**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

ý      **QuarterlyReport Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

**            For thequarterly period ended October 31, 2001**

 

**            or**

 

**o****     Transition Report Pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934**

 

----

 

**Commission File No. 33-99834**

 

----

 

**DAKOTA GROWERS PASTA COMPANY**

(Exactname of registrant as specified in its charter)

 

| **North  Dakota**         | ** ** | **45-0423511**                     |
|---------------------------|------------|------------------------------------|
| (State  of incorporation) |       | (IRS  Employer Identification No.) |

 

**OnePasta Avenue, P.O. Box 21, Carrington, ND 58421-0021**

(Addressof principal executive offices including zip code)

 

**(701)652-2855**

(Registrant'stelephone number, including area code)

 

**NOT APPLICABLE**

(Formername, former address and former fiscal year, if changed since last report)

 

 

 

 

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.       Yes  ý No  o

 

Thenumber of shares outstanding of the Registrant's classes of common stock were1,155 shares of membership stock, par value $125.00, and 11,275,297 of equitystock, par value $2.50, as of December 13, 2001.

 

 

 

**PART I —FINANCIAL INFORMATION**

 

**Item 1. Financial Statements**

** **

# **DAKOTA GROWERS PASTA COMPANY**

#### **CONSOLIDATED BALANCE SHEETS**

**(InThousands, Except Share Information)**

 
|                                                                                                                              |   | **(Unaudited)**  |    |         |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|------------------|---------|--------------|--------|
|                                                                                                                              |   | **October  31,** |    | **July 31,** |   |
|                                                                                                                              |   | **2001**         |    | **2001**     |   |
| **ASSETS**                                                                                                                        |   |             |    |         |   |
|                                                                                                                              |   |             |    |         |   |
| CURRENT ASSETS                                                                                                                    |   |             |    |         |   |
| Cash and cash equivalents                                                                                                         |   | $                | 3       |         | $      | 3 |   |
|                                                                                                                              |   |             |    |         |   |
| Short-term investments (restricted)                                                                                               |   | 1,974            |    | 1,974        |   |
|                                                                                                                              |   |             |    |         |   |
| Trade accounts receivable, less allowance for cash discounts and doubtful accounts of $453 and $610,  respectively |   | 12,000           |    | 11,560       |   |
|                                                                                                                              |   |             |    |         |   |
| Other receivables                                                                                                                 |   | 965              |    | 1,138        |   |
|                                                                                                                              |   |             |    |         |   |
| Inventories                                                                                                                       |   | 20,000           |    | 21,050       |   |
|                                                                                                                              |   |             |    |         |   |
| Prepaid expenses                                                                                                                  |   | 1,839            |    | 1,602        |   |
|                                                                                                                              |   |             |    |         |   |
| Total current assets                                                                                                              |   | 36,781           |    | 37,327       |   |
|                                                                                                                              |   |             |    |         |   |
| PROPERTY AND EQUIPMENT                                                                                                            |   |             |    |         |   |
| In service                                                                                                                        |   | 115,005          |    | 114,984      |   |
| Construction in process                                                                                                           |   | 249              |    | 108          |   |
|                                                                                                                              |   | 115,254          |    | 115,092      |   |
| Less accumulated depreciation                                                                                                     |   | (35,090          | )       | (33,367      | )      |
|                                                                                                                              |   |             |    |         |   |
| Net property and equipment                                                                                                        |   | 80,164           |    | 81,725       |   |
|                                                                                                                              |   |             |    |         |   |
| INVESTMENT IN COOPERATIVE BANKS                                                                                                   |   | 2,211            |    | 2,211        |   |
|                                                                                                                              |   |             |    |         |   |
| OTHER ASSETS                                                                                                                      |   | 6,916            |    | 7,395        |   |
|                                                                                                                              |   |             |    |         |   |
|                                                                                                                              |   | $                | 126,072 |         | $      | 128,658 |   |

