<PAGE>


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, DC 20549-1004

                                    FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the fiscal year ended December 31, 2001

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from ____________ to _______________.

                          Commission file No. 333-76763

                             NEW WORLD PASTA COMPANY
             (Exact name of registrant as specified in its charter)


              Delaware                                   52-2006441
    (State or other jurisdiction            (IRS Employer Identification Number)
  of incorporation or organization)

     85 Shannon Road, Harrisburg, PA                         17112
 (Address of principal executive offices)                  (Zip Code)


    Registrant's telephone number, including area code:       (717) 526-2200

    Securities registered pursuant to Section 12(b) of the Act:   None

    Securities registered pursuant to Section 12(g) of the Act:   None


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X   No   .
                                      ---    ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of voting stock of the Registrant has not been
determined, as there is no established market for such stock. As of March 15,
2002, the registrant had 48,538,971 shares of common stock, par value $0.01 per
share, outstanding.

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                             NEW WORLD PASTA COMPANY

                                      INDEX


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                                                                                   Page
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                                     PART I
<S>        <C>                                                                      <C>
ITEM 1.    Business ...............................................................  1

ITEM 2.    Properties .............................................................  7

ITEM 3.    Legal Proceedings ......................................................  8

ITEM 4.    Submission of Matters to a Vote of Security Holders ....................  8


                                     PART II

ITEM 5.    Market for Registrant's Common Equity and Related Stockholder Matters ..  8

ITEM 6.    Selected Financial Data ................................................  8

ITEM 7.    Management's Discussion and Analysis of Financial Condition and
           Results of Operation ................................................... 10

ITEM 7A.   Quantitative and Qualitative Disclosures about Market Risk ............. 15

ITEM 8.    Financial Statements and Supplementary Data ............................ 16

ITEM 9.    Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure ................................................... 16

                                     PART III

ITEM 10.   Directors and Executive Officers of the Registrant ..................... 16

ITEM 11.   Executive Compensation ................................................. 18

ITEM 12.   Security Ownership of Certain Beneficial Owners and Management ......... 20

ITEM 13.   Certain Relationships and Related Transactions ......................... 22

                                     PART IV

ITEM 14.   Financial Statements, Schedules, Exhibits and Report on Form 8-K ....... 24
</TABLE>

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FORWARD-LOOKING STATEMENTS; RISKS AND UNCERTAINTIES

     The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
safe harbor for forward-looking statements made by or on behalf of our Company.
Our Company and its representatives may from time to time make written or oral
forward-looking statements, including statements contained in this report and in
our other filings with the Securities and Exchange Commission. All statements
which address operating or financial performance, events or developments that we
expect or anticipate will occur in the future, including statements relating to
our strategy, expectations about future events, volume growth, share of sales or
statements expressing general optimism about future operating results, are
forward-looking statements within the meaning of the Act. The forward-looking
statements are and will be based on management's then current views and
assumptions regarding future events and operating performance.

     In the discussion set forth below, readers can identify forward-looking
statements by their use of such verbs as "expects", "anticipates", "believes",
"estimates", "intends", "plans" or similar verbs or conjugations of such verbs.
If our assumptions prove incorrect or should unanticipated circumstances arise,
the Company's actual results could materially differ from those anticipated by
such forward-looking statements. Differences could be the result of any number
or combination of factors, including the following:

   .    Intense levels of competition in the pasta industry;
   .    Dependence on dry pasta as our only material product line;
   .    Declines in pasta sales in one or more channels;
   .    Risks associated with sales and marketing initiatives;
   .    Difficulty of predicting the pattern of buying and inventory changes by
          the Company's customers;
   .    Inability to successfully integrate acquired businesses;
   .    Inability to achieve cost savings objectives associated with
          restructuring and integration activities;
   .    Inability to manage our production and inventory levels to operate
          cost-effectively;
   .    High level of indebtedness;
   .    Possible conflicts of interest;
   .    Reliance on a limited number of vendors for raw material procurement;
   .    Reliance on information technology systems;
   .    Price volatility of raw materials or packaging;
   .    Transportation risks;
   .    Risks of operating in non-U.S. jurisdictions;
   .    Changes in laws, government regulations or trade policies;
   .    Labor relations;
   .    Product liability;
   .    Environmental liability; and
   .    Dependence on key personnel.

     You are strongly encouraged to consider these factors and others mentioned
in our Registration Statement on Form S-4 (No. 333-76763) declared effective
August 3, 1999, when evaluating forward-looking statements in this annual
report, or risks and uncertainties associated with our Company. We undertake no
responsibility to update any forward-looking statements contained in this
report.

MARKET DATA

     The market data and some of the industry forecasts used throughout this
Form 10-K were obtained from internal surveys, market research, publicly
available information and industry publications. Industry publications generally
state that the information they present has been obtained from sources believed
to be reliable, but that the accuracy and completeness of the information are
not guaranteed. Similarly, internal surveys, industry forecasts and market
research, while believed to be reliable, have not been independently verified,
and we make no representation as to the accuracy of this information. Unless
otherwise noted, all market share statistics are from Information Resources,
Inc. ("IRI"), an independent marketing research firm that provides us with
information regarding the pasta industry. IRI is located at 150 Clinton Street,
Chicago, IL 60661 and has no affiliation with us or any of our affiliates.
Industry data was compiled by our management from industry and government
reports, or published information, including the United States Department of
Commerce, Business Trends Analysis and Find SVP Research Publications.

                                       ii

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                                     PART I

                             NEW WORLD PASTA COMPANY

ITEM 1.    Business

In General

     New World Pasta Company ("Company") is a leading manufacturer, marketer and
distributor of dry pasta and noodles in the U.S. and Canada, and manufactures,
markets and distributes dry pasta in Italy. While much of our dry pasta sales
are in the retail markets, which includes both branded and private label
products, we also participate in the foodservice and industrial markets. Our
2001 net sales were approximately $400 million.

     Our primary business is the production of dry pasta, which we market and
sell under various regional brands. Many of our principal brands, including
RONZONI, CREAMETTE, SAN GIORGIO and AMERICAN BEAUTY in the U.S., and CATELLI and
LANCIA in Canada, are among the top brands in the U.S. and Canada according to
IRI and management information. Our other brands in the U.S. or Canada include
SKINNER, PRINCE, P&R, IDEAL, SPLENDOR, HEALTHY HARVEST, ALBADORO and MRS.
WEISS'. We also have two brands in Italy, ALBADORO and MONDER.

     On a combined basis, our dry pasta brands gave us a national market share
in the U.S. of approximately 33% of the retail dry pasta market (on a dollar
basis) for 2001, which is twice that of our closest competitor. On a combined
basis, our dry pasta brands gave us a market share in Canada of approximately
41% of the retail dry pasta market (on a dollar basis) for 2001, which is twice
that of our closest competitor.

     We also produce and market noodle products in the U.S. or Canada under the
brand names LIGHT `N FLUFFY, AMERICAN BEAUTY, RONZONI, CREAMETTE, GOODMAN'S,
SKINNER, MRS WEISS', LANCIA, P&R and IDEAL. Our noodle products had the largest
market share in the U.S. with a 26% share (on a dollar basis) of the retail
noodle market for 2001. Our noodle products had the largest market share in
Canada with a 66% share (on a dollar basis) of the retail noodle market for
2001. We also market and sell a variety of miscellaneous dry grocery products
which account for less than 1% of our sales.

     Our 2001 net sales in Canada and Italy accounted for approximately 9% and
3%, respectively, of our total Company net sales. The Company's 2001 sales in
Canada and Italy reflected sales from businesses acquired July 30, 2001 (See
ITEM 1. Recent Developments).

     Our executive offices are located at 85 Shannon Road, Harrisburg, PA 17112
and our telephone number is (717) 526-2200.

History

     New World Pasta Company is the successor corporation of Hershey Pasta
Manufacturing, Inc. ("HPMI") and was incorporated in Delaware in 1996. Our
current stockholders acquired our predecessor, Hershey Pasta Group ("HPG"), in a
recapitalization with Hershey Foods Corporation ("HFC") on January 28, 1999. HPG
included HPMI and various other pasta related corporations and assets owned by
HFC.

Recent Developments

     On July 30, 2001, the Company acquired the dry pasta business of Borden
Foods Corporation ("Borden") and certain of its affiliates (collectively,
"Borden Pasta Brands") ("Acquisition") for an aggregate purchase price of $45.6
million. The Acquisition was consummated pursuant to the terms of a Stock and
Asset Purchase Agreement, dated as of July 6, 2001, among Borden, certain
affiliates of Borden and JLL Pasta, LLC, a Delaware limited liability company
("JLL Pasta"), as amended by Amendment No. 1 thereto, dated as of July 30, 2001
("Purchase Agreement"). The Purchase Agreement was assigned to New World Pasta
by JLL Pasta, which is affiliated with the Company's majority stockholder, New
World Pasta, LLC, pursuant to an Assignment and Assumption Agreement, dated as
of July 30, 2001, between the Company and JLL Pasta ("Assignment and Assumption
Agreement"). The Acquisition included eleven pasta brands and six pasta
manufacturing facilities in the U.S., Canada and Italy. The Acquisition was
completed by the Company to enhance the Company's ability to effectively compete
in its dry pasta markets.

     The Acquisition was financed by borrowing the Term Loan C provided for by
Amendment 2 to the Credit Agreement described below. JLL Pasta purchased a 100%
participation in such Term Loan C.

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     In connection with the financing and to facilitate the consummation of the
Acquisition, the Company also took the following actions:

     .    Issued to JLL Pasta warrants to purchase an aggregate of 51,402,000
          shares of common stock of the Company ("Common Stock") at a purchase
          price equal to $1.00 per share ("Warrants"). JLL Pasta subsequently
          distributed the Warrants to its members, Joseph Littlejohn & Levy Fund
          III, L.P. ("JLL Fund III") and Miller Pasta, II, LLC ("Miller Pasta
          II") as follows:

     .    JLL Fund III received Warrants to purchase 50,000,000 shares of Common
          Stock, all of which were immediately contributed to its affiliate and
          the majority stockholder of the Company, New World Pasta, LLC.

     .    Miller Pasta II received Warrants to purchase 1,402,000 shares of
          Common Stock.

     .    Recapitalized its capital stock such that each outstanding share of
          12% cumulative redeemable preferred stock was reclassified into
          381.2829 shares of Common Stock ("Recapitalization"). The
          Recapitalization was affected through an amendment and restatement of
          the Company's Certificate of Incorporation ("Amended and Restated
          Certificate of Incorporation").

     .    Entered into an Amendment No. 2 ("Amendment 2"), dated as of July 30,
          2001, to its Credit Agreement dated as of January 28, 1999 ("Credit
          Agreement"), among the Company, the various financial institutions
          parties thereto, Morgan Stanley Senior Funding, Inc., as syndication
          agent, and The Bank of Nova Scotia, as lead arranger and
          administrative agent. The Amendment 2 modified certain covenants of
          New World Pasta under the Credit Agreement, and added a new tranche of
          secured term loans to the Credit Agreement ("Term Loan C") in the
          aggregate principal amount of $51.4 million. The Term Loan C has an 8%
          pay-in-kind coupon, no amortization requirement and matures in full on
          June 30, 2006, and is subject to the same covenants and events of
          default which govern all other loans outstanding under the Credit
          Agreement.

     The description of the transactions described above is qualified in its
entirety by reference to the Purchase Agreement, the Assignment and Assumption
Agreement, the Warrants, the Amendment 2 (including exhibits related thereto)
and the Amended and Restated Certificate of Incorporation, copies of which are
filed as exhibits to the Company's Form 8-K, dated August 3, 2001 and
incorporated by reference herein.

