumers; and (ii) Institutional, which includes both food service distributors that supply restaurants, hotels, schools and hospitals, as well as food processors that use pasta as a food ingredient.
Pasta is a staple of the North American diet. It is widely recognized that pasta is an inexpensive, convenient and nutritious food. The U.S. Department of Agriculture places pasta on the foundation level of its pyramid of recommended food groups. Products such as flavored pasta, prepared sauces, boxed pasta dinners, and both frozen and shelf-stable prepared pasta entrees support consumers' lifestyle demands for convenient at-home meals. Pasta continues to grow in popularity in restaurants as Americans continue to dine away from home more frequently.
Customer Markets - Retail. New World Pasta, Barilla, and AIPC together represented a majority of the branded Retail market in 2001. New World Pasta, which primarily competes in the branded Retail market and whose retail brands include Ronzoni, San Giorgio, Skinner, American Beauty, and recently acquired Prince and Creamette, is the industry's branded leader and sold 29.4 of the total pounds sold in the branded Retail market for the year ended September 30, 2001. Our acquisition of the Mueller's brand, the oldest and second largest pasta brand in the United States in fiscal 2001, increased our participation in the branded market. Additionally, our acquisition of the seven brands from Borden Foods Corporation increased our level of participation in the branded market. In the past, we directly participated in the branded Retail market by producing and distributing Pasta LaBella flavored pasta and indirectly participated in such market by processing and distributing Mueller's brand pasta for Bestfoods in the fiscal year ended September 30, 2000.
Between our first fiscal quarter of 1994 and the fourth fiscal quarter of 2001, sales of private label pasta products increased from 18.6% to 28.0% of the total pounds of pasta sold in the Retail market according to A.C. Nielsen. We believe that sales of private label pasta products will continue to grow at a rate in excess of the overall Retail pasta market. We are the leading supplier of private label retail pasta, and we believe that the private label category continues to offer significant growth and profit opportunities to retailers and efficient producers. Retailers often prefer high-quality private label products to branded products because private label products typically enable retailers to
generate higher margins and maintain greater control of in-store merchandising. While consumers traditionally have viewed private label products as having lower quality than branded products, we believe that new high-quality private label products have begun to change this perception. We attribute some of this change in the private label market to the increasingly upscale image, improved packaging, higher product quality and competitive prices of private label products.
Customer Markets - Institutional. 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. Traditional food service customers include businesses and organizations, such as Sysco and US Food service, Inc., that sell products to restaurants, healthcare facilities, schools, hotels and industrial caterers. Most food service distributors obtain their supply of pasta from third party producers like us. The food service market is highly-fragmented and is served by numerous regional and local food distributors, including both "traditional" food service customers and chain restaurant customers. Sysco, the nation's largest food service marketer and distributor of food service products and one of the nation's largest commercial purchasers of pasta products, serves approximately 10% of the food service customers in the United States and has more than double the revenues of the next largest food service distributor.
The Institutional market also includes sales to food processors who use pasta as an ingredient in their food products such as frozen dinner entrees and side dishes, dry side dish mixes, canned soups and single-serve meals. Large food processors that use pasta as a food ingredient include Kraft Foods, American Home Food Products Corporation, Stouffers Corp., Campbell Soup Company, ConAgra, Inc., Pillsbury and General Mills. The consistency and quality of the color, starch release, texture, cooking consistency, and gluten and protein content of pasta produced for food processors is crucial to their products' success. As a result, food processors have stringent specifications for these attributes.
The size of the Institutional market is affected by the number of food processors that elect to produce pasta internally rather than outsourcing their production. Historically, most pasta used by food processors was manufactured internally for use in food processors' own products. We believe, however, that an increasing number of food processors may discontinue the internal production of their own pasta and outsource their production to efficient producers including us.
Government Regulation; Environmental Matters --------------------------------------------
We are subject to various laws and regulations relating to the operation of our production facilities, the production, packaging, labeling and marketing of our products and pollution control, including air emissions, which are administered by federal, state, and other governmental agencies. Our production facilities are subject to inspection by the U.S. Food and Drug Administration and Occupational Safety and Health Administration, and the various state agencies.
Employees ---------
As of September 30, 2001, we employed 535 full-time persons, of whom 109 were exempt, 44 salaried non-exempt, 171 manufacturing non-exempt, and 211 manufacturing hourly employees. Our U.S. employees are not represented by any labor unions. We consider our employee relations to be excellent.
ITEM 2.
ITEM 2. PROPERTIES.
Production Facilities. Our pasta production plants are located near Kansas City in Excelsior Springs, Missouri, Columbia, South Carolina, Kenosha, Wisconsin, and Verolanuova, Italy. Our U.S. facilities are strategically located to support North American distribution of our products and benefit from the rail and interstate highway infrastructure. At September 30, 2001, our U.S. facilities had combined annual milling and production capacity
of approximately 900 million pounds of durum semolina and approximately 850 million pounds of pasta.
Distribution Centers. We own the distribution center adjoining our Missouri and Wisconsin plants and lease under a capital lease our distribution center in South Carolina. In addition, we lease space in public warehouses located in California, Missouri, and Illinois.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to any litigation, and we know of no litigation threatened against us which, if commenced and adversely determined, we expect would likely have a material adverse effect upon our business or financial condition.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We did not submit any matters to the vote of our stockholders during the fourth quarter of the most recent fiscal year.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K and instruction 3 to paragraph (b) of Item 401 of Regulation S-K, the following list is included as an unnumbered Item in Part I of this Annual Report in lieu of being included in our Definitive Proxy Statement which will be filed no later than 120 days after September 30, 2001. All executive officers are elected annually and serve at the discretion of the Board of Directors. We have employment agreements with certain of our executive officers.
The following table sets forth certain information about each of our executive officers as of September 30, 2001.
NAME AGE POSITION ---- --- -------- Horst W. Schroeder....... 60 Chairman of the Board of Directors
Timothy S. Webster....... 39 President and Chief Executive Officer; Director
David E. Watson.......... 46 Executive Vice President - Operations - Corporate Development
David B. Potter.......... 42 Executive Vice President - Procurement and Industrial Markets
Warren B. Schmidgall..... 51 Executive Vice President and Chief Financial Officer
Jerry H. Dear............ 54 Executive Vice President - Store Brands, Wal*Mart, Special Channels
Keith A. Conard.......... 40 Executive Vice President - Sales and Marketing
Horst W. Schroeder has served as the Chairman of the Board of Directors since June 1991, and as a Director since August 1990. Since 1990, Mr. Schroeder has been President of HWS & Associates, Inc., a Hilton Head, South Carolina management consulting firm owned by Mr. Schroeder. Prior to founding HWS & Associates, Mr. Schroeder served the Kellogg Company, a manufacturer and marketer of ready-to-eat and other convenience food products, in various capacities for more than 20 years, most recently as President and Chief Operating Officer. He was a manager of PSF Holdings, L.L.C. and served as Chairman of the Board of its wholly-owned subsidiary, Premium Standard Farms, Inc., a vertically-integrated pork producer, from 1996 to May 1998.
Timothy S. Webster has served as our President since June 1991, as President and Chief Executive Officer of the Company since May 1992, and as a Director since June 1989. Mr. Webster joined us in April 1989, and served as Chief Financial Officer from May 1989 to December 1990 and as Chief Operating Officer from December 1990 to June 1991.
David E. Watson joined us in June 1994 as Senior Vice President and Chief Financial Officer. He was promoted to Executive Vice President and Chief Financial Officer in June, 1997. He was promoted to Executive Vice President - Operations Support and Technology in July 1998. Prior to joining us, Mr. Watson spent 18 years with the accounting firm of Arthur Andersen & Co., most recently as partner-in-charge of its Kansas City and Omaha Business Consulting Group practice. Mr. Watson is a certified public accountant.
David B. Potter joined us in 1993 as our Director of Procurement. He was named Vice President in 1994 and Senior Vice President - Procurement in June 1997. He was promoted to Executive Vice President and General Manager - Industrial Markets in July 1998. Before joining us, Mr. Potter had worked in numerous areas of Hallmark Cards and its subsidiary, Graphics International Trading Company, from 1981 to 1993, most recently as Business Logistics Manager.
Warren B. Schmidgall joined us in October 1998 as Senior Vice President and Chief Financial Officer. He was promoted to Executive Vice President and Chief Financial Officer in January 2000. Prior to that, Mr. Schmidgall worked in various executive positions at Hill's Pet Nutrition, Inc. from February 1980 to October 1998, including Chief Financial Officer and, most recently, Executive Vice President, Business Development.
Jerry H. Dear joined us in 1993 as a Business Development Manager. He was named Vice President - Retail Sales in 1995, Senior Vice President - Retail Markets in February 1998, and Executive Vice President - Retail Markets in January 2000. Before joining us, Mr. Dear had worked at Pillsbury from 1983 to 1993, most recently as a Region Business Manager.
Keith A. Conard joined us in September 2001 as Executive Vice President - Sales and Marketing. Prior to joining AIPC, Mr. Conard worked at Borden Foods as Vice President of Sales and Customer Marketing and at Campbell Soup Company in a variety of sales and marketing assignments.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our Class A Convertible Common Stock, par value $0.001 per share (the "common stock") is traded on the New York Stock Exchange under the symbol "PLB".
The range of the high and low prices per share of the common stock for fiscal 2001 and 2000 was as follows:
Year Ended Year Ended September 30, 2001 September 30, 2000 High Low High Low ---- --- ---- ---
First Quarter $29.4375 $17.9375 $31.125 $23.00 Second Quarter $36.25 $26.75 $31.625 $16.6875 Third Quarter $46.75 $31.00 $26.4375 $18.625 Fourth Quarter $48.15 $38.28 $22.00 $15.00
As of December 10, 2001, there were 5,189 holders of the common stock. No shares of the Company's Class B Convertible Common Stock, par value $0.001 per share (the "Class B common stock") are outstanding on the date of this Annual Report.