 
| **LIABILITIES AND MEMBERS' INVESTMENT**                                                                                   |   |   |    |   |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|
|                                                                                                                      |   |   |    |   |   |
| CURRENT LIABILITIES                                                                                                       |   |   |    |   |   |
| Notes payable                                                                                                             |   | $      | 4,800   |   | $      | 8,100 |   |
| Current portion of long-term debt                                                                                         |   | 6,801  |    | 2,657  |   |
| Accounts payable                                                                                                          |   | 4,593  |    | 4,400  |   |
| Excess outstanding checks over cash on deposit                                                                            |   | 377    |    | 1,072  |   |
| Dividends payable                                                                                                         |   | 7      |    | -      |   |
| Accrued grower payments                                                                                                   |   | 1,345  |    | 969    |   |
| Accrued liabilities                                                                                                       |   | 5,343  |    | 5,709  |   |
|                                                                                                                      |   |   |    |   |   |
| Total current liabilities                                                                                                 |   | 23,266 |    | 22,907 |   |
|                                                                                                                      |   |   |    |   |   |
| COMMITMENTS AND CONTINGENCIES                                                                                             |   | -      |    | -      |   |
| LONG-TERM DEBT, net of current portion                                                                                    |   | 42,182 |    | 47,594 |   |
| DEFERRED INCOME TAXES                                                                                                     |   | 3,697  |    | 3,777  |   |
|                                                                                                                      |   |   |    |   |   |
| Total liabilities                                                                                                         |   | 69,145 |    | 74,278 |   |
|                                                                                                                      |   |   |    |   |   |
|                                                                                                                      |   |   |    |   |   |
| REDEEMABLE PREFERRED STOCK                                                                                                |   |   |    |   |   |
| Series A, 6% non-cumulative, $100 par value, issued 567 and 600  shares, respectively                                |   | 57     |    | 60     |   |
| Series B, 2% non-cumulative, $100 par value, issued 525 shares                                                       |   | 53     |    | 53     |   |
|                                                                                                                      |   |   |    |   |   |
| Total preferred stock                                                                                                     |   | 110    |    | 113    |   |
|                                                                                                                      |   |   |    |   |   |
| MEMBERS' INVESTMENT                                                                                                       |   |   |    |   |   |
| Convertible preferred stock Series C, 6% non-cumulative, $100 par  value, issued 924 shares as of July 31, 2001 |   | -      |    | 92     |   |
| Membership stock, $125 par value, issued 1,155 and 1,156 shares,  respectively                                       |   | 144    |    | 144    |   |
| Equity stock, $2.50 par value, issued 11,275,297 and 11,253,121  shares, respectively                                |   | 28,188 |    | 28,133 |   |
| Additional paid-in capital                                                                                                |   | 22,913 |    | 22,876 |   |
| Accumulated allocated earnings                                                                                            |   | 4,596  |    | 4,596  |   |
| Accumulated unallocated earnings (deficit)                                                                                |   | 976    |    | (1,574 | )      |
|                                                                                                                      |   |   |    |   |   |
| Total members' investment                                                                                                 |   | 56,817 |    | 54,267 |   |
|                                                                                                                      |   |   |    |   |   |
| Total liabilities and members' investment                                                                                 |   | $      | 126,072 |   | $      | 128,658 |   |

 

See Notes to Consolidated Financial Statements

 