Industry

     Overview. The pasta industry in the U.S. and Canada is made up of at least
four distinct segments: (i) dry, (ii) frozen, (iii) fresh and (iv) shelf-stable,
all of which compete against the others. Our pasta product offerings currently
are only in the dry pasta segment, and the bulk of our revenues come from the
retail market of that dry pasta segment. We believe that total pasta consumption
in the U.S. and Canada has increased over the past decade. Our market research
shows that, during 2001, the retail market of the dry pasta segment, as measured
by IRI, increased by 1.1% in the U.S. on a dollar basis, but declined by 1.5% in
the U.S. on a pound basis. In 2001, in Canada, the retail dry pasta segment, as
measured by IRI, increased by 2.9% on a dollar basis and increased by 0.1% on a
pound basis.

     Customer Markets. The dry pasta segment has three primary customer markets:
retail, which includes both branded sales and private label sales, foodservice
and industrial.

     . Retail. The retail market includes grocery stores, mass merchandisers,
club stores, and other retail outlets. This market purchases domestic and
imported branded and private label dry pasta, and accounts for the bulk of our
total revenues.

     . Foodservice. The foodservice market includes distributors that supply
restaurants, hotels, schools, and hospitals. This market purchases primarily
domestic and imported private label dry pasta.

     . Industrial. The industrial market includes food processors that use pasta
as a food ingredient in their own products. A significant portion of companies
in this market produce their own pasta. The remaining portion of this market
purchases bulk-packed dry pasta.


                                       2

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Products

     We provide a full range of dry pasta products to our customers. Our
products can be separated into five broad categories for selling and marketing
purposes: branded pasta, private label pasta, noodle products, industrial
products and miscellaneous products.

     Branded Pasta. Branded dry pasta is sold primarily in the retail markets
and includes brands such as RONZONI, CREAMETTE, SAN GIORGIO, CATELLI, AMERICAN
BEAUTY, LANCIA, SKINNER, PRINCE, and P&R. Combined, branded dry pasta accounts
for a substantial portion of our total revenues. Our brands are described below:

     .    Ronzoni. The RONZONI brand is one of the most established pasta brands
          in the U.S. with its origins dating back to 1915. RONZONI is the
          largest selling brand in the New York City metropolitan area, which is
          the largest pasta-consumption area in the U.S. RONZONI is also the
          leading brand in the Miami/Ft. Lauderdale metropolitan area and is a
          popular brand in the New England, Mid-Atlantic and Florida markets.

     .    Creamette. The CREAMETTE brand is one of the largest pasta brands in
          the U.S. CREAMETTE was one of the first brands to sell "fast-cook"
          macaroni. Prior to CREAMETTE pasta, cook-time was 40 minutes or more.
          This heritage of innovation propelled CREAMETTE, originally based in
          Minneapolis, to a leading share position throughout much of the
          mid-west United States.

     .    San Giorgio. SAN GIORGIO is presently the sixth most popular pasta
          brand in the United States. SAN GIORGIO's origins date back to 1914.
          We primarily distribute this brand in New York, New Jersey,
          Pennsylvania, Maryland, Delaware, Connecticut, Indiana, Illinois,
          Michigan, Virginia and Ohio. SAN GIORGIO is the best selling brand in
          the Philadelphia, Baltimore/Washington, Harrisburg/Scranton, Columbus,
          Cleveland, Louisville and Pittsburgh markets.

     .    American Beauty. AMERICAN BEAUTY was founded in 1916 and is a leading
          brand in many states west of the Mississippi River. AMERICAN BEAUTY is
          strongest in the Phoenix/Tucson, Wichita, West Texas and Kansas City
          markets. AMERICAN BEAUTY is also the leading brand in the Denver and
          Salt Lake City markets.

     .    Skinner. SKINNER is a leading pasta brand in much of the Midwestern
          and Southwestern regions of the United States. The SKINNER brand was
          introduced in Omaha, NE in 1911. In metropolitan areas such as Dallas,
          Oklahoma City, Houston and San Antonio/Corpus Christi, SKINNER is
          particularly prominent, holding the number one branded share position
          and a significant share lead over its nearest competitor.

     .    Prince. The PRINCE brand is the leading pasta brand throughout New
          England. The Prince Macaroni Company was started in the Italian North
          End of Boston. Famous for the Cleo winning "Anthony" commercials aired
          from 1968 and throughout the 1970s, PRINCE expanded to Chicago where
          it continues to have a leading brand share.

     .    Catelli. CATELLI has a rich history and tradition of over 100 years in
          Canada. CATELLI holds the leading market share position in Canada with
          more than double the share of its nearest competitor. CATELLI has a
          portfolio with traditional white pasta and specialty pasta such as
          whole wheat, multigrain, flavored and colored pastas. CATELLI also has
          a CATELLI ADVENTURE pasta line of colored and shaped products for
          kids.

     .    Lancia. The LANCIA brand has a long history in Canada. Its heritage
          traces back to the turn of the century in Toronto. LANCIA is the
          number three pasta brand and the leading noodle brand in Canada.

     .    Other Brands. Our other pasta brands include MRS. WEISS', which is
          sold in the Cleveland, OH market; P&R, which is the leading brand in
          the Syracuse and Albany, NY markets; GOODMAN'S, which is sold in the
          New York City metropolitan area, and ALBADORO and MONDER, which are
          manufactured and sold in Italy and other parts of Europe, and, in the
          case of ALBADORO, also sold in Canada.

     Private Label Pasta. Private label pasta is sold in both the retail and
foodservice markets. Although we have private label pasta sales to selected
customers in both of these markets, this is a relatively small portion of our
revenues. Sales of these products are highly dependent on cost, and many of our
competitors have lower cost structures than us. We continue to develop our
relationships with key strategic private label customers.

     Noodle Products. We also manufacture noodle products for sale along with
our pasta brands in the U.S. and Canada. Collectively, our noodle brands have
the largest market share in the U.S. and include the LIGHT `N FLUFFY, AMERICAN


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BEAUTY, CREAMETTE, GOODMAN'S, IDEAL, SKINNER, RONZONI, LANCIA, MRS. WEISS' and
P&R brands. In 2001, we accounted for approximately 26% (on a dollar basis) of
all retail noodle sales in the U.S. and approximately 66% (on a dollar basis) of
all retail noodle sales in Canada. We hold brand leadership positions in 19
market areas and produce 7 of the top 20 brands in the U.S. In Canada, the
LANCIA brand is the leading brand nationally.

     Industrial Products. Industrial products are custom items made for a
specific customer. Sales of these items are highly dependent on quality, cost
and service. Although this is a relatively small portion of our revenues, we are
focusing on reducing our overall cost structure to become more competitive in
these products.

     Miscellaneous Products. We sell a variety of miscellaneous dry grocery
products which were acquired as part of the 1984 acquisition of the AMERICAN
BEAUTY brand. These items account for less than 1% of our sales and include
instant mashed potatoes, dry beans, popcorn and rice. We sell these products in
a very limited geographic area.

     Product Quality. We have a tradition of, and a focus on, producing high
quality products for customers and consumers. Our products are manufactured
using a comprehensive Hazard Analysis Critical Control Point (HACCP) program to
ensure food safety. This program requires strict monitoring in every facet of
the manufacturing operations. We also use a toll-free number, which we print on
our packaging, to maintain direct contact with the public.

Competition

     In General. The dry pasta segment in North America is highly competitive.
We compete against well-established national, regional and multi-national
companies, and many smaller companies. Our products in the dry pasta segment
also compete against product offerings in the frozen, fresh and shelf-stable
segments, as well as other food products which meet consumer needs. Our
competitors include:

         .    American Italian Pasta Company
         .    Barilla Alimentare S.p.A.
         .    Dakota Growers Pasta Company
         .    Philadelphia Macaroni Co, Inc.
         .    A. Zerega's Sons, Inc.
         .    F.ll De Cecco Di Filippo Fara S. Martino S.p.A.
         .    Primo Foods
         .    Ital Pasta Company
         .    Unico Foods Corporation

     In the last few years, several leading pasta manufacturers have reduced
their investment in, and promotion of, their brands. Accordingly, many of these
companies have lost market share in the retail branded dry pasta market. At the
same time, imported pasta makers and private label producers have expanded their
production capabilities, have aggressively sought additional business and have
picked up a significant portion of this lost market share.

     In addition to the competition within the dry pasta segment, we have also
experienced intense competition over the past several years from competing
products in other segments of the pasta category. Value-added pasta and noodles,
fresh and frozen pasta, and meal solutions containing pasta have all been vying
for the same consumer-eating occasion. An increase in the number of new products
in these areas has allowed them to gain the attention of the consumer at the
expense of the retail dry pasta segment.

     Competition in the Retail Market. We compete primarily in the branded part
of the retail dry pasta consumer market. Competition in this branded part of the
retail market generally is based upon product quality and taste, pricing,
packaging, brand recognition, customer service and the capability to deliver
products efficiently. Competition in the private label part of this market is
primarily driven by the manufacturer's ability to provide high-quality products
at a low cost. Our pasta competitors in this market include both large,
multi-national companies and regional companies in the U.S. and Canada, as well
as pasta manufacturers in Italy. These competitors include:

         .    American Italian Pasta Company
         .    Barilla Alimentare S.p.A.
         .    Private labels
         .    Quaker Oats
         .    Primo Foods

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         .    Italian and other imports

     Competition in Industrial and Foodservice Markets. On a more limited basis,
we compete in the industrial and foodservice markets. The competition in this
market is based primarily on price, quality, service and reliability. Our
competitors in these markets include both large, multi-national companies and
regional companies in the U.S. and Canada. These competitors include:

         .    American Italian Pasta Company
         .    Dakota Growers Pasta Company
         .    A. Zerega's Sons Inc.
         .    Pasta Montana
         .    Primo Foods
         .    Ital Pasta Company
         .    Food processors which make their own pasta as an ingredient in
              their  products, which we believe includes Kraft Foods, Campbell
              Soup Company, Unilever and General Mills

Marketing and Sales

     During 2000 and continuing in 2001, we revised our sales and marketing
strategies. In the past, we focused the majority of our marketing efforts on
trade customers or retailers. Retailers would often use our promotion monies to
promote our products in their stores through a number of vehicles, including
temporary price reductions, in-store displays and store advertising. With our
new strategy, we reduced the level of trade oriented marketing programs, and
implemented several consumer-oriented programs. These promotions are designed to
predispose the consumer to buy our pasta brands, and they take the form of theme
promotions, direct advertising, coupons and joint product promotions. In
addition, we implemented a sales strategy structured to penetrate all
significant dry pasta channels, including traditional branded grocery store
chains, mass merchandisers, food service companies, private label companies,
drug stores, convenience stores, dollar stores, and club stores. In 2001, we
continued this strategy of focusing our marketing efforts on consumer-oriented
programs.

Customers

     Our branded and private label pasta and noodle products are sold primarily
through grocery store chains and grocery wholesalers. In addition, we sell these
products through mass merchandisers, chain drug stores, convenience stores and
food distributors. Mass merchandisers, wholesale clubs and chain drug stores are
growing distribution channels and represent significant opportunities for us. We
also sell our dry pasta products to industrial and foodservice customers. In
2001, our ten largest customers accounted for approximately 43% of sales, with
no single customer accounting for more than 10% of sales.