We have not declared or paid any dividends on our common stock to date and do not anticipate paying any such dividends in the foreseeable future. We intend to retain earnings for the foreseeable future to provide funds for the operation and expansion of our
business and for the repayment of indebtedness. Our current credit facility contains certain provisions which effectively limit the payment of dividends. Future borrowing agreements may also contain limitations on the payment of dividends. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon our financial condition, capital requirements, results of operations and other factors, including any contractual or statutory restrictions. We have no restricted retained earnings at September 30, 2001.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The selected statement of income data for the fiscal years ended September 30, 2001, 2000 and 1999 and the selected balance sheet data as of September 30, 2001 and 2000 are derived from our Consolidated Financial Statements including the Notes thereto audited by Ernst & Young LLP, independent auditors, appearing elsewhere in this Annual Report. The selected statement of income data for the fiscal years ended September 30, 1998 and 1997, and the selected balance sheet data as of September 30, 1999, 1998 and 1997, have been derived from our financial statements not included herein, which have been audited by Ernst &Young LLP. The selected financial data set forth below should be read in conjunction with, and is qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements, including the Notes thereto, appearing elsewhere in this Annual Report.
FISCAL YEARS ENDED SEPTEMBER 30, 2001 2000 1999 1998 1997 ------------- ------------- ------------- -------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF INCOME DATA: Revenues $310,789 $248,795 $220,149 $189,390 $129,143 Cost of goods sold 213,086 178,810 160,449 140,110 93,467 Plant expansion costs(1) -- -- 130 1,606 -- -------- -------- -------- -------- -------- Gross profit 97,703 69,985 59,570 47,674 35,676 Selling and marketing expense, including product introduction costs (2) 31,844 16,065 14,855 12,984 13,664 General and administrative expense 9,278 6,263 5,580 4,948 3,766 Provision for acquisition expenses (3) 5,537 -- -- -- -- -------- -------- -------- -------- -------- Operating profit 51,044 47,657 39,135 29,742 18,246 Interest expense, net 8,491 4,777 2,098 1,539 10,119 -------- -------- -------- -------- -------- Income before income tax expense and extraordinary loss 42,553 42,880 37,037 28,203 8,127 Income tax expense 14,680 15,426 13,519 10,557 3,070 Extraordinary loss, net of income taxes (4) (1,543) -- -- (2,332) -- -------- -------- -------- -------- -------- Net income $26,330 $27,454 $23,518 $15,314 $5,057 ======= ======= ======= ======= ======
Net income per common share (basic): Before extraordinary item $1.60 $1.53 $1.30 $1.03 $0.44 Extraordinary item (.09) -- -- (0.14) -- -------- -------- -------- -------- -------- Total $1.51 $1.53 $1.30 $0.89 $0.44 ======= ======= ======= ======= ====== Weighted average common shares outstanding 17,404 17,895 18,108 17,223 11,466
Net income per common share assuming dilution: Before extraordinary item $1.53 $1.50 $1.26 $0.98 $0.42 Extraordinary item (.08) -- -- (0.13) -- -------- -------- -------- -------- -------- Total $1.45 $1.50 $1.26 $0.85 $0.42 ======= ======= ======= ======= ====== Weighted average common shares outstanding 18,186 18,298 18,621 17,937 12,119
BALANCE SHEET DATA (AT END OF PERIOD): Cash and temporary investments $5,284 $6,677 $3,088 $5,442 $2,724 Working capital 53,781 46,941 29,222 23,242 12,188 Current ratio 221% 304% 212% 89% 181% Net property, plant & equipment 339,162 311,668 266,124 205,607 125,234 Total assets 560,143 383,771 322,222 259,381 158,175 Long-term debt, less current maturities 236,783 138,502 81,467 48,519 100,137 Stockholders' equity 245,192 198,404 201,730 176,784 42,984 Total Debt/Total Capitalization 49% 41% 29% 22% 70%
(1) Plant expansion costs include incremental direct and indirect manufacturing and distribution costs which are incurred as a result of construction, commissioning and start-up of new capital assets. These costs are expensed as incurred but are unrelated to current production and, therefore, are reported as a separate line item in the statement of income.
(2) Selling and marketing expense includes incremental product introduction costs, including payment of product placement or "slotting" fees, related to our launch of Pasta LaBella flavored pasta products into the U.S. retail market. There were no such costs during the fiscal year ended September 30, 2001, 2000, 1999 and 1998. Product introduction costs were $2.9 million for the fiscal year ended September 30, 1997.
(3) Provision for acquisition expenses include unusual incremental costs associated with the Mueller's brand acquisition ($1.8 million) and the acquisition of the seven brands from Borden Foods ($3.7 million).
(4) Represents losses due to early extinguishment of long-term debt, net of income taxes.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Introduction and Certain Cautionary Statements ----------------------------------------------
The following discussion and analysis of our financial condition and results of operations focuses on and is intended to clarify the results of our operations, certain changes in our financial position, liquidity, capital structure and business developments for the periods covered by the consolidated financial statements included in this Annual Report. This discussion should be read in conjunction with, and is qualified by reference to, the other related information including, but not limited to, the audited consolidated financial statements (including the notes thereto and the independent auditor's report thereon), the description of our business, all as set forth in this Annual Report, as well as the risk factors discussed above (the "Risk Factors").
As previously noted, the discussion set forth below, as well as other portions of this Annual Report, contains statements concerning potential future events. 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 on which the statements are based prove incorrect or should unanticipated circumstances arise, our actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors including, but not limited to, the Risk Factors. Readers are strongly encouraged to consider those factors when evaluating any such forward-looking statement. We will not update any forward-looking statements in this Annual Report.
Our fiscal year end is the last Friday of September or the first Friday of October. This results in a 52- or 53-week year depending on the calendar. Our 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 of each quarter. For purposes of this Form 10-K, our fiscal years are described as having ended on September 30. The 2001 and 2000 fiscal years were 52-week years.
Results of Operations ---------------------
The following table sets forth certain data from our statements of income, expressed as a percentage of revenues, for each of the periods presented.
FISCAL YEARS ENDED SEPTEMBER 30,
2001 2000 1999 ---- ---- ----
Revenues: Retail 71.9% 71.5% 72.8% Institutional 28.1% 28.5% 27.2% ---- ---- ---- Total revenues 100.0% 100.0% 100.0% ------ ------ ------ Cost of goods sold 68.6 71.9 72.9 ---- ---- ----
Gross profit 31.4 28.1 27.1
Selling and marketing expense 10.2 6.5 6.8
General and administrative expense 3.0 2.5 2.5 Provision for acquisition expenses 1.8 -- -- ---- ---- ----
Operating profit 16.4 19.1 17.8 Interest expense, net 2.7 1.9 1.0 Income tax expense 4.7 6.2 6.1 Extraordinary loss, net of income tax 0.5 -- -- ---- ---- ----
Net income 8.5% 11.0% 10.7% ==== ===== =====
FISCAL YEAR ENDED SEPTEMBER 30, 2001 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 2000
Revenues. Revenues increased $62.0 million, or 24.9%, to $310.8 million for the fiscal year ended September 30, 2001, from $248.8 million for the fiscal year ended September 30, 2000. The revenue increase was primarily due to volume growth of 16.0% over the prior year, and higher per unit selling prices primarily associated with the branded product line pasta acquisitions. Volume growth was led by private label (26.8%) and ingredient (35.4%). We expect increases in revenue in fiscal 2002 due to growth with existing customers, new customer accounts, and the acquisition of the seven brands from Borden Foods.
Revenues for the Retail market increased $45.7 million, or 25.8%, to $223.3 million for the fiscal year ended September 30, 2001, from $177.6 million for the fiscal year ended September 30, 2000. The increase primarily reflects volume growth of 10.4% over the prior year, and higher per unit selling prices associated with the branded product line pasta acquisitions.
Revenues for the Institutional market increased $16.3 million, or 22.8%, to $87.5 million for the fiscal year ended September 30, 2001, from $71.2 million for the fiscal year ended September 30, 2000. This increase was primarily a result of volume growth of 17.4% over the prior year and higher average selling prices.
Gross Profit. Gross profit increased $27.7 million, or 39.6%, to $97.7 million for the fiscal year ended September 30, 2001, from $70.0 million for the fiscal year ended September 30, 2000. Gross profit increased generally as a result of the volume and revenue gains referenced above. Gross profit as a percentage of revenues increased to 31.4% for the fiscal year ended September 30, 2001 from 28.1% for the fiscal year ended September 30, 2000. The increase in gross profit as a percentage of revenues relates to incremental gross profit on branded products subsequent to the acquisitions. For the fiscal year 2002, we expect increases in gross profit and the gross profit percentage to continue as a result of the factors listed above.
Selling and Marketing Expense. Selling and marketing expense increased $15.8 million, or 98.2%, to $31.8 million for the fiscal year ended September 30, 2001, from $16.1 million reported for the fiscal year ended September 30, 2000. Selling and marketing expense as a percentage of revenues increased to 10.2% for the fiscal year ended September 30, 2001, from 6.5% for the comparable prior period. This increase was primarily due to higher marketing costs associated with higher retail revenues, as well as the incremental marketing and personnel costs associated with the Mueller's acquisition. With the acquisitions of branded product lines from Bestfoods and Borden Foods, we expect marketing and selling expense to be significantly higher as a percent of sales than in prior periods.
General and Administrative Expense. General and administrative expense increased $3.0 million, or 48.1%, to $9.3 million for the fiscal year ended September 30, 2001, from $6.3 million reported for the comparable period last year. General and administrative expense as a percentage of revenues increased to 3.0% from 2.5%. The majority of the increase relates to personnel and intangible amortization costs associated with the Mueller's acquisition.
Provision for Acquisition Expenses. The provision for acquisition expenses of $5.5 million for the year consisted of unusual incremental costs associated with the Mueller's brand acquisition ($1.8 million) and the acquisition of the seven brands from Borden Foods ($3.7 million).