# **DAKOTA GROWERS PASTA COMPANY**

#### **CONSOLIDATED STATEMENTS OF OPERATIONS**

**(InThousands, Except Per Share Amounts)(Unaudited)**

 
|                                                                                                     |   | **Three  Months Ended** |   |
|----------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                     |   | **October  31,**        |   |
|                                                                                                     |   | **2001**                |   | **2000** |   |
| Net revenues (net of discounts and allowances of $4,168 and  $4,864, respectively)                  |   | $                       | 37,546 |   | $ | 33,283 |   |
|                                                                                                     |   |                    |   |   |   |
| Cost of product sold                                                                                     |   | 31,642                  |   | 30,947 |   |
|                                                                                                     |   |                    |   |   |   |
| Gross proceeds                                                                                           |   | 5,904                   |   | 2,336 |   |
|                                                                                                     |   |                    |   |   |   |
| Marketing, general and administrative expenses                                                           |   | 2,429                   |   | 2,603 |   |
|                                                                                                     |   |                    |   |   |   |
| Operating proceeds (loss)                                                                                |   | 3,475                   |   | (267 | ) |
|                                                                                                     |   |                    |   |   |   |
| Other income (expense)                                                                                   |   |                    |   |   |   |
| Interest and other income                                                                                |   | 112                     |   | 139 |   |
| Gain on sale of other assets                                                                             |   | 2                       |   | - |   |
| Interest expense, net                                                                                    |   | (1,111                  | )      | (1,053 | ) |
|                                                                                                     |   |                    |   |   |   |
| Income (loss) before income taxes                                                                        |   | 2,478                   |   | (1,181 | ) |
|                                                                                                     |   |                    |   |   |   |
| Income tax benefit                                                                                       |   | 80                      |   | 79 |   |
|                                                                                                     |   |                    |   |   |   |
| Net income (loss) from patronage and non-patronage business                                         |   | 2,558                   |   | (1,102 | ) |
| Dividends on preferred stock                                                                             |   | 8                       |   | 12 |   |
|                                                                                                     |   |                    |   |   |   |
| Net earnings (loss) from patronage and non-patronage business  available for members                |   | $                       | 2,550  |   | $ | (1,114 | ) |
|                                                                                                     |   |                    |   |   |   |
| Average equity shares outstanding                                                                        |   | 11,275                  |   | 11,253 |   |
|                                                                                                     |   |                    |   |   |   |
| Net earnings (loss) from patronage and non-patronage business  per average equity share outstanding |   |                    |   |   |   |
|                                                                                                     |   |                    |   |   |   |
| Basic                                                                                                    |   | $                       | 0.23   |   | $ | (0.10 | ) |

 

 

See Notes to Consolidated Financial Statements

 