Production

     Pasta Production. Semolina flour and water are the two main ingredients
used to produce a quality pasta product. Egg is the main additional ingredient
included in noodles. Each variety of durum wheat, which is milled into semolina
flour, has its own unique set of protein, gluten content, moisture, density,
color and other attributes that affect the quality and character of the
semolina. To produce pasta, we mix semolina flour with water and other
ingredients and then extrude or roll the mixture into the desired shapes. The
mixture then travels through a series of dryers before being stabilized at room
temperature. After the stabilization process, we package the pasta in a variety
of configurations and forward it through an automated palletizing system. We
then load the finished product on trucks for transport to our distribution
centers or for shipment directly to customers.

     Production Facilities. We have established our production and distribution
facilities in a manner which helps to minimize our freight cost and allows us to
better match our raw material supply to our production demands. Our suppliers
supply semolina from their mills to our manufacturing plants. Upon completion of
the manufacturing process, we ship our finished products to our distribution
centers.

     We operate five manufacturing plants in the U.S. (Fresno, CA; Louisville,
KY; Omaha, NE; St. Louis, MO; Winchester, VA), one manufacturing plant in Canada
(Montreal, Quebec), and two manufacturing plants in Italy (Alba, Milan). The
Company also owns manufacturing plants in Lebanon, PA, Chicago, IL and
Lethbridge, Alberta, Canada, which have been closed in conjunction with the
restructuring plan implemented in 2001, and are being held for sale. The St.
Louis, Chicago, Montreal, Lethbridge, Alba and Milan manufacturing facilities
were acquired as a result of the Acquisition.

                                       5

<PAGE>

     Management believes that the Winchester, VA plant, constructed in 1993, is
one of the most cost-efficient pasta plants in North America. Since the
Acquisition, we have upgraded and refurbished certain lines at our St. Louis
plant, and over the years many of our other plants have been upgraded to improve
their cost competitiveness and the ability to meet our product-quality
standards.

Transportation and Distribution

     Our distribution network is an important factor in maintaining our strategy
to deliver quality pasta at a low cost. In general, it is cheaper to ship durum
wheat than to ship semolina flour, and cheaper to ship semolina flour than to
ship finished goods.

     Durum wheat is shipped to milling sites by rail or truck. After milling the
wheat, our suppliers then ship the semolina flour from their mills to our plants
by either rail, truck or pneumatic tube based on location and financial
considerations. In the U.S., we ship the finished goods from our plant sites to
our distribution centers in truckload quantities and we ship approximately 85%
of our tonnage from our distribution centers to the final customers in full
truckload quantities. In Canada we ship approximately 15% of our tonnage from
our distribution centers to the final customers in full truckload quantities.
Contract carriers handle the majority of truck shipments under annual
transportation contracts.

     For finished products, we use five primary distribution centers, which are
located in New Kingston, PA; St. Louis, MO; Omaha, NE; Montreal, Canada; and
Fresno, CA, and five warehouses, which are located in Chicago, IL; Portland, OR;
Atlanta, GA; Louisville, KY; and Dallas, TX. We lease the distribution centers
in Fresno, CA; Omaha, NE and New Kingston, PA. Our warehouses are leased under
month-to-month agreements. The leased distribution centers and warehouses are
managed by independent professional warehousing companies.

Raw Materials

     Pasta's primary ingredient is semolina flour, which is extracted from durum
wheat through a milling process. Our suppliers deliver semolina flour to our
manufacturing plants directly from their milling operations. These mills source
their durum directly from farmers and grower-owned co-operatives in locations
such as North Dakota, Montana, Arizona, California and Canada.

     Over the last five years, the cost of semolina flour has typically
represented 35% to 40% of our total cost of sales. From 1993 to 1997, the
average price for durum was $5.97 per bushel versus an average of $4.45 per
bushel from 1980 to 1992. Durum prices dropped below $5.00 per bushel in 1999
and 2000, and then increased above $5.00 per bushel in 2001. We expect modest
price increases in durum during the beginning of 2002, however, the lack of
rainfall in durum growing areas may result in greater increases in durum costs
in the latter half of 2002.

     Packaging materials typically represent approximately 22-25% of our total
cost of sales. We expect the costs of these materials to remain constant as a
percentage of cost of sales during 2002.

Relationship with Miller Milling Company

     Miller Milling Company is one of the largest durum/semolina suppliers in
North America. We are a party to a Procurement Agreement, dated January 28, 1999
("Procurement Agreement") with Miller Milling Company, pursuant to which Miller
Milling Company procures all of our requirements for durum wheat and semolina
flour, and other specified products and services, through December 2009, for all
of our U.S. plants other than St. Louis, MO. Our St. Louis, MO and Montreal,
Canada plants procure durum wheat and semolina flour from other suppliers.
During 2000, we amended two (2) pre-existing Mill Agreements with Miller Milling
Company which require the Company to purchase a substantial portion of the
semolina flour needs of our Fresno, CA plant, and all of the semolina flour
needs of our Winchester, VA plant, through December 2009, from Miller Milling
Company. Miller Milling Company owns a substantial interest in Miller Pasta LLC,
which in turn has an interest in New World Pasta. In addition, three members of
our Board of Directors are affiliated with Miller Milling Company. For a more
detailed description of our relationship and arrangements with Miller Milling
Company, see "ITEM 12. Security Ownership of Certain Beneficial Owners and
Management" and "ITEM 13. Certain Relationships and Related Transactions."

Trademarks and Domain Names

     We own numerous registered trademarks in the U.S. and abroad. Of the many
trademarks we have registered with the United States Patent and Trademark
Office, our ALBADORO, AMERICAN BEAUTY, CREAMETTE, LANCIA, LIGHT `N FLUFFY,
MONDER, MRS. WEISS', P&R, PRINCE, RONZONI, SAN GIORGIO and SKINNER marks are the
U.S.

                                       6

<PAGE>

trademarks that are material to our business. In Canada, we license the CATELLI
trademark. We also own several U.S. internet domain names that incorporate our
trademarks.

Regulation

     We are subject to various laws and regulations administered by federal,
state and other governmental agencies relating to the operation of our
production facilities, the production, packaging, labeling and marketing of our
products, as well as environmental and pollution control, including air
emissions. Our facilities are subject to inspections by the United States Food
and Drug Administration, the United States Occupational Safety and Health
Administration and various state regulatory agencies. We believe that we are in
material compliance with all federal, state and local laws and regulations
governing our products and facilities, and we do not expect to make any material
expenditures in 2002 with respect to compliance with environmental regulations.

Employees

     We have approximately 750 employees in our facilities throughout the U.S.,
and over 1,300 employees worldwide. With the exception of those at our
Winchester, VA plant, all of our hourly plant employees are represented by
unions. In total, approximately 64% of our employees are currently unionized.
The following unions represent our employees:

         .    The Bakery, Confectionery and Tobacco Workers International
                Union (BCTW)
         .    United Food and Commercial Workers International Union (UFCW)
         .    International Union of Operating Engineers
         .    International Brotherhood of Teamsters
         .    Confederazione Italiana Sindacati Lavoratori
         .    Confederazione Generale Italiana Del Lavoro
         .    Unione Italiana Lavoratori

     We generally renegotiate collective bargaining agreements every three to
five years. Negotiations were concluded in 2001 with: the BCTW in Lebanon, PA
and Montreal, Canada; the UFCW and the Teamsters in Louisville, KY; and the
Teamsters in St. Louis, MO. While we did experience a strike at our Omaha, NE
facility during late 1999 and early 2000, management considers its present labor
relations at its plants to be generally good. The Company has nine collective
bargaining agreements with certain of its hourly union employees. The two Omaha
agreements and the Monder agreement expire in 2002. The percentage of the
Company's labor covered by these three agreements was approximately 10% at
December 31, 2001.

ITEM 2.    Properties

     We are headquartered in Harrisburg, PA where we lease a 35,000 square foot
office building. This lease expires in April, 2004.

     We own the following pasta manufacturing plants:



        Location                                    Square Footage
        --------                                    --------------

        Alba, Italy                                      91,460
        Chicago, IL                                      18,750
        Fresno, CA                                      153,000
        Lethbridge, Alberta, Canada                      62,000
        Lebanon, PA                                     267,600
        Louisville, KY                                  207,415
        Milan, Italy                                     69,940
        Montreal, Quebec, Canada                        540,000*
        Omaha, NE                                       114,000
        St. Louis, MO                                   287,000*
        Winchester, VA                                  180,000

        -------------------------------------
        *  Includes warehousing space

                                       7

<PAGE>

     During 2001, we closed the Chicago, IL; Lethbridge, Alberta, Canada; and
Lebanon, PA facilities. We plan to close the Louisville, KY and Omaha, NE
facilities in 2002, but in March 2002 we announced that we would continue
operations at our Omaha, NE facility for an undetermined period.

     Each of our plants which remains open is equipped with modern pasta making
technology and process controls. We believe our plants are located in such a
manner to minimize our delivery costs to our regional distribution centers.

     We lease distribution centers in Fresno, CA; Omaha, NE; and New Kingston,
PA. We also have month-to-month warehouse agreements with warehouses in
Portland, OR; Dallas, TX; St. Louis, MO; Chicago, IL; and Atlanta, GA.

ITEM 3.    Legal Proceedings

     In the ordinary course of our business, we are a party to litigation
involving our operations and employees. We do not believe that the outcome of
any current litigation will have a material adverse effect upon our business,
financial condition or results of operations.

ITEM 4.    Submission of Matters to a Vote of Security Holders

     During the fourth quarter of the fiscal year covered by this report on Form
10-K, no matters were submitted to a vote of security holders.

                                     PART II

ITEM 5.    Market for Registrant's Common Equity and Related Stockholder Matters

     There is no established public trading market for our common stock. Our
voting common stock is currently held by four holders. For further detail, see
the beneficial ownership table under "ITEM 12. Security Ownership of Certain
Beneficial Owners and Management."

     During the second quarter of 2001, the Company recapitalized its capital
stock such that each outstanding share of 12% cumulative redeemable preferred
stock, par value $.01 per share, was reclassified to become 381.2829 shares of
Common Stock, par value $.01 per share, of the Company.

     We have not paid any dividends on our capital stock since its inception. We
do not anticipate paying any cash dividends in the foreseeable future. Both the
indenture, pursuant to which our 9.25% Senior Subordinated Exchange Notes due
2009 (the "Notes") were issued, and our senior credit facility restrict our
ability to pay dividends.

ITEM 6.    Selected Financial Data

     The following table sets forth selected historical financial data for New
World Pasta or its predecessor, HPG. The selected historical financial data for
the years ended December 31, 2001, 2000, 1999, 1998 and 1997 has been derived
from the audited financial statements of New World Pasta or HPG. As discussed in
footnote 1 below, the Company restated its financial statements for these years
due to the change in accounting method for inventories. The selected historical
financial data set forth in the following table should be read in conjunction
with our audited financial statements and notes thereto appearing as an appendix
to this Form 10-K and "ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."