Operating Profit. Operating profit for the fiscal year ended September 30, 2001, was $51.0 million, an increase of 7.1% over the $47.7 million reported for the fiscal year ended September 30, 2000. Operating profit decreased as a percentage of revenues to 16.4% for the fiscal year ended September 30, 2001, from 19.1% for the fiscal year ended September 30, 2000, as a result of the factors discussed above. Excluding the $5.5 million charge for unusual incremental acquisition expenses, operating profit was $56.6 million, an $8.9 million or 18.7% increase over that reported in the prior year.
Operating profit as a percentage of net revenues, excluding the non-recurring charge, was 18.2% versus 19.1% in the prior year.
Interest Expense. Interest expense for the fiscal year ended September 30, 2001, was $8.5 million, increasing 77.7% from the $4.8 million reported for the fiscal year ended September 30, 2000. The increase related to borrowings associated with the branded product line acquisitions, our stock repurchase program, and capital expenditures. These increases were partially offset by cash flow from operations.
Income Tax. Income tax for the fiscal year ended September 30, 2001, was $14.7 million, decreasing $.7 million from the $15.4 million reported for the fiscal year ended September 30, 2000, and reflects effective income tax rates of approximately 34.5% and 36.0%, respectively.
Extraordinary Item. During the year ended September 30, 2001, we incurred a $1.5 million (net of tax) extraordinary loss in conjunction with the July 2001 extinguishment of our previous line of credit following our completion of a new $300 million credit agreement. There was no such item in the prior year.
Net Income. Net income for the fiscal year ended September 30, 2001, was $26.3 million, decreasing from the $27.5 million reported for the fiscal year ended September 30, 2000. Excluding the impact of the $5.5 million charge for unusual incremental acquisition costs, net income for the year totaled $30.0 million, an increase of $2.5 million or 9.1% over the prior year. Net income per common share-assuming dilution was $1.45 in fiscal 2001 compared to $1.50 per share for the fiscal year ended September 30, 2000. Excluding the impact of the $5.5 million charge for non-recurring acquisition costs and the extraordinary item, diluted earnings per common share was $1.73, and net income as a percentage of net revenue was 10.1% versus 11.0% in the prior year.
FISCAL YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 1999
Revenues. Revenues increased $28.6 million, or 13.0%, to $248.8 million for the fiscal year ended September 30, 2000, from $220.1 million for the fiscal year ended September 30, 1999. The revenue increase was primarily due to volume growth of 17.7% over the prior year, offset by lower average selling prices. The pass-through of lower durum wheat costs, along with changes in sales mix, created a 3.7% reduction in average selling prices.
Revenues for the Retail market increased $17.6 million, or 11.0%, to $177.8 million for the fiscal year ended September 30, 2000, from $160.2 million for the fiscal year ended September 30, 1999. The increase primarily reflects volume growth of 12.2% over the prior year, offset by lower average selling prices. Revenues for the current year were affected by the restructuring of several private label programs, which lowered revenues and promotional expenses versus the prior year.
Revenues for the Institutional market increased $11.0 million, or 18.4%, to $71.0 million for the fiscal year ended September 30, 2000, from $60.0 million for the fiscal year ended September 30, 1999. This increase was primarily a result of volume growth of 28.4% over the prior year, 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 volumes, created a 7.8% reduction in average selling prices.
Gross Profit. Gross profit increased $10.4 million, or 17.5%, to $70.0 million for the fiscal year ended September 30, 2000, from $59.6 million for the fiscal year ended September 30, 1999. Gross profit increased generally as a result of the volume and revenue gains referenced above. Gross profit as a percentage of revenues increased to 28.1% for the fiscal year ended September 30, 2000 from 27.1% for the fiscal year ended September 30, 1999. The increase in gross profit as a percentage of revenues relates to lower raw material costs and lower operating costs per unit.
Selling and Marketing Expense. Selling and marketing expense increased $1.2 million, or 8.1%, to $16.1 million for the fiscal year ended September 30, 2000, from $14.9 million reported for the fiscal year ended September 30, 1999. Selling and marketing expense as a percentage of revenues decreased to 6.5% for the fiscal year ended September 30, 2000, from 6.8% for the comparable prior period. As discussed above, certain promotional expenses were lower in the fiscal year 2000 period due to the modification of several private label customer programs.
General and Administrative Expense. General and administrative expense increased $0.6 million, or 12.2%, to $6.3 million for the fiscal year ended September 30, 2000, from $5.6 million reported for the comparable period last year, and remained at 2.5% as a percentage of revenue.
Operating Profit. Operating profit for the fiscal year ended September 30, 2000, was $47.7 million, an increase of 21.8% over the $39.1 million reported for the fiscal year ended September 30, 1999. Operating profit increased as a percentage of revenues to 19.1% for the fiscal year ended September 30, 2000, from 17.8% for the fiscal year ended September 30, 1999.
Interest Expense. Interest expense for the fiscal year ended September 30, 2000, was $4.8 million, increasing 127.7% from the $2.1 million reported for the fiscal year ended September 30, 1999. The increase is attributable to interest on higher debt levels, offset by increased interest expense capitalization. The higher debt levels are attributable to the Company's recent share repurchase program and Italian expansion.
Income Tax. Income tax for the fiscal year ended September 30, 2000, was $15.4 million, increasing $1.9 million from the $13.5 million reported for the fiscal year ended September 30, 1999, and reflects effective income tax rates of approximately 36.0% and 36.5%, respectively.
Net Income. Net income for the fiscal year ended September 30, 2000, was $27.5 million, increasing from the $23.5 million reported for the fiscal year ended September
30, 1999. Net income per common share-assuming dilution was $1.50 in fiscal 2000 compared to $1.26 per share for the fiscal year ended September 30, 1999.
Liquidity and Capital Resources -------------------------------
Our primary sources of liquidity are cash provided by operations and borrowings under our credit facility. Cash and temporary investments totaled $5.3 million and net working capital totaled $53.8 million at September 30, 2001. At September 30, 2000, cash and temporary cash investments totaled $6.7 million and working capital totaled $46.9 million. The $6.9 million increase in working capital in fiscal year 2001 was financed with the existing credit facility and cash generated by operations.
Our net cash provided by operating activities totaled $44.2 million for the fiscal year ended September 30, 2001 compared to $38.9 million for the fiscal year ended September 30, 2000 and $38.0 million for the fiscal year ended September 30, 1999. The increases are primarily related to increases in net income before non-cash charges, offset by volume- related increases in net working capital requirements.
Cash flow used in investing activities principally relates to the purchase of the Mueller's pasta brand, the purchase of seven pasta brands from Borden Foods and investments in production, distribution, milling and management information system assets. Capital expenditures, excluding acquisitions, were $39.3 million for the fiscal year ended September 30, 2001, $57.7 million for the year ended September 30, 2000 and $74.0 million for the fiscal year ended September 30, 1999.
Net cash provided by financing activities was $91.7 million for the fiscal year ended September 30, 2001 compared to $21.1 million for the fiscal year ended September 30, 2000, and $33.7 million for the fiscal year ended September 30 1999. The $91.7 million is primarily a result of $244.6 million proceeds from issuance of debt (net of $3.0 million deferred issuance costs) offset by $152.6 million principal payment on debt and capital lease obligations. The $21.1 million is primarily a result of $57.3 million proceeds from issuance of debt, offset by $31.3 million used to purchase treasury stock. The $33.7 million is primarily a result of $34.0 million proceeds from issuance of debt.
We currently use cash to fund capital expenditures, repayments of debt and working capital requirements. We expect that future cash requirements will principally be for capital expenditures, repayments of indebtedness and working capital requirements.
On July 16, 2001, we secured a new five-year, $300 million revolving credit facility to replace the previous $190 million facility. The revolver includes $100 million of dual currency availability in Euros or U.S. dollars to finance our international business in Italy.
Our credit agreement 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 expect these limitations to have a material effect on business or results of operations. We are in compliance with all financial covenants contained in the credit agreement.
At September 30, 2001, the three-month LIBOR rate was 2.59%, the three-month Euribor rate was 3.656%, and our weighted average bank debt borrowing rate was 5.12%.
We utilize interest rate swap agreements and foreign exchange contracts to manage interest rate and foreign currency exposures. The principal objective of such financial derivative contracts is to moderate the effect of fluctuations in interest rates and foreign exchange rates. We, as a matter of policy, do not speculate in financial markets and therefore do not hold these contracts for trading purposes. We utilize what are considered simple instruments, such as forward foreign exchange contracts and non-leveraged interest rate swaps, to accomplish our objectives.
At this time, the current and projected borrowings under our credit facility do not exceed the facility's available commitment. The facility matures on October 2, 2006. We anticipate that any borrowings outstanding at that time will be satisfied with funds from operations or will be refinanced. We have no other material commitments.
We believe that net cash provided by operating activities and net cash provided by financing activities will be sufficient to meet our expected capital and liquidity needs for the foreseeable future.
Recently Issued Accounting Pronouncements -----------------------------------------
In October 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning after December 15, 2001. This new standard, when in effect, will supersede SFAS Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for the Long-Lived Assets to Be Disposed Of", providing one accounting model for the review of asset impairment. Statement No. 144 retains much of the recognition and measurement provisions of Statement No. 121, but removes goodwill from its scope. It also requires long-lived assets to be disposed of other than by sale to be considered as held and used until disposed of, requiring the depreciable life to be adjusted as an accounting change. Criteria to classify long-lived assets to be disposed of by sale has changed from SFAS Statement No. 121, but these costs will continue to be reported at the lower of their carrying amount or fair value less cost to sell, and will cease to be depreciated.
Statement 144 will also supercede the section of the Accounting Principles Board (APB) Opinion No. 30, which prescribes reporting for the effects of a disposal of a segment of a business. This statement retains the basic presentation provisions of the opinion, but requires losses on a disposal or discontinued operation to be recognized as incurred. It also broadens the definition of a discontinued operation to include a component of an entity.