# **DAKOTA GROWERS PASTA COMPANY**

#### **CONSOLIDATED STATEMENTS OFCASH FLOWS**

**(In Thousands)(Unaudited)**

 
|                                                                        |     | **Three  Months Ended** |     |
|-----------------------------------------------------------------------------|----------|-------------------------|----------|
|                                                                        |     | **October  31,**        |     |
|                                                                        | **2001** |                    | **2000** |   |
| OPERATING ACTIVITIES                                                        |     |                    |     |   |   |
| Net income (loss)                                                           |     | $                       | 2,558    |   | $ | (1,102 | ) |
| Add (deduct) non-cash items                                                 |     |                    |     |   |   |
| Depreciation and amortization                                               |     | 2,223                   |     | 2,211 |   |
| Gain on sale of other assets                                                |     | (2                      | )        | - |   |
| Deferred income taxes                                                       |     | (80                     | )        | (79 | ) |
| Changes in assets and liabilities                                           |     |                    |     |   |   |
| Trade receivables                                                           |     | (440                    | )        | 1,055 |   |
| Other receivables                                                           |     | 173                     |     | (4 | ) |
| Inventories                                                                 |     | 1,050                   |     | 1,045 |   |
| Prepaid expenses                                                            |     | 7                       |     | 72 |   |
| Other assets                                                                |     | -                       |     | 1 |   |
| Accounts payable                                                            |     | 193                     |     | 2,076 |   |
| Excess outstanding checks over cash on deposit                              |     | (695                    | )        | - |   |
| Grower payables                                                             |     | 376                     |     | (109 | ) |
| Other accrued liabilities                                                   |     | (366                    | )        | (42 | ) |
|                                                                        |     |                    |     |   |   |
| NET CASH FROM OPERATING ACTIVITIES                                          |     | 4,997                   |     | 5,124 |   |
|                                                                        |     |                    |     |   |   |
| INVESTING ACTIVITIES                                                        |     |                    |     |   |   |
| Purchases of property and equipment                                         |     | (162                    | )        | (685 | ) |
| Proceeds on sale of property, equipment, and other assets                   |     | 53                      |     | - |   |
| Payment for long-term prepaid marketing costs                               |     | (250                    | )        | - |   |
| Payments for package design costs                                           |     | (66                     | )        | (73 | ) |
|                                                                        |     |                    |     |   |   |
| NET CASH USED IN INVESTING ACTIVITIES                                       |     | (425                    | )        | (758 | ) |
|                                                                        |     |                    |     |   |   |
| FINANCING ACTIVITIES                                                        |     |                    |     |   |   |
| Net change in short-term notes payable                                      |     | (3,300                  | )        | (1,875 | ) |
| Payments on long-term debt                                                  |     | (1,268                  | )        | (1,263 | ) |
| Preferred stock retirements                                                 |     | (3                      | )        | (3 | ) |
| Dividends paid on preferred stock                                           |     | (1                      | )        | (1 | ) |
|                                                                        |     |                    |     |   |   |
| NET CASH USED IN FINANCING ACTIVITIES                                       |     | (4,572                  | )        | (3,142 | ) |
|                                                                        |     |                    |     |   |   |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                     |     | -                       |     | 1,224 |   |
|                                                                        |     |                    |     |   |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                         |     | 3                       |     | 1,725 |   |
|                                                                        |     |                    |     |   |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                               |     | $                       | 3        |   | $ | 2,949 |   |
|                                                                        |     |                    |     |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                      |     |                    |     |   |   |
| Cash payments for                                                           |     |                    |     |   |   |
| Interest (net of amounts capitalized)                                       |     | $                       | 1,541    |   | $ | 1,504 |   |
|                                                                        |     |                    |     |   |   |
| Income taxes                                                                |     | $                       | 8        |   | $ | 2 |   |
|                                                                        |     |                    |     |   |   |
| SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES |     |                    |     |   |   |
| Declaration of patronage distribution                                       |     | $                       | -        |   | $ | 4,466 |   |
| Declaration of dividends on preferred stock                                 |     | 7                       |     | 11 |   |
|                                                                        |     |                    |     |   |   |
|                                                                        |     | $                       | 7        |   | $ | 4,477 |   |

 

 

See Notes toConsolidated Financial Statements

 

# **DAKOTA GROWERS PASTA COMPANY**

#### **NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS**

**(Unaudited)**

** **

The following notes should be read in conjunctionwith the notes to the financial statements for the year ended July 31, 2001 asfiled in the Company’s Form 10-K.

 

**NOTE1 - ORGANIZATION**

 

Dakota GrowersPasta Company (“Dakota Growers”, "the Company" or "theCooperative") is organized as a farmers' cooperative for purposes ofmanufacturing food for human consumption from durum and other grain products.Net proceeds are allocated to patrons who are members on the basis of theirparticipation in the Cooperative.

 

The ownership ofmembership stock, which signifies membership in the Cooperative, is restrictedto producers of agricultural products. The ownership of equity stock isrestricted to members of the Cooperative. Preferred stock may be held bypersons who are not members of the Cooperative.

 

**NOTE2 – BASIS OF PRESENTATION**

 

The unaudited consolidated financial statements included herein havebeen prepared pursuant to the rules and regulations of the Securities and ExchangeCommission. Accordingly, they do not include all the information and footnotesrequired by accounting principles generally accepted in the United States ofAmerica for complete financial statements. In the opinion of management, alladjustments (consisting of normal recurring accruals) considered necessary fora fair presentation have been included. Operating results for the three monthsended October 31, 2001 are not necessarily indicative of the results that maybe expected for the year ended July 31, 2002. The information included in thisForm 10-Q should be read in conjunction with Management’s Discussion andAnalysis and the consolidated financial statements and footnotes included inthe Company’s Form 10-K for the year ended July 31, 2001. The informationcontained in the balance sheet as of July 31, 2001 was derived from theCompany’s audited annual report for fiscal 2001. Reclassifications have beenmade to facilitate comparability with current presentation. Suchreclassifications have no effect on the net results of operations.

 

The financial information presented herein includes the consolidatedbalances and results of operations of Dakota Growers Pasta Company and itswholly owned subsidiary. All significant intercompany balances and transactionshave been eliminated.