                                       8

<PAGE>

<TABLE>
<CAPTION>
                                                                              For the years ended
                                           --------------------------------------------------------------------------------------
                                            December 31,      December 31,      December 31,      December 31,       December 31,
                                                2001            2000 (1)          1999 (1)          1998 (1)           1997 (1)
                                           --------------    -------------    ---------------    --------------     -------------
                                                                                 (in thousands)
<S>                                        <C>               <C>              <C>                <C>                <C>
STATEMENT OF OPERATIONS DATA
Net sales                                    $ 399,748          300,029            354,019           373,096            386,218
Cost of sales                                  231,244          165,550            188,645           207,893            209,382
                                             ---------         --------          ---------         ---------           --------

Gross profit                                   168,504          134,479            165,374           165,203            176,836
Selling and marketing expenses                 114,169           94,184            113,259           109,788            121,200
General and administrative expenses(2)          15,570           13,722             21,435            15,665             13,295
Restructuring and integration costs             20,126              582              2,700                --                 --
Gain on sale of closed facility                     --             (251)                --                --                 --
                                             ---------         --------          ---------         ---------           --------

Income from operations                          18,639           26,242             27,980            39,750             42,341
Other income                                     8,136               --                 --                --                 --
Interest expense, net (3)                      (29,148)         (28,903)           (26,325)               --                 --
                                             ---------         --------          ---------         ---------           --------

Income (loss) before income taxes               (2,373)          (2,661)             1,655            39,750             42,341
Income tax expense (benefit)                      (140)            (942)             2,221            15,213             16,780
                                             ---------         --------          ---------         ---------           --------

Net income (loss)                            $  (2,233)          (1,719)              (566)           24,537             25,561
                                             =========         ========          =========         =========           ========

BALANCE SHEET DATA
Working capital                              $  40,448           25,272             22,265            21,437             10,199


Total assets                                   426,174          314,736            327,774           224,781            233,936
Long-term debt (including current              327,844          287,725            292,995                --                 --
portion)
Mandatorily redeemable 12% cumulative
     preferred stock                                --          140,466            126,096                --                 --
Stockholders' equity (deficit)                  (5,570)        (151,333)          (135,919)          167,583            164,706

OTHER DATA

EBITDA (4)                                      55,464           42,056             55,585            55,138             57,561

Net cash provided by operating activities        7,839            6,652             36,140            26,407             47,928

Depreciation and amortization expense           17,769           15,053             15,468            14,647             15,437

Capital expenditures                            11,663            5,075              3,960             4,660              1,850

Deficiency of earnings to combined fixed
     charges and preferred stock dividends       9,222           16,356             10,956                --                 --

</TABLE>



(1)  In the fourth quarter of 2001, the Company changed its method of accounting
     for certain raw material inventories from the last-in, first-out ("LIFO")
     method to the first-in, first-out ("FIFO") method. The new method of
     accounting for these inventories was adopted because the FIFO method of
     valuing inventories more clearly follows the actual usage of the components
     of inventory in the production process and more closely matches actual
     costs and revenues resulting in an enhanced measurement of operating
     results. The financial information for the prior years has been restated to
     apply the new method retroactively.

     As a result of the adoption of the new accounting method described above,
     the 2001 net loss was reduced by $164,000. The effect of the accounting
     change on net income as previously reported for 2000 and prior years is as
     follows (in thousands):

<TABLE>
<CAPTION>
                                              2000        1999      1998       1997
                                           ---------   ---------  --------    ------
<S>                                         <C>          <C>       <C>        <C>
Net income (loss), as previously reported   $(1,677)       460     25,914     25,157
Adjustment for effect of change in
   accounting principle that is applied
   retroactively, net of tax                    (42)    (1,026)    (1,377)       404
                                            -------    -------    -------    -------

Net income (loss), as restated              $(1,719)      (566)    24,537     25,561
                                            =======    =======    =======    =======
</TABLE>

(2)  For the year ended December 31, 1999, general and administrative expenses
     include $7.8 million of non-recurring expenses incurred in connection with
     the Recapitalization in which our current principals acquired control of
     New World Pasta and the related financing transactions, and $2.2 million of
     non-recurring start-up expenses.


(3)  Historically, HPG did not incur indebtedness or related interest expense as
     a division of HFC. As an independent company, New World Pasta is required
     to service the interest expense on any borrowings incurred by it, including
     the debt associated with the recapitalization in which our current
     principals acquired control of New World Pasta.


                                       9

<PAGE>

(4)  EBITDA represents earnings before interest, taxes, depreciation and
     amortization. For years 2001 and 2000, EBITDA also is adjusted for
     non-recurring items including one-time asset write-offs, cash restructuring
     costs and certain other non-recurring charges. We believe that EBITDA
     provides useful information regarding our ability to service our debt.
     EBITDA is not a measure of operating performance computed in accordance
     with Generally Accepted Accounting Principles ("GAAP") and should not be
     considered as a substitute for operating income, net income, cash flows
     from operations, or other statement of operations or cash flow data
     prepared in conformity with GAAP, or as a measure of profitability or
     liquidity. In addition, EBITDA may not be comparable to similarly titled
     measures of other companies. EBITDA may not be indicative of the historical
     operating results of New World Pasta, and is not meant to be predictive of
     future results of operation or cash flows. You should also see the audited
     consolidated statements of cash flows contained within the audited
     consolidated financial statements appearing in the Form 10-K.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation

Year Ended December 31, 2001 Compared with the Year Ended December 31, 2000

     Net Sales
     ---------

     Net sales in 2001 increased by $99.7 million, or 33.2%, from 2000, due
primarily to the Acquisition. Excluding the impact of the Acquisition, net sales
increased by 1%. This increase is primarily due to unit volume increases as a
result of further penetration of the retail and foodservice markets.

     Cost of Sales
     -------------

     Cost of sales in 2001 increased $65.7 million, or 39.7%, from 2000, due to
the Acquisition. Excluding the impact of the Acquisition, cost of sales
decreased by 0.9%. This decrease is due to an adjustment made during the third
quarter for the elimination of post-retirement medical benefit costs as a result
of the new union agreements reached this year, partially offset by higher raw
material prices, particularly durum/semolina costs. This adjustment for
post-retirement medical benefits is not expected to affect future periods.

     Gross Profit
     ------------

     Gross profit in 2001 increased $34.0 million, or 25.3%, from 2000,
primarily due to the Acquisition. Gross profit as a percentage of net sales
decreased to 42.2% for 2001 from 44.8% in 2000. Excluding the impact of the
Acquisition, gross profit increased $3.9 million or 2.9%, and was 45.8% of net
sales. Excluding the Acquisition and the adjustment referred to above for the
elimination of post-retirement medical benefits, gross profit as a percentage of
net sales was 44.8% of net sales in 2001, unchanged from 2000.

     Selling and Marketing Expenses
     ------------------------------

     Selling and marketing expenses in 2001 increased $20.0 million from 2000,
due to the Acquisition. Excluding the impact of the Acquisition, selling and
marketing expenses declined 7.8%. This decline is due to our strategy of
shifting our marketing expenses from less efficient trade oriented programs to
more effective consumer marketing programs.

     General and Administrative Expenses
     -----------------------------------

     General and administrative expenses for 2001 increased $1.8 million from
2000, primarily due to higher amortization costs for the intangible assets
acquired in the Acquisition. Excluding the impact of the Acquisition, general
and administrative expenses decreased $0.4 million.

     Restructuring and Integration Costs
     -----------------------------------

     During 2001, as a result of the Acquisition, the Company implemented a plan
to restructure its operations. The Company announced the closing of three of its
pre-Acquisition plants and two plants acquired in the Acquisition, and has
restructured the staffing and organization of certain other plants. This plan is
expected to be completed during 2002, at a total cost of $35.0 million. In 2001,
the Company recorded a restructuring and integration charge of $20.1 million,
including $17.4 million for restructuring and $2.7 million for on-going
integration costs. Of this total, approximately $12.7 million is for the
non-cash write off of property, plant and equipment which will be disposed of.
Of the remaining anticipated expense, approximately $10.5 million is expected to
be incurred for relocating equipment between facilities, $3.0 million is
expected to be incurred for employee separation costs, and approximately $1.4
million is expected to be spent on other integration costs.

                                       10

<PAGE>

     The Company expects the plan to be completed during 2002, at which time it
expects to realize cost savings of between $20.0 million and $30.0 million on an
annual basis. However, the Company cannot make any assurance that it will be
able to realize these savings.

     Income from Operations
     ----------------------

     Income from operations for the year ended December 31, 2001, was $18.6
million, a decrease of $7.6 million or 29% lower than 2000. The decrease is
primarily due to the $20.1 million charge for restructuring and integration
costs. Excluding the restructuring and integration costs, income from operations
for 2001 increased by $12.5 million, or 48% from 2000, primarily due to improved
gross profit, decreases in general and administration expenses, decreased
marketing and selling expenses, and incremental profit due to the Acquisition.

     Other Income
     ------------

     Other income for 2001 was $8.1 million, and relates to a cash payment
received from the U.S. Customs Service under trade legislation which disbursed
to certain U.S. pasta manufacturers certain import duties and fees previously
paid to the U.S. Government by imported pasta producers found to be in violation
of U.S. import laws. We have classified these proceeds as other income since
they do not directly relate to Company operations and were a result of recent
legislation. Similar receipts in the future are subject to Federal legislation
and the activities of various foreign pasta producers.

     Interest Expense, Net
     ---------------------

     Interest expense for 2001 increased by $245,000, or 0.8%, over 2000 due to
non-cash interest charges associated with borrowings related to the Acquisition.
Excluding the impact of the Acquisition, interest expense declined by $2.0
million, or 6.7% in 2001 compared to 2000. This decline was due to lower
interest rates and slightly lower debt levels.

     Income Taxes
     ------------

     The overall effective tax rate reflects the impact of federal, state and
foreign income taxes on the loss before income taxes, as adjusted for permanent
differences between book and tax income (loss), the effect of tax rate changes
on deferred tax assets and liabilities and changes in valuation allowances, if
any. The lower effective tax rate in 2001 (tax benefit of $140,000, at an
effective rate of 5.9%) resulted primarily from an increase in the valuation
allowance for deferred tax benefits for certain state income tax net operating
losses which are subject to annual limitations and shorter carryforward periods
than for federal income tax purposes. The Company is subject to foreign income
tax in 2001 due to the Acquisition. Fluctuations in the effective income tax
rate from period to period will be impacted by changes in permanent differences,
relative profitability related to both the U.S. and non-U.S. operations,
differences in the statutory rates and changes in the valuation allowance, if
any.

     Net Loss
     --------

     The Company reported a net loss of $2.2 million in 2001 as compared to a
net loss of $1.7 million in 2000. The reported loss is primarily due to the
$20.1 million charge for restructuring and integration costs, offset by improved
gross profit, decreases in general and administrative expenses, decreases in
marketing and selling expenses, other income and incremental profit due to the
Acquisition.

Year Ended December 31, 2000 Compared with the Year Ended December 31, 1999

     Net Sales
     ---------

     Net sales declined by $54.0 million or 15.3% for the year ended December
31, 2000 compared to the year ended December 31, 1999. The decrease was the
result of both price and volume factors. The pricing impact was the result of a
net price decline on certain of the Company's branded products taken during 1999
and early 2000. Unit volume was impacted by a decline in the consumption of dry
pasta, the loss of the General Mills co-pack business in the third quarter of
1999, significant competitive pressures within the dry pasta segment and from
other competing products in the pasta category and lower effectiveness of trade
promotional activities. Management's decision to revise its marketing strategy
in the third quarter of 2000 by reducing trade promotional activities and
increasing additional consumer spending also had an adverse effect on volume.

                                       11

<PAGE>

     Cost of Sales
     -------------

     Cost of sales declined $23.1 million or 12.2% for the year ended December
31, 2000 compared to the year ended December 31, 1999, primarily due to the
decrease in volume experienced in 2000. Raw material prices, particularly
durum/semolina costs, had an unfavorable impact on cost of sales. Packaging
costs for 2000 remained constant with 1999 levels. Freight and warehousing costs
in 2000 were lower than 1999, primarily due to the volume decrease, with
offsetting increases in freight rates and the implementation of a new pallet
management program. Depreciation expense decreased for 2000 as compared to 1999
due to the asset base reductions associated with the closing of the Company's
Kansas City plant in the third quarter of 1999.