In July 2001, the FASB issued Statement No. 143, "Accounting for Asset Retirement Obligations." The objective of this statement is to provide accounting guidance for legal obligations associated with the retirement of long-lived assets by requiring the fair value of a liability for the asset retirement obligation to be recognized in the period in which it is incurred. When the liability is initially recognized, the asset retirement costs should also be capitalized by increasing the carrying amount of the related long-lived asset. The liability is then accreted to its present value each period and the capitalized costs are depreciated over the useful life of the associated asset. This statement is effective for fiscal years beginning after June 15, 2002.
In June 2001, the (FASB) issued Statement No. 141, "Business Combinations", and Statement No. 142, "Goodwill and Other Intangible Assets". Statement No. 141 supercedes APB Opinion No. 16, "Business Combinations", and FASB Statement No. 28, "Accounting for Pre-acquisition Contingencies of Purchased Enterprises". This statement requires accounting for all business combinations using the purchase method, and changes the criteria for recognizing intangible assets apart from goodwill. This statement is effective for all business combinations initiated after June 30, 2001 and as such, the Company's July 2001 acquisition of certain Borden brands was accounted for in accordance with this statement. Statement No. 142 supercedes APB Opinion No. 17, "Intangible Assets" and addresses how purchased intangibles should be accounted for upon acquisition. The statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Upon adoption of this statement October 1, 2001, intangibles acquired as a part of the Mueller's transaction will be deemed to have an indefinite life and amortization will no longer be incurred. The Borden intangibles, consisting of trademarks and brand names are also deemed to have an indefinite life. All intangibles will be subject to periodic impairment testing and will be adjusted to fair value. This statement is effective for fiscal years beginning after December 15, 2001, and is not expected to have a material impact.
Other Matters -------------
None.
Effect of Inflation -------------------
During the last three fiscal periods, inflation has not had a material effect on our business. We have experienced increases in our cost of borrowing and raw materials, though generally not related to inflation. In general, we have increased the majority of customer sales prices to recover significant raw material cost increases. However, these changes in prices have historically lagged price increases in our raw material costs.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our principal exposure to market risk associated with financial instruments relates to interest rate risk associated with variable rate borrowings and foreign currency exchange rate risk associated with borrowings denominated in foreign currency. We occasionally utilize simple derivative instruments such as interest rate swaps to manage our mix of fixed and floating rate debt. We had various fixed interest rate swap agreements with notional amounts of $80 million outstanding at September 30, 2001. The estimated fair value of the interest rate swap agreements of $(429,000) is the amount we would be required to pay to terminate the swap agreements at September 30, 2001. If interest rates for our long-term debt under our credit facility had averaged 10% more and the full amount available under our credit facility had been outstanding for the entire year, our interest expense would have increased, and income before taxes would have decreased by $1.1 million for the year ended September 30, 2001. We hedge our net investment in our foreign subsidiaries with euro borrowings under our credit facility. Changes in the U.S. dollar equivalent of euro-based borrowings is recorded as a component of the net translation adjustment in the consolidated statement of stockholder's equity.
The functional currency for our Italy operation is the Euro. At September 30, 2001, long-term debt includes obligations of 63.3 million Euros ($54.0 million) under a credit facility which bears interest at a variable rate based upon the Euribor rate.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMERICAN ITALIAN PASTA COMPANY
Index to Audited Consolidated Financial Statements
Page ---- Report of Independent Auditors 29
Consolidated Balance Sheets at September 30, 2001 and 2000 30
Consolidated Statements of Income for the years ended September 30, 2001, 2000 and 1999 31
Consolidated Statements of Stockholders' Equity for the years ended September 30, 2001, 2000 and 1999 32
Consolidated Statements of Cash Flows for the years ended September 30, 2001, 2000 and 1999 33
Notes to Consolidated Financial Statements 34
Report of Independent Auditors
The Board of Directors American Italian Pasta Company
We have audited the accompanying consolidated balance sheets of American Italian Pasta Company (the Company) as of September 30, 2001 and 2000, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended September 30, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Italian Pasta Company at September 30, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2001, in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Kansas City, Missouri October 31, 2001
AMERICAN ITALIAN PASTA COMPANY
Consolidated Balance Sheets
September 30, September 30, 2001 2000 ---- ---- (In thousands) Assets Current assets: Cash and temporary investments $5,284 $6,677 Trade and other receivables 37,546 27,479 Prepaid expenses and deposits 8,024 4,424 Inventory 43,866 28,390 Deferred income taxes (Note 3) 3,565 2,989 ----- ----- Total current assets 98,285 69,959 Property, plant and equipment: Land and improvements 8,123 7,159 Buildings 99,548 85,157 Plant and mill equipment 269,751 230,383 Furniture, fixtures and equipment 10,957 10,011 ----- ----- 388,379 332,710 Accumulated depreciation (80,453) (64,769) -------- -------- 307,926 267,941 Construction in progress 31,236 43,727 ------ ------ Total property, plant and equipment 339,162 311,668 Intangible assets 116,707 -- Other assets 5,989 2,144 ----- ----- Total assets $560,143 $383,771 ======== ========
Liabilities and stockholders' equity
Current liabilities: Accounts payable $ 22,416 $ 12,261 Accrued expenses 19,652 8,352 Income tax payable 877 841 Current maturities of long-term debt (Note 2) 1,559 1,564 ----- ----- Total current liabilities 44,504 23,018 Long-term debt (Note 2) 236,783 138,502 Deferred income taxes (Note 3) 33,664 23,847 Commitments and contingencies (Note 4) Stockholders' equity: (Notes 6 & 10) Preferred stock, $.001 par value: Authorized shares - 10,000,000 -- -- Class A common stock, $.001 par value: Authorized shares - 75,000,000 19 18 Class B common stock, $.001 par value: Authorized shares - 25,000,000 -- -- Additional paid-in capital 202,674 177,725 Treasury stock (34,394) (31,362) Notes receivable from officers (61) (61) Unearned compensation (223) -- Retained earnings 80,563 54,233 Accumulated other comprehensive income (loss) (3,386) (2,149) ------- ------- Total stockholders' equity 245,192 198,404 -------- ------- Total liabilities and stockholders' equity $560,143 $383,771 ======== ========
See accompanying notes to consolidated financial statements.
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Income
Year ended Year ended Year ended September 30, September 30, September 30, 2001 2000 1999 ---- ---- ---- (In thousands, except per share amounts) Revenues (Note 5) $310,789 $248,795 $220,149 Cost of goods sold 213,086 178,810 160,579 ------- ------- ------- Gross profit 97,703 69,985 59,570 Selling and marketing expense 31,844 16,065 14,855 General and administrative expense 9,278 6,263 5,580 Provision for acquisition expenses 5,537 -- -- ------- ------- ------- --- ----- ------ -- ------ -- Operating profit 51,044 47,657 39,135 Interest expense, net 8,491 4,777 2,098 ------- ------- ------- Income before income tax expense and extraordinary item 42,553 42,880 37,037 Income tax expense (Note 3) 14,680 15,426 13,519 ------- ------- ------- Income before extraordinary item 27,873 27,454 23,518 Extraordinary item: Loss due to early extinguishment of long-term debt, net of income taxes (1,543) -- -- ------- ------- ------- Net income $ 26,330 $ 27,454 $ 23,518 ======== ======== ========
Net income per common share: Before extraordinary item $ 1.60 $ 1.53 $ 1.30 Extraordinary item (.09) -- -- ------- ------- ------- Total $ 1.51 $ 1.53 $ 1.30 ====== ====== ======
Weighted-average common shares outstanding 17,404 17,895 18,108 ====== ====== ======
Net income per common share assuming dilution: Before extraordinary item $ 1.53 $ 1.50 $ 1.26 Extraordinary item (.08) -- -- ------- ------- ------- Total $ 1.45 $ 1.50 $ 1.26 ====== ====== ======
Weighted-average common shares outstanding 18,186 18,298 18,621 ====== ====== ======
See accompanying notes to consolidated financial statements.
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Stockholders' Equity
Year ended Year ended Year ended September 30, September 30, September 30, 2001 2000 1999 ------------------ ------------------ ------------------ (In thousands)
Class A Common Shares Balance, beginning of year 18,363 18,177 18,087 Issuance of shares of Class A Common stock to option holders & other issuances 855 186 90 --- --- -- Balance, end of year 19,218 18,363 18,177 ====== ====== ======
Class A Common Stock Balance, beginning of year $ 18 $ 18 $ 18 Issuance of shares of Class A Common stock to option holders &other issuances 1 -- -- -- --- --- Balance, end of year $ 19 $ 18 $ 18 ===== ===== =====
Additional Paid-in Capital Balance, beginning of year $ 177,725 $ 175,030 $ 173,642 Issuance of shares of Class A Common stock to option holders & other issuances 24,949 2,695 1,388 ------ ----- ----- Balance, end of year $ 202,674 $ 177,725 $ 175,030 ========= ========= =========
Treasury Stock Balance, beginning of year $(31,362) $ (26) $ (13) Purchase of treasury stock (3,032) (31,336) (13) ------- -------- ---- Balance, end of year $(34,394) $(31,362) $ (26) ========= ========= ======
Notes Receivable from Officers Balance, beginning of year $ (61) $ (71) $ (124) Paydown of notes receivable from officers - 10 53 -- --- --- Balance, end of year $ (61) $ (61) $ (71) ====== ====== ======
Unearned Compensation Balance, beginning of year $ -- $ -- $ -- Issuance of common stock (223) -- -- ----- --- --- Balance, end of year $ (223) $ -- $ -- ======= ===== =====
Other Comprehensive Income (Loss) Balance, beginning of year $ (2,149) $ -- $ -- Interest rate swaps fair value adjustment (429) -- -- Foreign currency translation adjustment (808) (2,149) -- ----- ------- -- Balance, end of year $ (3,386) $ (2,149) $ -- ========= ========= =====
Retained Earnings Balance, beginning of year $54,233 $26,779 $ 3,261 Net income 26,330 27,454 23,518 ------ ------ ------ Balance, end of year 80,563 54,233 26,779 ------ ------ ------
Total Stockholders' Equity $ 245,192 $ 198,404 $ 201,730 ========= ========= =========
See accompanying notes to consolidated financial statements.