 

**NOTE3 – INVENTORIES**

 

Inventories are valued at lower of cost ormarket. Inventories as of October 31, 2001 include raw materials of $5,470,000and finished goods of $14,530,000. Inventories at July 31, 2001 include rawmaterials of $5,710,000 and finished goods of $15,340,000.

 

###### **NOTE 4 – INCOMETAXES**

 

The Company is anon-exempt cooperative as defined by Section 1381(a)(2) of the Internal RevenueCode (“Code”). Accordingly, net margins from business transacted with itsmember patrons which are allocated, qualified, and paid as prescribed inSection 1382 of the Code will be taxable to the members and not to the Company.Net margins and member allocations are determined on the basis of accountingused for financial reporting purposes. To the extent that net margins are notallocated and paid as stated above or arise from business done withnon-members, the Company shall have taxable income subject to corporate incometax rates. Cooperative organizations have 8 1⁄2 months after their fiscal yearend to make such allocations in the form of written notices of allocation orcash.

The Company has recorded an income tax benefit of$80,000 and $79,000 for the three months ending October 31, 2001 and 2000,respectively, resulting from reductions in deferred tax liabilities associatedwith differences between the book and tax basis of property and equipment.

 

###### **NOTE 5 – PATRONAGEBUSINESS**

 

The Company’sbusiness is conducted on a cooperative basis. The Company calculates incomefrom patronage sources based on income derived from bushels of durum deliveredby members. Non-patronage income is derived from the resale of pasta purchasedfrom non-members, the resale of semolina purchased from non-members, certainamounts of interest income and any income taxes assessed on non-memberbusiness. Net earnings allocable to patronage business totaled $2,580,000 forthe three months ended October 31, 2001.This compares to a net loss allocable topatronage business of $913,000 for the three months ended October 31, 2000.

###### ** **

###### **NOTE 6 – EARNINGS(LOSS) PER SHARE**

 

The Companyallocates its earnings (loss) and patronage distributions based on patronagebusiness (bushels of durum delivered, which approximates one bushel of durumper equity share). For presentation purposes, it has calculated basic netearnings (loss) per share by dividing earnings (loss) from patronage andnon-patronage business available for members (net income (loss) less preferreddividends) by the weighted average number of equity shares effective andoutstanding during the period.

 

The Company hadconvertible preferred stock and stock options for convertible preferred stockoutstanding during the periods presented. Fully diluted earnings (loss) pershare are calculated for the assumed conversion of these dilutive securities.As the Company’s stock is only traded in a small secondary market throughprivate transactions, the Company has assumed the proceeds from the exercise ofstock options would reduce debt and, thus, interest expense. Fully diluted earnings(loss) per share are not presented, as the dilutive effect of outstandingconvertible preferred stock and stock options is not material for the periodspresented.

 

###### **NOTE 7 – COMMITMENTS**

 

The Company forward contracts for a certain portion ofits future durum wheat requirements. The Company had outstanding commitmentsfor grain purchases totaling $7,312,000 at October 31, 2001.

 

**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Forward-Looking Statements**

 

Thefollowing discussion contains forward-looking statements. Such forward-lookingstatements include, among others, those statements including the words“expect”, “anticipate”, “believe”, “may” and similar expressions. Suchstatements are based on assumptions by the Company’s management, as of the dateof this Quarterly Report, and are subject to risks and uncertainties, includingthose discussed in the Company’s 2001 Form 10-K under "Risk Factors",that could cause actual results to differ materially from those anticipated.The Company cautions readers not to place undue reliance on suchforward-looking statements. The Company will not update any forward-lookingstatements in the Quarterly Report to reflect future events or developments.

 

**Summary**

 

DakotaGrowers generated net earnings of $2.6 million for the three months endedOctober 31, 2001, up considerably from the $1.1 million net loss incurred forthe quarter ended October 31, 2000.