     Gross Profit
     ------------

     Gross profit decreased by $30.9 million, for the year ended December 31,
2000 compared to the year ended December 31, 1999, with the decrease in net
sales being only partially offset by the reduction in cost of sales. Gross
profit margin declined to 44.8% of net sales for 2000 compared to 46.7% in 1999,
as a result of lower selling prices, lower volumes to absorb fixed costs and
higher durum/semolina costs.

     Selling and Marketing Expenses
     ------------------------------

     Selling and marketing expenses declined $19.1 million for the year ended
December 31, 2000 compared to the year ended December 31, 1999. This decrease
was due primarily to reductions in volume sensitive broker and sales incentives
and reduced trade promotions, consumer promotions and advertising expenses,
combined with a reversal of a promotional accrual to reflect current estimates.

     General and Administrative Expenses
     -----------------------------------

     General and administrative expenses were $13.7 million for the year ended
December 31, 2000, which is consistent with 1999 levels, excluding $7.8 million
of non-recurring expenses incurred in connection with the Recapitalization and
$2.2 million of non-recurring start-up expenses.

     Restructuring and Integration Costs
     -----------------------------------

     The $582,000 restructuring cost includes restructuring costs of $650,000 in
2000, which were offset by the reversal of the unused portion ($68,000) of the
$2.7 million restructuring reserve established in the second quarter of 1999 for
the Kansas City plant closure. The charge in 2000 was established to cover the
cost of the reorganization plan executed on June 29, 2000. This reorganization
was undertaken to align the sales, marketing, administrative and manufacturing
functions of the Company with the revised strategic direction implemented by
executive management and resulted in the termination of 139 employees from
various functional areas across the Company.

     Gain on Sale of Closed Facility
     -------------------------------

     A $251,000 gain was recognized on the sale of the Kansas City plant that
included the land, building, and building improvements associated with this
property.

     Income from Operations
     ----------------------

     Income from operations for the year ended December 31, 2000 was $26.2
million, $1.8 million or 6.4% lower than the $28.0 million operating profit in
1999. The decrease is due to lower net sales offset only partially by the
absence of recapitalization transaction expenses incurred in 1999, as well as,
decreases in cost of sales, selling and marketing expenses, cost of
restructuring, and general and administrative expenses.

     Interest Expense, Net
     ---------------------

     Interest expense of $28.9 million includes interest on the notes and the
term loan ("Term Loan") issued pursuant to the credit facility, as well as
deferred debt cost amortization. These interest costs were offset partially by
interest income on bank deposits. The increase in interest expense from 1999 of
$2.6 million or 9.8% is the result of the interest rate increase related to an
amendment to the Company's credit facility and a full year of expenses included
in 2000 versus only 11 months in 1999.

                                       12

<PAGE>

     Income Taxes
     ------------

     The overall effective tax rate reflects the impact of federal and state
income taxes on the loss before income taxes, as adjusted for permanent
differences between book and tax income (loss), the effect of tax rate changes
on deferred tax assets and liabilities and changes in valuation allowances, if
any. The income tax benefit of $942,000 for the year 2000 (an effective rate of
35.4%) reflects the federal and state deferred tax benefit adjusted for the tax
effect of permanent differences. The income tax expense for the year 1999 of
$2.2 million (an effective rate of 134.2%) reflects the federal and state
deferred tax expense, adjusted for permanent differences including non-recurring
transaction expenses incurred as part of the recapitalization effected in
January 1999. There was no valuation allowance or foreign tax applicable to 2000
and 1999.

     Net Loss
     --------

     The Company reported a net loss of $1.7 million in 2000 versus a net loss
of $566,000 in 1999. The reported loss in 2000 was due to the impact of reduced
net sales and increased interest expense, offset only partially by the absence
of recapitalization transaction expenses incurred in 1999, as well as decreases
in the cost of sales, selling and marketing expenses, cost of restructuring, and
general and administrative expenses, and an increase in the income tax benefit
for the year.


Liquidity and Capital Resources

     Our primary sources of liquidity are cash provided by operations and
borrowings under our Credit Agreement dated as of January 28, 1999, as amended,
among the Company and various financial institutions parties thereto ("Credit
Facility"). Cash and cash equivalents totaled $3.1 million at December 31, 2001
and $9.5 million as of December 31, 2000. Working capital was $40.4 million as
of December 31, 2001 compared to $25.3 million as of December 31, 2000. The
current ratio was 1.46 at December 31, 2001 versus 1.79 at December 31, 2000.
See Note 9 to the consolidated financial statements for further information on
the Credit Facility and our other debt.

     Our net cash provided by operations was $7.8 million for the year ended
December 31, 2001 compared to net cash provided by operations of $6.7 million
for the year ended December 31, 2000. This increase was primarily a result of
the increased income from operations prior to the non-cash charges.

     Net cash used in investing activities totaled $61.5 million during the year
ended December 31, 2001, and $4.0 million during the year ended December 31,
2000. Investing activities, as a result of the Acquisition, totaled $49.9
million, net of cash acquired, while expenditures for property, plant and
equipment totaled $11.7 million. The increase in expenditures for property,
plant and equipment is primarily due to our implementation of an ERP software
package during 2001.

     Net cash provided by financing activities for the year ended December 31,
2001 totaled $47.9 million, of which $51.8 million pertains to financing the
Acquisition, offset by $3.1 million used to make mandatory and voluntary debt
payments. Net cash used in financing activities for the year ended December 31,
2000 totaled $6.3 million and reflects the mandatory debt repayments on the Term
Loan B, as well as voluntary debt repayments totaling $4.0 million, and
capitalization of certain costs associated with amending the Credit Facility.

     The following table summarizes our contractual obligations and other
commitments as of December 31, 2001:

<TABLE>
<CAPTION>
                                                                                      Payments Due by Period
                                                                   ------------------------------------------------------------
             Contractual Obligations                                                                                  After
                  (in thousands)                     Total           1 Year          2-3 Years       4-5 Years      5 Years
      ---------------------------------------     -------------    ------------     ------------    ------------    -----------
      <S>                                         <C>              <C>              <C>             <C>             <C>
      Long-term debt                               $ 338,103           1,285            2,570         174,248         160,000
      Operating leases                                12,152           7,662            4,137             259              94
                                                  -------------    ------------     ------------    ------------    -----------

      Total contractual obligations                $ 350,255           8,947            6,707         174,507         160,094
                                                  =============    ============     ============    ============    ===========
</TABLE>

     The covenants of the Notes and the Credit Facility do not restrict the
ability of the Company's subsidiaries to make cash distributions to the Company.

     We entered into an amendment and waiver to the Credit Facility effective as
of May 10, 2000, pursuant to which, among other things: (i) the lenders waived
compliance by the Company with certain financial covenants contained thereunder
with respect to the quarter ended April 2, 2000; (ii) certain financial
covenants contained therein were amended for all periods

                                       13

<PAGE>

ending on or before December 31, 2002; and (iii) the interest rates on the
Credit Facility were increased. In conjunction with the Acquisition, the Credit
Facility was amended again and included, among other things, the following
changes to specified financial tests, specified financial ratios, and
restrictions of the Company to undertake certain actions: (i) certain financial
covenants were revised for all periods ending on or after June 30 2001; (ii)
spending for acquisitions other than the Acquisition is limited to $25.0
million; and (iii) maximum capital expenditures for fiscal years 2001 and beyond
were revised. The amendment to the Credit Facility in conjunction with the
Acquisition also added a new tranche of secured term loans ("Term Loan C") in
the aggregate principal amount of $51.4 million. (See ITEM 1. Recent
Developments). The Company is in compliance with the provisions of the Credit
Facility as of December 31, 2001. We believe that cash generated from
operations, together with the funds available under the amended Credit Facility,
which includes a $20.0 million revolving loan commitment, will be sufficient to
meet our liquidity needs for the foreseeable future. As of December 31, 2001, we
had the full $20.0 million of availability under the revolving loan portion of
the Credit Facility.

Critical Accounting Policies

      Preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the U.S. requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period. Many of the estimates and assumptions
require significant judgment. Future actual results could differ from those
estimates and assumptions and could have a significant impact on our
consolidated results of operations, financial position and cash flows.

     The following accounting policies, estimates and assumptions are
particularly sensitive because of their significance on the preparation of the
Company's consolidated financial statements:

          .    Our allowance for potentially uncollectible receivables and
               pending deductions requires management to make significant
               judgments in estimating future amounts to be received. Our
               judgments are based upon historical experience and current market
               conditions. Changes in our estimates could be impacted as a
               result of events, such as a deterioration of the credit status of
               our customers, business restructuring actions, or material
               reductions in product and sales volumes.


          .    In conjunction with the Acquisition, we established reserves for
               expected short-term and long-term liabilities, based in part on
               communications and documentation received from the seller. We
               assessed the information provided to determine and record the
               expected liabilities at the time of the purchase, and adjusted
               the estimates as of December 31, 2001.

          .    We have recorded a charge against earnings in 2001 for
               restructuring actions and asset impairments based on our plan to
               close three production plants. The charge to earnings was based
               on estimates involving several assumptions, including, but not
               limited to: (1) when each plant will close; (2) equipment to be
               sold or transferred; (3) the timing of when the production lines
               reach their optimal efficiency; and (4) costs associated with
               plant closures.

          .    Accounting for income taxes requires us to make judgments
               relating to the realizability of deferred tax assets, including
               the future utilization of tax loss carryforwards. Our judgments
               are based upon projections of future taxable income and our
               current strategies for the foreseeable future. For more details
               relating to our deferred tax assets and liabilities, tax loss
               carryforwards, and the potential need for tax loss carryforward
               valuation allowances, see note 13 to the accompanying
               consolidated financial statements.

          .    Determination of our liabilities for pension and post-retirement
               benefits includes significant assumptions and estimates relating
               to compensation and health care cost trends, discount rates and
               rate of return on plan assets. Our assumptions are based upon
               current market and health care trends. These assumptions are
               discussed in note 17 to the accompanying consolidated financial
               statements.

          .    Our accrual for workers' compensation requires us to estimate
               amounts that will be incurred to satisfy existing employee
               related claims. We consider information and actuarial estimates
               of experts, as well as our past experience, to estimate costs to
               be paid in future years based on the most recent claims we are
               aware of. The estimates of these accruals can fluctuate based on
               several factors, including, but not limited to: (1) the life
               expectancy of the employee; (2) the ability of the employee to
               return to work; and (3) the number of cases outstanding.

                                       14

<PAGE>

     The footnotes to the accompanying consolidated financial statements provide
additional information on accounting policies and assumptions used by us.


New Accounting Standards

     During May 2000, the Emerging Issues Task Force ("EITF") released Issue No.
00-14, "Accounting for Certain Sales Incentives", which provides guidance on
accounting for certain promotional activities. During September 2000, the EITF
released Issue No. 00-25, "Vendor Income Statement Characterization of
Consideration from a Vendor to a Retailer", which provides guidance on
accounting for certain consideration from a vendor to an entity that resells the
vendor's products. The Company is required to implement the requirements of
these pronouncements in the first fiscal quarter of 2002. These pronouncements
will have a significant impact on the manner in which certain expenses are
recorded in the Company's financial statements. Specifically, certain amounts
currently reported as selling and marketing expense will be reported as a
reduction to net sales. If these pronouncements had been implemented, there
would have been a decrease in selling and marketing expenses of $63.8 million
for the year ended December 31, 2001, and a corresponding decrease in net sales.