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Cash Flows
Year ended Year ended Year ended September 30, September 30, September 30, 2001 2000 1999 ---- ---- ---- (In thousands) Operating activities: Net income $ 26,330 $ 27,454 $ 23,518 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 17,513 15,906 13,701 Deferred income tax expense 9,817 8,958 8,384 Extraordinary loss due to early extinguishment of long-term debt 1,543 -- -- Changes in operating assets and liabilities: Trade and other receivables (11,479) (5,478) (4,520) Prepaid expenses and deposits (3,598) (472) (2,216) Inventory (3,175) (3,180) 2,824 Accounts payable and accrued expenses 7,984 (3,635) 4,252 Advance customer payments -- -- (5,957) Income taxes 1,977 2,205 (1,214) Other (2,665) (2,864) (805) ------- ------- ----- Net cash provided by operating activities 44,247 38,894 37,967 Investing activities: Purchase of Mueller's brand (23,816) -- -- Purchase of seven brands from Borden Foods (72,638) -- -- Additions to property, plant and equipment (39,275) (57,706) (73,980) - -------- - -------- - -------- Net cash used in investing activities (135,729) (57,706) (73,980) Financing activities: Additions to deferred debt issuance costs (3,034) (791) -- Proceeds from issuance of debt 247,593 57,304 34,115 Principal payments on debt and capital lease obligations (152,598) (5,452) (1,229) Proceeds from issuance of common stock, net of issuance costs 2,812 1,330 786 Purchases of treasury stock (3,032) (31,336) (13) Other -- 10 -- --------- ------- ------ Net cash provided by financing activities 91,741 21,065 33,659 Effect of exchange rate changes on cash (1,652) 1,336 -- --------- ------- ------ Net increase (decrease) in cash and temporary investments (1,393) 3,589 (2,354) Cash and temporary investments at beginning of year 6,677 3,088 5,442 --------- ------- ------ Cash and temporary investments at end of year $ 5,284 $ 6,677 $3,088 ======= ======== ======
See accompanying notes to consolidated financial statements.
AMERICAN ITALIAN PASTA COMPANY
Notes to Consolidated Financial Statements September 30, 2001
1. Summary of Significant Accounting Policies
Nature of Business
American Italian Pasta Company (the Company) is a Delaware corporation which began operations in 1988. The Company is the largest producer and marketer of pasta products in the United States and has manufacturing and distribution facilities located in Excelsior Springs, Missouri, Columbia, South Carolina, Kenosha, Wisconsin, and Verolanuova, Italy.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all majority owned subsidiaries.
Fiscal Year End
The Company's fiscal year ends on the last Friday of September or the first Friday of October, resulting in a 52- or 53-week year depending on the calendar. The Company's first three quarters end on the Friday last preceding December 31, March 31 and June 30 or the first Friday of the following month of each quarter. For purposes of the financial statements and notes thereto, the Company's fiscal year is described as having ended on September 30.
Revenue Recognition
Sales of the Company's products, including pricing terms, are final upon shipment of the goods, except for certain supply contracts where the requirements have been met for recognizing revenue upon completion of production.
Foreign Currency
The Company's functional currency is the U.S. dollar. Accordingly, assets and liabilities of the Company's foreign operations are remeasured at year-end or historical rates depending on their nature; income and expenses are remeasured at the weighted-average exchange rates for the year. Foreign currency gains and losses resulting from transactions are included in consolidated operations in the year of occurrence.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Risks and Uncertainties
The Company grants credit to certain customers who meet the Company's pre-established credit requirements. Generally, the Company does not require collateral security when trade credit is granted to customers. Credit losses are provided for in the financial statements and consistently have been within management's expectations. The allowance for doubtful accounts at September 30, 2001 and 2000 was $847,000 and $178,000, respectively. At September 30, 2001 and 2000, approximately 16% and 43%, respectively, of accounts receivable were due from three customers.
Pasta is made from semolina milled from durum wheat, a class of hard amber wheat purchased by the Company from certain parts of the world. The Company mills the wheat into semolina at both the Excelsior Springs and Columbia plants. Durum wheat is a narrowly traded commodity crop. The Company attempts to minimize the effect of durum wheat cost fluctuations through forward purchase contracts and raw material cost-based pricing agreements with many of its customers. The Company's commodity procurement and pricing practices are intended to reduce the risk of durum wheat cost increases on profitability, but also may temporarily affect the timing of the Company's ability to benefit from possible durum wheat cost decreases for such contracted quantities.
Derivative Instruments
Financial Accounting Standards Board Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133), requires companies to recognize all of its derivative instruments as either assets or liabilities in the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation.
For derivative instruments that are designated and qualify as a fair value hedge (i.e., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings during the period of the change in fair values. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change. For derivative instruments that are designated and qualify as a hedge of a net investment in a foreign currency, the gain or loss is reported in other comprehensive income as part of the cumulative translation adjustment to the extent it is effective. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change.
Cash Flow Hedging Strategy
To protect against increases in the value of forecasted foreign currency cash outflows for the purchase of product from Italy for sale in the United States, the Company has instituted a Euro cash flow hedging program. The Company hedges portions of its forecasted purchases in Euros with forward contracts. If the dollar weakens against the Euro, the increased cost of future Euro-denominated purchases is offset by gains in the value of the forward contracts designated as hedges. Conversely, if the dollar strengthens, the decreased cost of future Euro-denominated purchases is offset by losses in the value of the forward contracts.
The Company has entered into interest rate swap agreements that effectively convert a portion of its floating-rate debt to a fixed-rate basis for the next two years, thus reducing the impact of interest rate changes on future interest expense. Approximately 34% ($80 million) of the Company's outstanding short-term debt was designated as the hedged items to interest rate swap agreements at September 30, 2001.
At September 30, 2001, the Company expects to reclassify ($167,000) of net gains (losses) on derivative instruments from accumulated other comprehensive income to earnings during the next twelve months due to actual export sales and the payment of variable interest associated with the floating rate debt.
Hedge of Net Investment in Foreign Operations
The Company uses foreign denominated variable debt to protect the value of its investments in its foreign subsidiaries in Italy. Realized and unrealized gains and losses from these hedges are not included in the income statement, but are shown in the cumulative translation adjustment account included in other comprehensive income, with the related amounts due to or from counterparties included in other liabilities or other assets.
During the year ended September 30, 2001, the Company recognized $1,094,000 of net gains (losses), included in the cumulative translation adjustment, related to the foreign denominated variable-rate debt.
Financial Instruments
The carrying value of the Company's financial instruments, including cash and temporary investments, accounts receivable, accounts payable and long-term debt, as reported in the accompanying consolidated balance sheets at September 30, 2001 and 2000, approximates fair value. The estimated fair value of the interest rate swap agreement outstanding at September 30, 2001 of ($429,000) is the amount the Company would be required to pay to terminate the swap agreement at September 30, 2001.
Cash and Temporary Investments
Cash and temporary investments include cash on hand, amounts due from banks and highly liquid marketable securities with maturities of three months or less at the date of purchase.
Inventories
Inventories are stated using product specific standard costs which approximate the lower of cost or market determined on a first-in, first-out (FIFO) basis. Inventories consist of the following:
September 30, 2001 September 30, 2000 ------------------ ------------------ (In thousands) Finished goods $33,134 $19,701 Raw materials, packaging materials and work-in-process 10,732 8,689 ------- ----- $43,866 $28,390 ======= =======
Property, Plant and Equipment
Capital additions, improvements and major renewals are classified as property, plant and equipment and are recorded at cost. Depreciation is calculated for financial statement purposes using the straight-line method over the estimated useful life of the related asset for each year as follows:
Number of Years ----- Land improvements 40 Buildings 30 Plant and mill equipment 20 Packaging equipment 10 Furniture, fixtures and equipment 5
The Company capitalizes interest costs associated with the construction and installation of plant and equipment. During the years ended September 30, 2001, 2000 and 1999, approximately $2,567,000, $2,086,000 and $2,713,000, respectively, of interest cost was capitalized.
Intangible Assets
During the fiscal year ended September 30, 2001, the Company acquired the Mueller's brand from Bestfoods, Inc. for $44.4 million, consisting of $23.8 million in cash and 686,666 shares of common stock valued at $30 per share. The purchase price was allocated to trademarks and brand name. These intangibles were assigned a life of forty years, and accordingly, the Company recognized approximately $1.0 million of amortization expense during the year ended September 30, 2001. Effective October 1, 2001, the Company has adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, and assigned an indefinite life to trademarks and brand name and, as such, will no longer incur amortization expense related to these assets.
In addition, during the fiscal year ended September 30, 2001, the Company acquired seven pasta brands from Borden, Inc., including Anthony's&;, Globe/A-1&;, Luxury®, Mrs. Grass®, Pennsylvania Dutch®, R&F, and Ronco®. The purchase price in the Borden transaction was $72.6 million and has been preliminarily allocated to trademarks and brand name. The Company believes these assets have an indefinite life and, as the transaction occurred after July 1, 2001, is not amortizing the amounts, in accordance with SFAS No. 142, Goodwill and Other Intangible Assets.
The Company has obtained preliminary independent appraisals of the fair values of the acquired Borden brands. Accordingly, the allocation of the purchase price is subject to revision, which is not expected to be material, based on the final determination of appraised and other fair values.
Intangible assets are reviewed at least annually for impairment by comparing the Company's best estimate of fair value with the carrying amount of the intangible.
Other Assets
Other assets consist of the following:
September 30, September 30, 2001 2000 ---- ---- (In thousands)
Package design costs $6,393 $ 4,370 Deferred debt issuance costs 3,034 791 Other 1,414 1,215 ----- ------- 10,841 6,376 Accumulated amortization (4,852) (4,232) ------- -------- $5,989 $ 2,144 ====== =======
Package design costs relate to certain incremental third party costs to design artwork and produce die plates and negatives necessary to manufacture and print packaging materials according to the Company's and customers' specification. These costs are amortized ratably over a two to five year period. In the event that product packaging is discontinued prior to the end of the amortization period, the respective package design costs are written off. Package design costs, net of accumulated amortization, were $2,573,000 and $1,190,000 at September 30, 2001 and 2000, respectively.