 

Variousrevenue enhancement and cost cutting measures implemented over the past yearcontributed to the increase in profitability. The Company realized volume andpricing gains in the foodservice and retail segments in the first quarter offiscal 2002. Cost efficiencies have been realized from the closure of theMinneapolis factory in conjunction with the completion of the lasagna line inNew Hope. The Company has reduced its labor force where necessary to matchproduct demand levels and continues to explore opportunities to reducelogistics costs.

 

**Results of Operations**

 

*Comparison of the Three MonthsEnded October 31, 2001 and 2000*

 

***Net Revenues.***Net revenues increased $4.3 million, or12.8%, to $37.5 million for the quarter ended October 31, 2001, from $33.3million for the quarter ended October 31, 2000. Higher per unit selling pricesand higher sales volumes contributed to the increase over the correspondingperiod of the prior year as pasta per unit selling prices increased 6.2% whilepasta sales volumes increased 4.7%.

 

Revenuesfrom the retail segment increased $2.2 million, or 10.8%, as a result of a 6.2%increase in per unit selling prices combined with increased sales volumes.Retail growth was particularly strong in the club store market. Foodservicerevenues increased $2.2 million, or 33.6%, due to volume growth of 27.6% aswell as slight increases in per unit selling prices. Volume growth in the foodservice segmentcontinues to be driven primarily by expansions and acquisitions by ourcustomers. Revenues from the ingredient segment decreased $0.9 million, or 22.4%,mainly as a result of a 22.3% decrease in sales volumes.

 

The Company marketssemolina production in excess of its own requirements as well as by-products ofthe durum milling process. Revenues from semolina and by-product sales were up$0.8 million from the prior year as a result of increases in both sales volumesand per unit selling prices.

 

***Cost of Product Sold.*** Cost ofproduct sold increased $0.7 million, or 2.3%, to $31.6 million for the quarterended October 31, 2001. The increase resulted mainly from revenue growth offsetby lower conversion costs due to labor reductions and other cost cuttinginitiatives. Gross margin as a percentage of net revenues increased from 7.0%to 15.7% as a result of these factors.

 

***Marketing, General, and Administrative(“MG&A”) Expenses.*** MG&A expenses totaled $2.4 millionfor the three months ended October 31, 2001, down 6.7% from the correspondingperiod of the prior year. MG&A expenses as a percentage of net revenuesdecreased from 7.8% to 6.5%.

***Interest Expense.*** Interestexpense increased $58,000 primarily as a result of a one percent interest rateincrease on the Senior Secured Notes held by institutional investors effectiveAugust 1, 2001.

 

***Income Taxes.***The Company has recorded an income taxbenefit of $80,000 and $79,000 for the quarters ended October 31, 2001 and2000, respectively, relating to the reduction in deferred tax liabilities associated withdifferences between the book and tax basis of property and equipment.

 

***Net Income.***Net income for the three months ending October31, 2001 totaled $2.6 million compared to the $1.1 million net loss incurredfor the three months ending October 31, 2000. The $3.7 million increase in netearnings resulted from increases in per unit selling prices andsales volumes combined with cost reductions as noted above.

 

**Liquidity and Capital Resources**

 

TheCompany's liquidity requirements include the operation of manufacturingfacilities, investments in equipment and the expansion of working capital tomeet its growth requirements, as well as providing a fair return to itsmembers. The Company meets these liquidity requirements from cash provided byoperations, short-term borrowings under its line of credit, sales of equitiesand outside debt financing. Working capital as of October 31, 2001 was $13.5million compared to $14.4 million as of July 31, 2001.

 

TheCompany utilizes financing on a short-term basis to fund operations and capitalprojects until permanent financing is issued. The Company has a seasonal lineof credit for $19.0 million with CoBank, ACB (“the Bank”). The balanceoutstanding on the line of credit was $4.8 million as of October 31, 2001.Cash, receivables and inventories secure borrowings against the line of credit.

 

TheCompany’s long-term financing is provided through various secured term loansand secured notes with the Bank and institutional investors. Variable interestrates on term and seasonal loans are based on the Bank’s cost of funds.