     In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets." Under SFAS No. 142, the Company will no longer
amortize goodwill and intangible assets with indefinite lives, but instead will
test those assets for impairment at least annually. Intangible assets with
definite useful lives will be amortized over such lives to their estimated
residual values. The Company is required to adopt SFAS No. 142 on January 1,
2002, and within six months of that date, to assess in accordance with the
provisions of the Statement, whether there is an indication that any goodwill or
other intangible assets with indefinite lives are impaired as of that date. As
soon as possible after a determination that any goodwill or other intangible
assets may be impaired, but not later than December 31, 2002, the Company must
re-compute the amount of such goodwill or other intangible asset with an
indefinite life in accordance with the provisions of SFAS No. 142. Any
transitional impairment loss will be recognized as the cumulative effect of a
change in accounting principle. Due to the extensive effort needed to accumulate
the information required to comply with SFAS No. 142, it is not practicable to
reasonably estimate the impact of adopting this Statement on the Company's
financial statements at this time.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The Statement supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions", for the disposal of a segment of a business (as
previously defined in that Opinion). The provisions of this Statement are
effective on January 1, 2002. This Statement is not expected to materially
impact the Company's consolidated financial statements.

Inflation

    We believe inflation has not had a significant impact on our results of
operations for the periods presented and do not anticipate inflation having a
significant impact on the future results of operations.

Market Trends

     We believe that total pasta consumption in the U.S. and Canada has
increased over the past decade. Our market research shows that, during 2001, the
retail market of the dry pasta segment, as measured by IRI, increased by 1.1% in
the U.S. on a dollar basis, but declined by 1.5% in the U.S. on a pound basis.
In 2001, in Canada, the retail dry pasta segment, as measured by IRI, increased
by 2.9% on a dollar basis, and increased by 0.1% on a pound basis.

ITEM 7A.    Quantitative and Qualitative Disclosures about Market Risk

    We are subject to market risk associated with some commodity prices and
changes in interest rates. To manage the risk of fluctuations in interest rates,
our borrowings are a mix of fixed and floating rate obligations. This includes
the $160.0 million of Notes that bear interest at a 9.25% fixed rate and are due
2009, and a Term Loan (current principal balance of $125.0 million) that bears
interest at a floating rate. On December 31, 2001 the effective interest rate on
the Term Loan was 5.94%. In May 1999, we entered into an interest rate swap
agreement that converts $50.0 million of this floating interest rate debt to a
fixed rate. The interest rate on the portion of the debt covered by the swap is
approximately 8.9%. The swap agreement expires June 2, 2002. The carrying amount
of our debt obligations is higher than the fair value of similar debt
instruments of comparable maturity. At December 31, 2001, the fair market value
of the 9.25% Notes approximates 98% of the current

                                       15

<PAGE>

carrying amount, and the fair market value of the Term Loan B approximates 91%
of the current carrying amount. The Term Loan C fair value approximates its
current carrying amount. A one percent change on the variable effective rate on
Term Loan B has an annualized impact of $1.0 million for 2002.

    Since the majority of our commodity purchasing is done by Miller Milling
Company pursuant to a Procurement Agreement entered into in January 1999, we do
not currently have, and do not expect to enter into, any derivative instruments
to manage commodity price risks.

ITEM 8. Financial Statements and Supplementary Data

     Financial information required by this item appears in the pages marked F1
through F27 at the end of this report and is incorporated herein by reference as
if fully set forth herein.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

     None.


                                    PART III

ITEM 10. Directors and Executive Officers of the Registrant

     Set forth below is information concerning our directors, executive officers
and key employees as of March 26, 2002. Our board of directors manages the
business and affairs of our Company and currently has eight members. See "ITEM
13. Certain Relationships and Related Transactions - Stockholders' Agreement"
and "ITEM 11. Executive Compensation - Employment Agreements" for a discussion
of certain agreements relating to the election of certain of our directors and
executive officers.

<TABLE>
<CAPTION>
              Name                            Age                     Position
              ----                            ---                     --------
       <S>                                    <C>      <C>
       John E. Denton ......................  58       Chairman, Chief Executive Officer and Director
       C. Mickey Skinner ...................  68       Chairman Emeritus and Director
       Angelo Fraggos ......................  49       Vice President, Sales and Business Development
       Burton R. Freeman ...................  53       Vice President, Manufacturing
       Cary A. Metz ........................  47       Vice President, General Counsel and Corporate Secretary
       Wayne Robison .......................  42       Vice President, Finance, Chief Financial Officer and Treasurer
       Stephen H. Vesce ....................  48       Vice President, Marketing
       Glenn A. Zearfoss ...................  47       Vice President, Logistics
       Paul S. Levy ........................  54       Director
       Jeffrey C. Lightcap .................  43       Director
       Brett N. Milgrim ....................  33       Director
       John C. Miller ......................  51       Director
       Michael L. Snow .....................  51       Director
       David Y. Ying .......................  47       Director
</TABLE>

     Mr. Denton is Chairman of the Board, Chief Executive Officer and a Director
of New World Pasta. From 1993 until joining New World Pasta on February 28,
2000, Mr. Denton was Chief Executive Officer, President and a Director of
Snyder's of Hanover, a producer of pretzel and snack food products. From 1986 to
1993, Mr. Denton was President of Hanover Foods, a processor of frozen and
canned foods. Mr. Denton currently serves on the board of Snyder's of Hanover.

     Mr. Skinner is Chairman Emeritus and a Director of New World Pasta. He has
been a Director of New World Pasta since January 1999. He was Chairman and Chief
Executive Officer of New World Pasta from January 28, 1999 until February 28,
2000, when he became Chairman Emeritus. Mr. Skinner was President of HPG from
1984 to 1996 and Vice Chairman during 1997. He currently serves on the board of
directors of Streck Laboratories, Coleman Natural Products, Inc. and Miller
Milling Company (which is responsible for procuring a significant amount of the
Company's durum/semolina requirements).

     Mr. Fraggos is Vice President, Sales and Business Development of New World
Pasta. From 1998 until joining New World Pasta in April 2000, Mr. Fraggos was
General Manager of Distribution for Snyder's of Hanover. He was also Vice
President of Sales and Marketing for Gardetto's Bakery, a snack food
manufacturer from 1992 to 1998.

     Mr. Freeman is Vice President, Manufacturing of New World Pasta. He has
held this position since January 1999. He was previously Vice President,
Manufacturing of HPG from 1991 until joining New World Pasta.

                                       16

<PAGE>


     Mr. Metz is Vice President, General Counsel and Corporate Secretary of New
World Pasta. From May 2001 until joining New World Pasta in September 2001, Mr.
Metz was Vice President, Legal, of Pinnacle Foods Corporation, a packaged goods
food company which acquired the North American businesses of Vlasic Foods
International Inc. effective May 22, 2001. He also held the following positions
with Vlasic Foods International Inc.: Vice President and General Counsel,
Corporate Secretary from March 2001 to May 2001; Vice President - Law, Assistant
Corporate Secretary from 1999 to 2001 and Assistant General Counsel from 1998 to
1999. From 1996 to 1998, Mr. Metz was Senior Corporate Counsel at Campbell Soup
Company, a worldwide marketer and manufacturer of soups, sauces, confectionery,
biscuits, crackers, cookies and frozen foods.

     Mr. Robison is Vice President, Finance and Chief Financial Officer of New
World Pasta. He has held this position since May 2000. From 1997 until joining
New World Pasta, Mr. Robison was Vice President, Finance of Specialty Brands
Inc., a producer of frozen prepared food products. From 1992 to 1997, Mr.
Robison was Regional Controller of Mission Foods Corporation, a marketer and
manufacturer of tortillas, tortilla chips and other Mexican food products.

     Mr. Vesce is Vice President, Marketing of New World Pasta. He has held this
position since September 2000. From 1996 until June 2000, Mr. Vesce was Group
Marketing Director of M&M Mars, Inc., the largest operating division of Mars,
Inc. He also held the position of Marketing Director at M&M Mars, Inc. from 1992
to 1995.

     Mr. Zearfoss is Vice President, Logistics of New World Pasta. He has held
this position since January 1999. He was Manager of Application Consulting at
HFC from 1997 to 1999, and was Vice President of Technical Services and Quality
Assurance at HPG from 1991 to 1997.

     Mr. Levy is a Director of New World Pasta and is a Senior Managing Director
of Joseph Littlejohn & Levy, Inc. since its formation in May 1988. He has been a
Director of New World Pasta since January 1999. Mr. Levy serves on the Board of
Directors of Hayes Lemmerz International Inc., Builders FirstSource, Inc., Iasis
Healthcare Corporation, Motor Coach Industries International, Inc., Fairfield
Manufacturing Company, Inc. and AdvancePCS.

     Mr. Lightcap is a Director of New World Pasta and is a Senior Managing
Director of Joseph Littlejohn & Levy, Inc., which he joined in 1997. He has been
a Director of New World Pasta since January 1999. From 1993 to 1997, Mr.
Lightcap was employed by Merrill Lynch & Co., Inc., an investment banking firm,
first as a Director and then, commencing in 1994, as a Managing Director. Mr.
Lightcap serves on the board of directors of Hayes Lemmerz International Inc.,
Iasis Healthcare Corporation, and Motor Coach Industries International, Inc.

     Mr. Milgrim is a Director of New World Pasta and is a Vice President of
Joseph Littlejohn & Levy, Inc., which he joined in 1997. He has been a Director
of New World Pasta since January 1999. From 1996 to 1997, he was an Associate in
the investment banking group of Donaldson, Lufkin & Jenrette, Inc. Mr. Milgrim
serves on the board of directors of Builders FirstSource, Inc.

     Mr. Miller is a Director of New World Pasta. He has been a Director of New
World Pasta since January 1999. Mr. Miller was President of New World Pasta from
January 1999 until February 28, 2000. He also serves, and during the last five
years has served, as Chairman, President and Chief Executive Officer and
Director of Miller Milling Company. Mr. Miller is also a founder, Director and
President of Tablex Miller S. de R.L. de C.V., a Mexican durum milling company.
He currently serves on the Board of Directors of the Minneapolis Grain Exchange,
where he is Chairperson, and serves on the board of directors of the North
American Millers' Association, an industry trade organization.

     Mr. Snow is a Director of New World Pasta and, during the last five years,
also has served as Executive Vice President, Secretary, Treasurer and a Director
of Miller Milling Company. He has been a Director of New World Pasta since
January 1999. Mr. Snow was Executive Vice President of New World Pasta from
January 1999 until February 28, 2000. He is Counsel to, and was a former Partner
of, the commercial law firm of Maslon Edelman Borman & Brand LLP. Mr. Snow is
also a founder, Director and Officer of Tablex Miller S. de R.L. de C.V., a
Mexican durum milling company. He currently acts as Counsel to and a Director of
Osmonics, Inc. and as a Director of Navarre Corporation, Innuity, Inc. and
Artesian Management, Inc.

     Mr. Ying is a Director of New World Pasta and a Senior Managing Director of
Joseph Littlejohn & Levy, Inc., which he joined in 1997. He has been a Director
of New World Pasta since January 1999. He was previously a Managing Director at
Donaldson, Lufkin & Jenrette, Inc., which he joined in January 1993, and the
head of its restructuring department. Mr. Ying serves on the Board of Directors
of Hayes Lemmerz International Inc., Iasis Healthcare Corporation and Builders
FirstSource, Inc.

                                       17

<PAGE>


Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934 requires the directors
and officers of a reporting company to file reports of holdings and transactions
in that company's public equity securities with the Securities and Exchange
Commission and their respective exchange. Because we do not have public equity
securities, the reporting requirements under Section 16(a) do not apply to us.