Income Taxes
The Company accounts for income taxes in accordance with the method prescribed by SFAS No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its employee stock options and have adopted the pro forma disclosure requirements under SFAS No. 123 "Accounting for Stock-Based Compensation." Under APB No. 25, because the exercise price of the Company's employee stock options is equal to or greater than the market price of the underlying stock on the date of grant, no compensation expense is recognized.
Shipping and Handling Costs
Costs incurred related to shipping and handling are included in cost of goods sold in the Company's consolidated statements of income.
Net Income Per Common Share
Net income per common share is calculated using the weighted-average number of common shares and, in the case of diluted net income per share, common equivalent shares, to the extent dilutive, outstanding during the periods.
Dilutive securities, consisting of options (see Note 6), included in the calculation of diluted weighted average common shares were 782,000 shares in fiscal 2001, 403,000 shares in fiscal 2000 and 513,000 shares in fiscal 1999.
2. Long-Term Debt
On July 16, 2001, the Company secured a new five-year $300 million revolving credit facility to replace the Company's previous $190 million facility. The revolver includes a $100 million dual currency availability in Euros or U.S. dollars to finance the Company's international business in Italy. The credit facility matures on October 2, 2006. Available borrowings under the credit facility were $76,707,000 at September 30, 2001.
The principal maturity terms of the new $300 million, long-term revolving credit facility are as follows:
Amount Date (in thousands)
Scheduled Commitment Reduction $25,000 October 1, 2002 Scheduled Commitment Reduction 25,000 October 1, 2003 Scheduled Commitment Reduction 30,000 October 1, 2004 Scheduled Commitment Reduction 30,000 October 1, 2005 Final Maturity 190,000 October 2, 2006 ------- $300,000 ========
Interest is to be charged at either the base rate (higher of prime or 1/2 of 1% in excess of the federal funds effective rate) or LIBOR/Euribor plus an applicable margin based on a sliding scale of the ratio of the Company's total indebtedness divided by earnings before interest, taxes, depreciation and amortization (EBITDA). In addition, a commitment fee is charged on the unused facility balance based on the sliding scale of the Company's total indebtedness divided by EBITDA. The stated interest plus the commitment fee is classified as interest expense.
In 2001, the Company redeemed, prior to scheduled maturities, $147.4 million of debt with interest rates ranging from 4.7% to 6.4%. This resulted in a $1.5 million after-tax extraordinary loss for the Company.
Long-term debt consists of the following:
September 30, September 30, 2001 2000 (In thousands) Term loans under credit facility $223,722 $123,458 Capital lease, 12-year term with three, five-year renewal options, at an imputed interest rate of 7.2% 3,991 4,333 Capital lease, 15-year term with three, five-year renewal options, at an imputed interest rate of 8.5% 2,816 3,024 Capital lease, 12-year term with three, five-year renewal options, at an imputed interest rate of 8.5% 6,308 6,661 Capital lease, eight-year term at an imputed interest rate of 8.5% 1,037 1,325 Other 468 1,265 ------- -------- 238,342 140,066 Less current portion 1,559 1,564 ------- -------- $236,783 $138,502 ======== ========
The Company's weighted average interest rates related to borrowings under the credit facility for the years ended September 30, 2001, 2000, and 1999, were as follows:
2001 2000 1999 ---- ---- ----
Weighted-average interest rate 6.04% 6.6% 6.8%
Annual maturities of long-term debt and capital lease obligations for each of the next five years ended September 30, are as follows:
Long-Term Debt Capital Leases and Year Other Total (In thousands) 2002 $ -- $ 2,689 2003 -- 2,860 2004 3,293 2,069 2005 30,000 2,015 2006 -- 2,006 Thereafter 190,000 8,769 ------- ----- 223,293 20,408 $243,701 Less imputed interest -- 5,788 5,788 ------- ------ --- ----- Present value of net minimum payments 223,293 14,620 237,913 Less current portion -- 1,559 1,559 -------- ----- --- ----- Long-term obligations $223,293 $13,061 $236,354 ======== ======= ========
The revolving credit facility contains various 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 the Company's ability to enter into certain contractual arrangements. The Company was in compliance with the restrictive covenants as of September 30, 2001. The facility is unsecured.
The Company leases certain assets under capital lease agreements. At September 30, 2001 and 2000, the cost of these assets was $20,202,000 and $20,010,000, respectively, and related accumulated amortization was $3,897,000 and $3,244,000, respectively.
3. Income Taxes
The Company has AMT credit carryforwards of $9,537,000 and $11,189,000 at September 30, 2001 and 2000, respectively, with no expiration date. Management believes it is more likely than not that deferred tax assets associated with these items will be realized through the generation of future taxable income and available tax planning strategies.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
September 30, September 30, 2001 2000 ---- ---- (In thousands) Deferred tax assets: Net operating loss carryforwards $ -- $1,161 Missouri Expansion Credits -- 250 AMT credit carryforward 9,537 11,189 Inventory valuation 2,176 1,364 Other 1,157 712 ----- ------ Total deferred tax assets 12,870 14,676 Deferred tax liabilities: Book basis of tangible assets greater than tax 40,454 35,534 Book basis of intangible assets greater than tax 2,515 -- ----- ------ Total deferred tax liabilities 42,969 35,534 ----- ------ Net deferred tax liabilities $(30,099) $(20,858) ========= =========
Significant components of the provision for income taxes are as follows:
Year ended Year ended Year ended September 30, September 30, September 30, 2001 2000 1999 ---- ---- ---- (In thousands) Current income tax expense $ 5,098 $ 6,468 $ 5,135 Deferred tax expense 9,582 8,958 8,384 ----- ----- ----- Total income tax expense $14,680 $15,426 $13,519 ======= ======= =======
The reconciliation of income tax computed at the U.S. statutory tax rate to income tax expense is as follows:
Year ended Year ended Year ended September 30, September 30, September 30, 2001 2000 1999 ---- ---- ---- (In thousands) Income before income taxes $42,553 $42,880 $37,037 U.S. statutory tax rate x 35% x 35% x 35% ------ ----- ----- Federal income tax expense at U.S. statutory rate 14,893 15,008 12,963 State income tax expense, net of federal tax effect 261 643 741 Foreign tax rate differences (308) -- -- Other, net (166) (225) (185) ----- ----- ----- Total income tax expense $14,680 $15,426 $13,519 ======= ======= =======
Income tax benefit allocated to other items was as follows:
Year ended Year ended Year ended September 30, September 30, September 30, 2001 2000 1999 ---- ---- ---- (In thousands) Extraordinary item $(812) $ -- $ --
Stock option arrangements (1) (917) (1,363) (655)
(1) This amount has been recorded directly to "Additional Paid-In Capital".
4. Commitments and Contingencies
The Company had durum wheat purchase commitments totaling approximately $24 million and $7 million at September 30, 2001 and 2000, respectively.
Under an agreement with its predominant rail carrier, the Company is obligated to transport specified wheat volumes. In the event the specified transportation volumes are not met, the Company is required to reimburse certain rail carrier costs. The Company is in compliance with the volume obligations at September 30, 2001.
5. Major Customers
Sales to a certain customer during the years ended September 30, 2001, 2000 and 1999 represented 13%, 15% and 16% of revenues, respectively. Sales to a second customer during the years ended September 30, 2001, 2000 and 1999 represented 6%, 12% and 13% of revenues, respectively. Sales to a third customer during fiscal 2000 and 1999 were 23% and 29% of revenues, respectively. With the Company's acquisition of the Mueller's brand on November 14, 2000, the Company no longer has revenues arising from transactions with this major customer.
6. Stock Option Plan
In October 1992, a stock option plan was established that authorizes the granting of options to purchase up to 1,201,880 shares of the Company's common stock by certain officers and key employees. In October 1993, an additional plan was established that authorizes the granting of options to purchase up to 82,783 shares of the Company's common stock. In October 1997, a third stock option plan was established that authorizes the granting of options to purchase up to 2,000,000 shares of the Company's common stock by certain officers and key employees. In December 2000, a fourth stock option plan was established that authorizes the granting of options to purchase up to 1,000,000 shares of the Company's common stock by certain officers and key employees. The stock options expire 10 years from the date of grant and become exercisable over the next three to five years in varying amounts depending on the terms of the individual option agreements.
Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rates of 4.5%; dividend yields of zero; volatility factors of the expected market price of the Company's common stock of .358 for fiscal 2001, .483 for fiscal 2000 and .507 for fiscal 1999; and a weighted-average expected life of the option of one to five years. --------
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (in thousands except for earnings per share information):
2001 2000 1999 ---- ---- ----
Pro forma net income $23,924 $25,543 $22,325 Pro forma earnings per share: Basic $1.37 $1.43 $1.24 Diluted $1.32 $1.40 $1.20
A summary of the Company's stock option activity, and related information is as follows:
Weighted Average Option Price Exercise Number of Shares Per Share Price Exercisable ---------------- --------- ----- -----------
Outstanding at September 30, 1998 1,922,305 $4.92-$30.00 $14.14 626,985 Exercised (83,533) $4.92-$18.00 $6.72 Granted 147,416 $22.50-$27.875 $24.32 Canceled/Expired (41,480) $12.23-$27.56 $22.18 ------- Outstanding at September 30, 1999 1,944,708 $4.92-$30.00 $15.06 1,044,066 Exercised (178,508) $4.92-$25.00 $6.66 Granted 863,697 $16.375-$25.00 $22.29 Canceled/Expired (41,373) $12.23-$27.875 $23.87 ------- Outstanding at September 30, 2000 2,588,524 $4.92-$30.00 $17.91 1,445,693 Exercised (139,369) $4.92-$32.00 $18.22 Granted 204,900 $18.375-$45.30 $36.04 Canceled/Expired (23,191) $18.00-$26.75 $24.42 --------- Outstanding at September 30, 2001 2,630,864 $4.92-$45.30 $19.25 1,679,454 =========
The following table summarizes outstanding and exercisable options at September 30, 2001:
Options Outstanding Options Exercisable ------------------- ------------------- Number Weighted Average Number Weighted Average Exercise Prices Outstanding Exercise Price Exercisable Exercise Price --------------- ----------- --------------- ----------- -------------- $ 4.92 142,396 $ 4.92 142,396 $ 4.92 $ 7.02 169,244 $ 7.02 169,244 $ 7.02 $ 12.23 257,140 $ 12.23 257,140 $12.23 $ 16.375-16.625 46,000 $ 16.57 10,000 $16.575 $ 18.00-18.50 1,159,448 $ 18.11 815,973 $18.11 $ 22.50-26.50 599,986 $ 24.73 265,051 $24.94 $ 26.69-30.00 118,750 $ 28.66 19,650 $28.99 $31.30-35.35 6,900 $ 33.53 -- -- $39.30-$45.30 131,000 $ 40.98 -- --
7. Employee Benefit Plans
The Company has a defined contribution plan organized under Section 401(k) of the Internal Revenue Code covering substantially all employees. The plan allows all qualifying employees to contribute up to the tax deferred contribution limit allowable by the Internal Revenue Service. The Company will match 50% of the employee contributions up to a maximum employee contribution of 6% of the employee's salary and may contribute additional amounts to the plan as determined annually by the Board of Directors. Employer contributions related to the plan totaled $976,000, $450,000, and $380,000 for the years ended September 30, 2001, 2000 and 1999, respectively.
The Company sponsors an Employee Stock Purchase Plan (ESPP) which offers all employees the election to purchase AIPC common stock at a price equal to 90% of the market value on the first or last day of the calendar quarter, whichever is less. At September 30, 2001, 2000, and 1999, authorized shares under this plan were 50,000.
8. Supplemental Cash Flow Information Year ended September 30, Year ended September 30, Year ended September 30, 2001 2000 1999 ---- ---- ---- (In thousands) Supplemental disclosure of cash flow information: Cash paid for interest $ 10,158 $ 6,389 $ 4,942 ======== ======= ======= Cash paid for income taxes $ 2,992 $ 4,462 $ 5,944 ======= ======= ======= Warehouse acquired in exchange for capital lease $ -- $ 6,800 $ -- ==== ======= ==== Mueller's brand acquired in exchange for common stock $ 20,600 $ -- $ -- ======== ==== ====
9. Stock Repurchase Plan
On March 20, 2000, the Company's Board of Directors authorized up to $25 million to implement a common stock repurchase program of up to one million shares during the next twelve months.
On July 14, 2000, the Company's Board of Directors authorized an increase to its share repurchase programs to cover a total of 1.5 million shares, and allocated an additional $10 million to make these purchases.
During the years ended September 30, 2001 and 2000, the Company purchased 154,849 shares for $3,032,000, at $19.58 per share, and 1,500,000 shares, for approximately $31,336,000, at prices ranging from $16.57 to $25.94 per share. Total shares held in treasury as of September 30, 2001 and 2000, were 1,654,981 and 1,500,132, respectively.
10. Notes Receivable from Officers
In April 1997, certain officers of the Company acquired 42,366 shares of common stock. At the same time, the Company loaned these officers $298,000, of which $61,000 remains outstanding at September 30, 2001. The loans which were evidenced by promissory notes are payable in equal installments over three years commencing upon termination of certain transfer restrictions applicable to such shares under the Stockholders Agreement, not later than December 31, 1998. The notes are collateralized by the pledge of shares of common stock of the Company, may be prepaid in part or in full without notice or penalty and bear interest at the applicable federal rate in effect on the first day of each quarter. These loans are classified as a reduction to stockholders' equity in the accompanying consolidated balance sheet at September 30, 2001 and 2000.
11. Board of Directors Remuneration Policy
The Company provides outside directors with an annual retainer amount in common stock equal to $15,000 per director. The issuance is in lieu of a cash payment and occurs immediately following the annual meeting of the stockholders. These shares are not registered and are restricted for a twelve-month period.
12. Unearned Compensation
In September 2001, the Company issued 5,504 shares of restricted stock to certain officers of the Company. The Company recorded the fair value of the awards at the market price on the grant date. The value of the awards was recorded as unearned compensation. The awards contained a cliff vesting provision and therefore expense will be recognized on a straight-line basis over the vesting period. The unearned compensation is classified as a reduction to stockholder's equity in the accompanying consolidated balance sheet at September 30, 2001.
13. Quarterly Financial Data - Unaudited
(In thousands, except per share data)
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- Year ended September 30, 2001 Revenues $ 66,404 $ 75,030 $ 77,300 $ 92,055 Gross profit 19,090 23,388 25,282 29,943 Operating profit 9,541 13,804 15,134 12,566 Net income 5,249 7,690 8,491 4,901 Basic net income per common share 0.31 0.44 0.49 0.28 Net income per common share --assuming dilution 0.30 0.42 0.46 0.27
Year ended September 30, 2000 Revenues $ 59,141 $ 63,965 $ 60,622 $ 65,067 Gross profit 16,054 18,066 17,713 18,152 Operating profit 10,692 11,991 12,402 12,572 Net income 6,010 6,915 7,260 7,269 Basic net income per 0.33 0.38 0.40 0.42 common share Net income per common share --assuming dilution 0.32 0.37 0.40 0.42
The above quarterly financial data is unaudited, but in the opinion of management, all adjustments necessary for a fair presentation of the selected data for these interim periods presented have been included.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
AIPC has incorporated by reference certain responses to the Items of this Part III pursuant to Rule 12b-23 under the Exchange Act and General Instruction G(3) to Form 10-K. AIPC's definitive proxy statement for the 2001 annual meeting of stockholders (the "Definitive Proxy Statement") will be filed no later than 120 days after September 28, 2001.
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Directors of the Company
The information set forth in response to Item 401 of Regulation S-K under the heading "Proposal 1 - Election of Three Directors" and "The Board of Directors" in AIPC's Definitive Proxy Statement is incorporated herein by reference in partial response to this Item 10.
(b) Executive Officers of the Company
The information set forth in response to Item 401 of Regulation S-K under "Executive Officers of the Registrant" an unnumbered Item in Part 1 (immediately following Item 4 Submission of Matters to a Vote of Security Holders) of this Form 10-K is incorporated herein by reference in partial response to this Item 10.
The information set forth in response to Item 405 of Regulation S-K under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" in AIPC's Definitive Proxy Statement is incorporated herein by reference in partial response to this Item 10.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth in response to Item 402 of Regulation S-K under "Management Compensation" in AIPC's Definitive Proxy Statement, (other than The Compensation Committee Report on Executive Compensation) is incorporated by reference in response to this Item 11.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth in response to Item 403 of Regulation S-K under the heading "Stock Owned Beneficially by Directors, Nominees and Certain Executive Officers" in our Definitive Proxy Statement is hereby incorporated by reference in response to this Item 12.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth in response to Item 404 of Regulation S-K under the heading "Certain Relationships and Related Transactions" in our Definitive Proxy Statement is incorporated herein by reference in response to this Item 13.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following items are filed as a part of the report:
1. The Company's consolidated financial statements prepared in accordance with Regulation S-X, including the consolidated statements of income, cash flows and stockholders' equity for the three fiscal periods September 30, 2001, September 30, 2000 and September 30, 1999 and the consolidated balance sheets as of September 30, 2001 and 2000, and related notes and the independent auditor's report thereon are included under Item 8 of this Annual Report.
2. No financial statement schedules are required to be included in this Annual Report by the Securities and Exchange Commission's regulations.
3. The list of exhibits following the signature page of this Annual Report is incorporated by reference herein in partial response to this Item.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Timothy S. Webster -------------------------------------- Timothy S. Webster President and Chief Executive Officer
Date December 19, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
POWER OF ATTORNEY AND SIGNATURES
Each of the undersigned hereby severally constitute and appoint Timothy S. Webster and Warren B. Schmidgall, and each of them singly, with power of substitution and resubstitution, as his true and lawful attorneys, with full power to them and each of them singly, to sign for us in our names in the capacities indicted below, all amendments to this Annual Report on Form 10-K and generally to do all things in our names and on our behalf in such capacities to enable American Italian Pasta Company to comply with the provisions of the Securities Exchange Act of 1934, and all requirements of the Securities and Exchange Commission with respect to this Annual Report on Form 10-K.
/s/ Horst W. Schroeder Chairman of the December 19, 2001 -------------------------------------------- Board of Directors
/s/ Timothy S. Webster President, Chief December 19, 2001 -------------------------------------------- Executive Officer and Director (Principal Executive Officer)
/s/ Warren B. Schmidgall Executive Vice December 19, 2001 -------------------------------------------- President-Chief Financial Officer, (Principal Financial and Accounting Officer)
/s/ Robert H. Niehaus Director December 19, 2001 --------------------------------------------
/s/ Richard C. Thompson Director December 19, 2001 --------------------------------------------
/s/ Jonathan E. Baum Director December 19, 2001 --------------------------------------------
/s/ Tim M. Pollak Director December 19, 2001 --------------------------------------------
/s/ Mark C. Demetree Director December 19, 2001 --------------------------------------------
/s/ William R. Patterson Director December 19, 2001 --------------------------------------------
/s/ John P. O'Brien Director December 19, 2001 --------------------------------------------
/s/ James A. Heeter Director December 19, 2001 --------------------------------------------
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
Not applicable.
EXHIBIT INDEX
Exhibit Number Description ------- -----------
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
Not applicable.
(3) Articles and By-Laws
3.1 The Company's amended and restated Certificate of Incorporation dated October 7, 1997, which is attached as Exhibit 3.1 to the Company's registration statement on Form S-1, as amended (Commission file no. 333-32827) (the "IPO Registration Statement"), is incorporated by reference herein as Exhibit 3.1.