 

Thevarious debt agreements with the Bank and institutional investors obligate theCompany to maintain or achieve certain amounts of equity and certain financialratios and impose certain restrictions on the Company. The Company was incompliance with these financial covenants as of October 31, 2001.

 

Operationsgenerated $5.0 million of net cash flow for the three months ended October 31,2001 compared to $5.1 million for the three months ended October 31, 2000. Thedecrease in net cash provided by operations was primarily due to an increase inreceivables and a decrease in accounts payable for the corresponding periodsoffset by the increase in net income.

 

Netcash used in investing activities relates primarily to the purchase andinstallation of milling and pasta equipment and payments made under long-termmarketing agreements. Net cash used in financing activities totaled $0.4million and $0.8 million for the three months ended October 31, 2001 and 2000,respectively.  A majority of theCompany’s technology assets are placed under lease agreements, which allows theCompany to stay relatively current with changing technologies.

 

Netcash used in financing activities totaled $4.6 million and $3.1 million for thethree months ended October 31, 2001 and 2000, respectively. Substantially allof these amounts related to debt payments.

 

TheCompany has current commitments for $7.3 million in raw material purchases,primarily durum purchase commitments from its members. The Company anticipatescapital expenditures to total approximately $2.0 million in fiscal year 2002.These expenditures are primarily for pasta line upgrades and cost reductionprojects. Commitments for monthly operating lease payments for technology andother assets total $0.8million, of which $0.6 million is duewithin one year. We expect to fund these commitments through cash fromoperations and borrowings under our line of credit.

Managementbelieves that net cash currently available and to be provided by operatingactivities, along with its available line of credit, will be sufficient to meetthe Company’s expected capital and liquidity requirements for the foreseeablefuture.

 

**ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

 

Marketrisk is the risk of loss to future earnings, to fair values or to future cashflows that may result from changes in the price of a financial instrument. Thevalue of a financial instrument may change as a result of changes in interestrates, commodity prices, exchange rates, equity prices, and other marketchanges. Market risk is attributed to all market-risk sensitive financialinstruments, including long-term debt.

 

TheCompany does not believe it is subject to any material market risk exposurewith respect to interest rates, commodity prices, exchange rates, equityprices, or other market changes that would require disclosure under this item.

 

 

**PART II– OTHER INFORMATION**

 

**ITEM 6. EXHIBITS AND REPORTS ONFORM 8-K**

 

**Exhibits**

 

None.

 

**Reports on Form 8-K**

 

None.

 

**SIGNATURES**

 

        Pursuant to the requirements of Section13 or 15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|   | DAKOTA GROWERS PASTA  COMPANY |
|--------|-------------------------------|
|   |                          |
|   |                          |
|   |                          |
|   | By:                           | /s/  Timothy J. Dodd |
|   |                          | Timothy  J. Dodd, |
|   |                          | PRESIDENT  AND GENERAL MANAGER, |
|   |                          | AND  PRINCIPAL EXECUTIVE OFFICER |
|   |                          |
|   | Dated: December 13,  2001     |

 

        Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on thedates indicated.

 
| **Signature**          |   | **Title**                      |   | **Date**           |
|------------------------|--------|--------------------------------|--------|--------------------|
|                   |   |                           |   |               |
|                   |   |                           |   |               |
| /s/  Timothy J. Dodd   |   | President  and General Manager |   |               |
| Timothy  J. Dodd       |   | (Principal  Executive          |   | December  13, 2001 |
|                   |   | Officer)                       |   |               |
|                   |   |                           |   |               |
|                   |   |                           |   |               |
| /s/  Thomas P. Friezen |   | Chief  Financial Officer       |   |               |
| Thomas  P. Friezen     |   | (Principal  Financial          |   | December  13, 2001 |
|                   |   | Officer)                       |   |               |
|                   |   |                           |   |               |
|                   |   |                           |   |               |
| /s/  Edward O. Irion   |   | Vice  President - Finance      |   |               |
| Edward  O. Irion       |   | (Principal  Accounting         |   | December  13, 2001 |
|                   |   | Officer)                       |   |               |