ITEM 11.  Executive Compensation

     The following table sets forth certain compensation information for our
chief executive officer and the four other executive officers who, based on
salary and bonus compensation, were the most highly compensated officers for the
year ended December 31, 2001.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
  ----------------------------------------------------------------------------------------------------------------------------------
                                                                                        Long-Term Compensation
                                                                                        ----------------------
                                                    Annual Compensation                         Awards
                                                    -------------------                         ------
                                                                                                                            All
                                                                     Other Annual     Restricted      Securities           Other
      Name and                                                         Compen-          Stock         Underlying          Compen-
  Principal Position            Year      Salary ($)    Bonus ($)     sation ($)       Award($)     Options/SARs(#)    sation $/(1)/
  ------------------            ----      ----------    ---------     ----------       --------     ---------------    -------------
  ----------------------------------------------------------------------------------------------------------------------------------
  <S>                           <C>       <C>           <C>          <C>             <C>           <C>                   <C>
  John E. Denton,               2001       415,000       420,000      146,647/(2)/         --          3,100,000            61,305
  Chief Executive Officer       2000       989,181/(3)/  400,000       61,753/(4)/     434,140/(5)/      305,667
  ----------------------------------------------------------------------------------------------------------------------------------
  Wayne Robison,                2001       207,500       105,000       16,497/(6)/         --            685,179            13,163
  V.P. Finance, Chief           2000       130,769       100,000      150,284/(7)/         --             70,934
  Financial Officer and
  Treasurer
  ----------------------------------------------------------------------------------------------------------------------------------
  Angelo Fraggos,               2001       182,875        92,750       81,717/(8)/         --            685,179            23,813
  V.P. Sales and Business       2000       121,154        87,500        8,250/(9)/         --             70,934
  Development
  ----------------------------------------------------------------------------------------------------------------------------------
  Stephen H. Vesce,             2001       180,250        91,000       68,191/(10)/        --            685,179            13,111
  V.P. Marketing                2000        51,287          --         10,668/(11)/        --             70,934
  ----------------------------------------------------------------------------------------------------------------------------------
  Burton  R. Freeman, V.P.      2001       148,003        74,893        4,000/(12)/        --            685,179            11,395
  Manufacturing                 2000       141,615        42,796           --              --                 --
                                1999       138,951          --             --              --             70,934
  ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  The amounts shown for 2001 include the following amounts paid on behalf of
     the following individuals for Company contributions to the Company's
     defined contribution plans and insurance premiums, respectively: Mr.
     Denton: $12,750 and $826; Mr. Robison $12,750 and $413; Mr. Fraggos:
     $12,750 and $361, and a $10,702 payment for unused vacation in 2001; Mr.
     Vesce: $12,750 and $361; and Mr. Freeman: $11,100 and $295. The amount for
     Mr. Denton also includes $47,729 of compensation as a result of the
     Company's removal in 2001 of forfeiture restrictions on common and
     preferred stock held by Mr. Denton.

(2)  Includes car and country club fees allowance of $20,000, and relocation
     expenses of $123,922.

(3)  Represents $338,461 in salary and $650,720 in grants of common and
     preferred shares.

(4)  Represents car and country club fees allowance of $20,000 and relocation
     expenses of $41,753.

(5)  As of December 31, 2000, Mr. Denton held 11,714 shares of common stock and
     317 shares of preferred stock which were subject to forfeiture
     restrictions. Effective February 4, 2001, all forfeiture restrictions on
     these shares were removed. On July 31, 2001, as a result of the Company's
     reclassification of its capital stock, each of the preferred shares held by
     Mr. Denton was reclassified into 381.2829 shares of common stock.

(6)  Includes car allowance of $12,000 and relocation expenses of $2,997.

(7)  Represents car allowance of $7,750 and relocation expenses of $142,534.

(8)  Represents car allowance of $12,000 and relocation expenses of $69,217.

(9)  Represents car allowance of $8,250.

(10) Represents car allowance of $12,000 and reimbursement of relocation
     expenses $56,191.


(11) Represents car allowance of $3,500 and reimbursement of relocation expenses
     of $7,168.

(12) Represents car allowance of $4,000.


                                       18

<PAGE>

The 1999 Stock Option Plan, As Amended and Restated

     The 1999 Stock Option Plan provides for the grant of equity-based
compensation to our key employees, directors and consultants. Participants in
the 1999 Stock Option Plan can receive incentive stock options and nonqualified
stock options, in either case, to acquire shares of our common stock.

     In December 2001, the 1999 Stock Option Plan was amended and restated and
the maximum number of shares of stock reserved for the grant or settlement of
awards under the plan was increased to 12,369,514, of which 1,057,232 shares
were reserved for the grant or settlement of awards under the plan prior to
December 2001.

     The 1999 Stock Option Plan is intended to assist us in attracting and
retaining employees and other key individuals of outstanding ability. Options
under the plan were granted to give key employees, directors and consultants a
financial stake in our future performance. The Compensation Committee
administers the 1999 Stock Option Plan.

     The following table sets forth certain information relating to the option
grants under our 1999 Stock Option Plan, as Amended and Restated, for the year
ended December 31, 2001.

                            OPTION/SAR GRANTS IN 2001
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                 Individual Grants
                                 -----------------
                          Number Of            Percent Of Total
                         Securities             Options/SARs
                         Underlying               Granted To
                        Options/SARs            Employees In       Exercise or Base     Expiration      Grant Date Present
         Name          Granted (#)/(1)/        Fiscal Year/(2)/     Price ($/Sh)          Date            Value $/(3)/
------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>                     <C>                 <C>                  <C>             <C>
John E. Denton          3,100,000/(4)/               29%                 2.16            12/13/11            $262,137
------------------------------------------------------------------------------------------------------------------------------
Wayne Robison             685,179/(4)/                6                  2.16            12/13/11              57,939
------------------------------------------------------------------------------------------------------------------------------
Angelo Fraggos            685,179/(4)/                6                  2.16            12/13/11              57,939
------------------------------------------------------------------------------------------------------------------------------
Stephen H. Vesce          685,179/(4)/                6                  2.16            12/13/11              57,939
------------------------------------------------------------------------------------------------------------------------------
Burton R. Freeman         685,179/(5)/                6                  2.16            12/13/11              57,939
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  We did not grant any free-standing SARs or options with tandem SARs
     in 2001.

(2)  Percentage indicated is calculated based on the number of options granted
     in 2001.

(3)  Based on the Black-Scholes option pricing model. The use of this model
     should not be construed as an endorsement of its accuracy at valuing
     options. The actual value, if any, an executive may realize will depend on
     the excess of the stock price over the exercise price on the date the
     option is exercised, so there is no assurance the actual value realized
     will be at or near the value estimated by the Black-Scholes model.

(4)  Twenty-five percent (25%) of options vest on July 31, 2002, 25% vest on
     July 31, 2003, 25% vest on July 31, 2004 and 25% vest on January 28, 2005.

(5)  Thirty-three percent (33%) of options vest on July 31, 2002, 33% vest on
     July 31, 2003 and 34% vest on January 28, 2004.

No options were exercised during 2001. The Company does not have a long-term
incentive plan.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                                               Number of Securities
                                                              Underlying Unexercised                Value of Unexercised
                             Shares                         Options at Fiscal Year-End              In-the-Money Options
                           Acquired on       Value                      (#)                        at Fiscal Year-End ($)
   Name                     Exercise        Realized       Exercisable        Unexercisable     Exercisable      Unexercisable
---------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>              <C>            <C>                <C>               <C>              <C>
John E. Denton                 --              --            61,134            3,344,533            --                 --
---------------------------------------------------------------------------------------------------------------------------------
Wayne Robison                  --              --            14,187              741,926            --                 --
---------------------------------------------------------------------------------------------------------------------------------
Angelo Fraggos                 --              --            14,187              741,926            --                 --
---------------------------------------------------------------------------------------------------------------------------------
Stephen H. Vesce               --              --            14,187              741,926            --                 --
---------------------------------------------------------------------------------------------------------------------------------
Burton R. Freeman              --              --            28,374              727,739            --                 --
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       19

<PAGE>

Employment Agreements

     On February 4, 2000 we entered into an employment agreement with Mr.
Denton. The employment agreement with Mr. Denton provides for his full-time
employment as Chairman of the Board of Directors and Chief Executive Officer.
The agreement is for a term of two years with automatic one-year extensions
unless either party notifies the other of its desire to terminate the agreement
90 days prior to its scheduled termination date.

     Mr. Denton's agreement provides for a base salary of $400,000 to be paid
during the term--which may be increased annually based on performance and
merit--and a maximum annual bonus equal to 100% of his base salary. In addition,
Mr. Denton's agreement provides for a grant of options to purchase an aggregate
of three and one-half percent of the shares of our common stock outstanding on
the grant date at an exercise price equal to $10 per share and options equal to
one and three quarters percent of the common stock outstanding on the grant date
at an exercise price of $73.50 per share. Mr. Denton also was issued 29,286
shares of common stock and 792 shares of preferred stock of the Company. 11,714
of these shares of common stock and 317 of these shares of preferred stock were
subject to forfeiture restrictions. The forfeiture restrictions were to lapse on
one-fourth of these shares on each anniversary of the date of his employment
agreement or upon a change of control. In 2001, the Company removed the
remaining forfeiture restrictions on common stock and preferred stock. Pursuant
to Mr. Denton's agreement, he is also entitled to receive the health, welfare
and pension benefits generally available to senior executives and up to an
aggregate of $20,000 annually for a country club membership and car allowance.

     In the event Mr. Denton's employment is terminated by us without cause, as
defined in his agreement, or by Mr. Denton with good reason, as defined in his
agreement, he will be entitled to receive his then-current base salary and
benefits under his agreement for the remainder of the term. Mr. Denton's
agreement provides that he will be subject to non-competition restrictions
following the termination of his employment during any period that he is
receiving payments from us.

     During 2000, we also entered into employment agreements with Messrs.
Fraggos, Robison and Vesce. Their agreements provide for their full-time
employment in their respective positions as Vice President of Sales and Business
Development, Vice President of Finance, Chief Financial Officer and Treasurer,
and Vice President of Marketing, respectively. These agreements are for a term
of two years with automatic one-year extensions unless either party notifies the
other of its desire to terminate the agreement 90 days prior to its scheduled
termination date. Each of these agreements provides the individual with a base
salary, a maximum bonus opportunity of 50% of his base salary, stock option
grants and certain welfare and pension benefits. The agreements provide for
annual discretionary increases in base salary. In the agreements, base salaries
are as follows: Mr. Fraggos - $175,000, Mr. Robison - $200,000 and Mr. Vesce -
$175,000. Each individual agreement provides for the grant of 46,111 stock
options with an exercise price of $10 per share and 24,823 options with an
exercise price of $73.50 per share. In the event of the individual's termination
without cause, each agreement provides for a severance payment of six months of
base salary. Messrs. Robison, Fraggos and Vesce's agreement also provides for a
car allowance and the reimbursement of certain costs incurred in their
relocation.

Compensation Committee Interlocks and Insider Participation

     New World Pasta's Compensation Committee currently consists of Messrs.
Snow, Ying and Milgrim. Mr. Snow is a principal in Miller Milling Company and
was an executive officer of the Company until February 28, 2000. Under three
separate agreements, Miller Milling Company provided, and continues to provide,
certain raw materials and procurement services to New World Pasta and its
subsidiaries. In 2001, New World Pasta paid Miller Milling Company in excess of
$38 million for these raw materials and services, and New World Pasta expects to
pay Miller Milling Company in excess of $38 million for these raw materials and
services in fiscal year 2002. For further information regarding these
agreements, see "ITEM 13. Certain Relationships and Related Transactions
--Procurement Agreement," "Fresno Mill Agreement" and "Winchester Mill
Agreement."