3.2 The Company's amended and restated Bylaws dated October 7, 1997, which is attached as Exhibit 3.2 to the IPO Registration Statement, are incorporated by reference herein as Exhibit 3.2.
(4) Instruments Defining the Rights of Security Holders, Including Indentures
4.1 The specimen certificate representing the Company's Class A Convertible Common Stock, par value $0.001 per share, which is attached as Exhibit 4.1 to the IPO Registration Statement, are incorporated by reference herein as Exhibit 4.1.
4.2 The specimen certificate representing the Company's Class B Convertible Common Stock, par value $0.001 per share, which is attached as Exhibit 4.2 to the IPO Registration Statement, are incorporated by reference herein as Exhibit 4.2.
4.3 Section 7.1 of the Company's amended and restated Certificate of Incorporation, which is incorporated herein as Exhibit 3.1, is incorporated by reference herein as Exhibit 4.3.
4.4 Article II of the Company's amended and restated Bylaws, which is incorporated herein as Exhibit 3.2, is incorporated by reference herein as Exhibit 4.4.
4.5 Sections 1, 2, 3, 4 of Article III of the Company's amended and restated Bylaws, which is incorporated herein as Exhibit 3.2, is incorporated by reference herein as Exhibit 4.5.
4.6 Article VII of the Company's amended and restated Bylaws, which is incorporated herein as Exhibit 3.2, is incorporated by reference herein as Exhibit 4.6.
4.7 Article IX of the Company's amended and restated Bylaws, which is incorporated herein as Exhibit 3.2, is incorporated by reference herein as Exhibit 4.7.
4.8 Credit Agreement, dated July 16, 2001, among American Italian Pasta Company, Financial Institutions, Firstar Bank, N.A., as Syndication Agent, Bank One, NA, as Documentation Agent, Credit Agricole Indosuez, Fleet National Bank, Keybank National Association, Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, Wachovia Bank, N.A., and Wells Fargo Bank, N.A., as Co-Agents, and Bank of America, N.A., as Administrative Agent, Bank of America Securities LLC, Sole Lead Arranger and Sole Book Manager, which is attached as Exhibit 10.4 to the Company's quarterly report dated August 13, 2001
on Form 10-Q (Commission File No. 001-13403), is incorporated by reference herein as Exhibit 4.8.
4.9 Shareholders Rights Agreement, dated December 3, 1998, between American Italian Pasta Company and UMB Bank, N.A. as Rights Agent, which is attached as Exhibit 1 to the Company's Registration Statement dated December 14, 1998 on Form 8-A12B (Commission File No. 001-13403), is incorporated by reference herein as Exhibit 4.9.
(10) Material Contracts
10.1 Board of Directors Remuneration Policy, which is attached as Exhibit 10.1 to the Company's Annual Report on Form 10-K405 for the fiscal year ended October 2, 1998 (Commission file no. 001-13403), is incorporated by reference herein as Exhibit 10.1.
10.2 Manufacturing and Distribution Agreement dated as of April 15, 1997 between Bestfoods International Inc. and the Company, which is attached as Exhibit 10.2 to the IPO Registration Statement, is incorporated by reference herein as Exhibit 10.2.
10.3 Amended and Restated Supply Agreement dated October 29, 1992, as amended July 1, 1997, between the Company and Sysco Corporation, which is attached as Exhibit 10.3 to the IPO Registration Statement, is incorporated by reference herein as Exhibit 10.3.
10.4 N/A
10.5 Employment Agreement between the Company and Timothy S. Webster effective October 8, 1997, which is attached as Exhibit 10.4 to the IPO Registration Statement, is incorporated by reference herein as Exhibit 10.5.
10.6.1 Employment Agreement dated September 30, 1997 between the Company and Horst W. Schroeder, which is attached as Exhibit 10.5 to the IPO Registration Statement, is incorporated by reference herein as Exhibit 10.6.1.
10.6.2 First Amendment to Employment Agreement between the Registrant and Horst W. Schroeder dated October 1, 1999, which is attached as Exhibit 10.1 to the Company's Current Report on Form 8-K dated November 17, 1999, is incorporated by reference herein as Exhibit 10.6.2.
10.7.1 Employment Agreement dated September 30, 1997 between the Company and David E. Watson, which is attached as Exhibit 10.7 to the IPO Registration Statement, is incorporated by reference herein as Exhibit 10.7.1.
10.7.2 First Amendment to Employment Agreement between the Registrant and David E. Watson dated September 30, 1999, which is attached as Exhibit 10.2 to the Company's Current Report on Form 8-K (Commission File no. 001-13403), dated November 17, 1999, is incorporated by reference herein as Exhibit 10.7.2.
10.8.1 N/A
10.8.2 N/A
10.9.1 Employment Agreement dated September 30, 1997 between the Company and David B. Potter, which is attached as Exhibit 10.9 to the IPO Registration Statement, is incorporated by reference herein as Exhibit 10.9.1.
10.9.2 First Amendment to Employment Agreement between the Company and David B. Potter, dated January 21, 1999, which is attached as Exhibit 10 to the Company's quarterly report dated January 28, 1999 on Form 10-Q (Commission File no. 001-13403), is incorporated by reference herein as Exhibit 10.9.2.
10.9.3 Second Amendment to Employment Agreement between the Registrant and David B. Potter dated October 27, 1999, which is attached as Exhibit 10.4 to the Company's Current Report on Form 8-K (Commission File no. 001-13403), dated November 17, 1999, is incorporated by reference herein as Exhibit 10.9.3.
10.10 Employment Agreement between the Registrant and Warren B. Schmidgall dated September 30, 1999, which is attached as Exhibit 10.5 to the Company's Current Report on Form 8-K (Commission File no. 001-13403), dated November 17, 1999, is incorporated by reference herein as Exhibit 10.10.
10.11 Letter Agreement between the Registrant and HWS & Associates, Inc. dated October 1, 1999, which is attached as Exhibit 10.6 to the Company's Current Report on Form 8-K (Commission File no. 001-13403), dated November 17, 1999, is incorporated by reference herein as Exhibit 10.11.
10.12 Employment Agreement between Willard Matthew Duffield, Jr. and American Italian Pasta Company, effective February 12, 2001, which is attached as Exhibit 10.1 to the company's quarterly report dated August 13, 2001 on Form 10-Q (Commission File No. 001-13403), is incorporated by reference herein as Exhibit 10.12.
10.13 Employment Agreement between Walter George and American Italian Pasta Company, effective February 1, 2001.
10.14 American Italian Pasta Company 1992 Stock Option Plan, which is attached as Exhibit 10.10 to the IPO Registration Statement, is incorporated by reference herein as Exhibit 10.14.
10.15 American Italian Pasta Company 1993 Non-Qualified Stock Option Plan, which is attached as Exhibit 10.11 to the IPO Registration Statement, is incorporated by reference herein as Exhibit 10.15.
10.16 1996 Salaried Bonus Plan, which is attached as Exhibit 10.13 to the IPO Registration Statement, is incorporated by reference herein as Exhibit 10.16.
10.17.1 1997 Equity Incentive Plan, which is attached as Exhibit 10.14 to the IPO Registration Statement, is incorporated by reference herein as Exhibit 10.17.1.
10.17.2 First amendment to 1997 Equity Incentive Plan, which is attached as Exhibit 10.1 to the Company's July 31, 1998 Form 10-Q (Commission file no. 001-13403), is incorporated by reference here in as Exhibit 10.17.2.
10.17.3 American Italian Pasta Company 2000 Equity Incentive Plan, as amended, which is attached as Exhibit 10.5 to the Company's quarterly report dated August 13, 2001 on Form 10-Q (Commission File No. 001-13403), is incorporated by reference herein as Exhibit 10.17.3.
10.18 Product Supply and Pasta Production Cooperation Agreement dated May 7, 1998 between the Registrant and Harvest States Cooperatives which is attached as Exhibit 10.2 to the Company's July 31, 1998 Form 10-Q
Commission file no. 001-13403), is incorporated by reference herein as Exhibit 10.18.
10.19 Asset Purchase Agreement dated October 4, 2000 by and between American Italian Pasta Company and Bestfoods for American Italian Pasta Company to purchaser Mueller's brand of pasta, which is attached as Exhibit 2.1 to the Company's Current Report dated January 5, 2001 on Form 8-K (Commission File No. 001-13403), is incorporated by reference herein as Exhibit 10.19.
10.20 Asset Purchase Agreement dated June 1, 2001, by and among Borden Foods Corporation, BFC Investments, L.P., BF Foods International Corporation and American Italian Pasta Company, which is attached as Exhibit 10.2 to the Company's quarterly report dated August 13, 2001 on Form 10-Q (Commission File No. 001-13403), is incorporated by reference herein as Exhibit 10.20.
10.21 Amendment No. 1, dated July 13, 2001 to Asset Purchase Agreement, dated June 1, 2001 which is attached as Exhibit 10.3 to the Company's quarterly report dated August 13, 2001 on Form 10-Q (Commission File No. 001-13403), is incorporated by reference herein as Exhibit 10.21.
(11) Statement re computation of per share earnings
Not applicable.
(12) Statements re computation of ratios
Not applicable.
(16) Letter re change in certifying accountant
Not applicable.
(18) Letter re change in accounting principles
Not applicable.
(21) Subsidiaries of the registrant
List of subsidiaries is attached hereto as Exhibit 21.
(23) Consent of Ernst & Young LLP
(24) Power of Attorney
The power of attorney is set forth on the signature page of this Annual Report.
(99) Additional Exhibits
Not applicable.
Exhibit 21
List of Subsidiaries
American Italian Pasta Company
AIPC Wisconsin, Limited Partnership
AIPC Sales Co.
IAPC UK Limited
IAPC Holding UK Limited
IAPC Italia S.r.l.
IAPC BV
IAPC CV
AIPC Finance, Inc.
AIPC South Carolina, Inc.
AIPC Missouri, LLC