Compensation of Directors

     Directors do not receive any compensation for their services as directors.
They are, however, reimbursed for travel expenses and other out-of-pocket costs
incurred in connection with attendance at board of directors and committee
meetings.

ITEM 12.  Security Ownership of Certain Beneficial Owners and Management

     The following table sets forth information regarding ownership of shares of
our common stock as of February 1, 2002, by each person known to be the owner of
5% or more of our common stock, by each person who is a director or executive
officer

                                       20

<PAGE>

and by all directors and executive officers as a group. Unless otherwise
indicated, the address of each person listed below is 85 Shannon Road,
Harrisburg, Pennsylvania 17112. When reviewing the following table, you should
be aware that:

     .    The amounts and percentages of common stock beneficially owned are
          reported on the basis of regulations of the SEC governing the
          determination of beneficial ownership of securities. Under the rules
          of the SEC, a person is deemed to be a "beneficial owner" of a
          security if that person has or shares "voting power, " which includes
          the power to vote or to direct the voting of such security, or
          "investment power," which includes the power to dispose of or to
          direct the disposition of such security. A person is also deemed to be
          a beneficial owner of any securities of which that person has a right
          to acquire beneficial ownership within 60 days. Under these rules,
          more than one person may be deemed a beneficial owner of the same
          securities and a person may be deemed to be a beneficial owner of
          securities as to which that person has no economic interest.

     .    Miller Pasta LLC is controlled by a Board of Governors which includes
          Messrs. Skinner, Miller and Snow. Through their interests in Miller
          Pasta LLC, Messrs. Skinner, Miller and Snow are deemed to beneficially
          own all of the shares of common stock owned or held by Miller Pasta
          LLC.

     .    Messrs. Levy, Lightcap and Ying are members of JLL Associates III,
          LLC, the general partner of Joseph Littlejohn & Levy Fund III, L.P.,
          which owns membership interests in New World Pasta LLC. As a result,
          each may be deemed to beneficially own all of the shares of common
          stock and warrants owned by New World Pasta LLC.

                                                            Common Stock
                                                            ------------
                                                     Number           Percentage
                                                    of Shares          of Class
                                                    ---------          --------
          New World Pasta LLC                      92,538,774(1)           94%
              450 Lexington Avenue
              New York, NY 10017
          Miller Pasta LLC                          5,431,117              11%
              880 Grain Exchange Building
              Minneapolis, MN 55415
          Hershey Foods Corporation                   300,000               1%
              100 Crystal A Drive
              Hershey, PA  17033
          C. Mickey Skinner                         5,450,005(3)           11%
          John C. Miller                            6,953,981(2)(3)        14%
          Michael L. Snow                           6,913,792(2)(3)        14%
          John E. Denton                              391,348(3)            1%
          Angelo Fraggos                               28,374(3)            *
          Burton R. Freeman                            42,561(3)            *
          Wayne Robison                                28,374(3)            *
          Stephen H. Vesce                             28,374(3)            *
          Paul S. Levy                             92,538,774(1)           94%
          Jeffrey C. Lightcap                      92,538,774(1)           94%
          Brett N. Milgrim                                 --              --
          David Y. Ying                            92,538,774(1)           94%
          All directors and executive
              officers as a group (15 persons)    100,168,097             100%

     *    Less than 1%.

     (1)  Includes Warrants to Purchase 50,000,000 shares of common stock of New
          World Pasta Company

     (2)  Includes Warrants to Purchase 1,402,000 shares of common stock of New
          World Pasta Company held by Miller Pasta II, LLC. Messrs. Miller and
          Snow serve on the Board of Governors of Miller Pasta II, LLC.

     (3)  The following number of stock options, exercisable as of February 1,
          2002, are included in the total number of shares of common stock
          listed: J. Denton - 122,268; B. Freeman - 42,561; W. Robison - 28,374;
          A. Fraggos - 28,374; S. Vesce - 28,374; C. M. Skinner - 18,888; J.
          Miller - 120,864; M. Snow - 80,675. Mr. Denton's shares specified also
          include 269,080 shares of common stock.


                                       21

<PAGE>

ITEM 13.  Certain Relationships and Related Transactions

     New World Pasta LLC, which beneficially owns 94% of our common stock, is
controlled by Joseph Littlejohn & Levy Fund III, L.P. Miller Pasta LLC, which
beneficially owns 11% of our common stock, is controlled by a group of
investors, including C. Mickey Skinner, John Miller, Michael Snow and Miller
Milling Company. Messrs. Skinner, Miller and Snow are directors of our Company,
and Messrs. Miller and Snow are principals of Miller Milling Company. Some of
these entities and individuals are parties to material agreements with us, as
described below.

Stockholders' Agreement

     In connection with the recapitalization in which our current principals
acquired control of our Company, Miller Pasta LLC, New World Pasta LLC, HFC, our
Company and some of the members of Miller Pasta LLC entered into a Stockholders'
Agreement dated January 28, 1999. This Stockholders' Agreement provides, among
other things, that New World Pasta LLC has, at all times, the right to elect a
majority of our board of directors. Under the Stockholders' Agreement, Mr.
Skinner has the right to continue to serve on our board of directors through
January 28, 2004. The current board of directors designees of New World Pasta
LLC are Messrs. Levy, Lightcap, Milgrim and Ying, and the current board of
directors designees of Miller Milling Company are Messrs. Miller and Snow.

     Under the Stockholders' Agreement, Miller Pasta LLC and HFC agreed not to
transfer any of our securities, except to permitted transferees. As defined in
the Stockholders' Agreement, permitted transferees include:

     .    any descendants of the transferring stockholder;

     .    New World Pasta;

     .    in the case of any stockholder that is an entity, the stockholders,
          members, beneficiaries or partners of the entity or any successor to
          the entity;

     .    any transferee by testamentary or intestate disposition;

     .    any transferee by lifetime transfer to the transferring stockholder's
          relatives or any trusts, limited partnerships or other entities
          established for their benefit;

     .    any successor nominee or trustee for the beneficial owner for which
          the stockholder acts as nominee or trustee;

     .    the lenders--or any agent acting on their behalf--under our revolving
          Credit Facility pursuant to a pledge of the stockholder's shares to
          secure our obligations in connection with the revolving Credit
          Facility and, in the event of foreclosure by the lenders or their
          agent, any transferee or transferees of the lenders or their agent; or

     .    subject to our consent, which may not be unreasonably withheld or
          delayed, any affiliate of the transferring stockholder which the
          transferring stockholder controls.

     Under the Stockholders' Agreement, the members of Miller Pasta LLC also
agreed not to transfer any of their interests in Miller Pasta LLC, except that:

     .    the members of Miller Pasta LLC may transfer their membership
          interests to permitted transferees, as described above;

     .    Miller Pasta LLC may issue up to $1.4 million of membership interests
          to the employees of Miller Milling Company; and

     .    Messrs. Miller, Skinner and Snow and Miller Milling Company may
          transfer their membership interests with our consent, which may not be
          unreasonably withheld or delayed.

     The securities of our Company held by Miller Pasta LLC and HFC are subject
to "tag-along" and "drag-along" rights upon the transfer of any of our
securities by New World Pasta LLC. The "tag-along" rights allow Miller Pasta LLC
and HFC to participate, in proportion to their respective ownership interests in
us, in any sale by New World Pasta LLC of our securities to


                                       22

<PAGE>

a third party. The "drag-along" rights allow New World Pasta LLC to cause Miller
Pasta LLC and HFC to participate, in proportion to their respective ownership
interests in us, in any sale by New World Pasta LLC of our securities to a third
party.

     The Stockholders' Agreement provides that after 180 days following the
completion of an initial public offering of our common stock:

     .    HFC and all of the members of Miller Pasta LLC, other than Miller
          Milling Company and Messrs. Skinner, Miller and Snow, will be able to
          sell their shares of our common stock without restriction;

     .    Miller Milling Company and Messrs. Skinner, Miller and Snow will be
          able to sell up to 75% of their shares of our common stock during
          specified time periods; and

     .    each of New World Pasta LLC and Miller Pasta LLC will have the right,
          under some circumstances and subject to some conditions, to require us
          to register their shares of our common stock under the Securities Act
          of 1933.

     The Stockholders' Agreement also provides that we will pay all expenses in
connection with the first three demand registrations requested by each of New
World Pasta LLC and Miller Pasta LLC, and in connection with any registration
commenced by us as a primary offering in which New World Pasta LLC and Miller
Pasta LLC participate through piggyback registration rights granted under the
Stockholders' Agreement. We will also be required to pay all expenses in
connection with any registration we commence as a primary offering in which HFC
participates through piggyback registration rights granted to it under the
Stockholders' Agreement. New World Pasta LLC, Miller Pasta LLC and HFC also are
granted preemptive rights under the Stockholders' Agreement to participate in
future private equity offerings. Some of the rights under the Stockholders'
Agreement terminate when either New World Pasta LLC or Miller Pasta LLC ceases
to own at least 25% of its initial investment in us. Unless terminated earlier
pursuant to its terms, the Stockholders' Agreement will terminate on January 28,
2009.

     On July 30, 2001, the Stockholders' Agreement was amended to add JLL Pasta,
LLC, a Delaware limited liability company, Joseph Littlejohn & Levy Fund III,
L.P., a Delaware limited partnership, and Miller Pasta II, LLC, a Delaware
limited liability company, as signatories and parties to the Stockholders'
Agreement subject to its terms.

Procurement Agreement

     We are a party to a Procurement Agreement, dated January 28, 1999, (the
"Procurement Agreement") with Miller Milling Company, pursuant to which Miller
Milling Company has agreed to procure all of our requirements for durum wheat
and semolina flour, and other specified products, and services, for all of our
U.S. plants other than St. Louis, MO, and other than those contract goods and
contract services supplied under the Fresno Mill Agreement and the Winchester
Mill Agreement (as described below) through December 2009. Miller Milling
Company has agreed to use reasonable commercial efforts to procure the contract
goods and contract services under the Procurement Agreement on terms that we
believe are commercially favorable. In return for its services under the
Procurement Agreement, Miller Milling Company is entitled to a minimum fee per
year, subject to adjustment. The Procurement Agreement may be terminated by
either party if the other defaults and the default is not cured within a
specified period of its receiving written notice thereof. We have the right
under the Procurement Agreement to inspect Miller Milling Company's purchase and
manufacturing records. In addition, the Procurement Agreement contains customary
indemnification provisions for both parties.

Fresno Mill Agreement

     Pursuant to an Amended and Restated Mill Agreement, dated March 10, 2000
(the "Fresno Agreement"), we have agreed to purchase from Miller Milling Company
a substantial portion of the semolina flour needs of our Fresno, CA plant
through December 2009. Miller Milling Company mills this semolina flour at their
Fresno, CA mill at a price which we believe is commercially favorable. The
Fresno Agreement may be terminated by either party if the other party defaults
and the default is not cured within a specified period. In addition, we have the
right to inspect Miller Milling Company's Fresno mill and their books and
records upon request. See Note 15 of the Notes to Consolidated Financial
Statements for information regarding this agreement.

Winchester Mill Agreement

     Pursuant to an Amended and Restated Mill Agreement, dated March 10, 2000
(the "Winchester Agreement"), we have agreed to purchase from Miller Milling
Company substantially all of the semolina flour needs of our Winchester, VA
plant through December 2009. Under some circumstances, we also agreed to
purchase from Miller Milling Company a significant


                                       23

<PAGE>

portion of our semolina flour requirements for our Lebanon, PA plant. Miller
Milling Company mills this semolina flour at their Winchester, VA mill at a
price that we believe is commercially favorable. We may inspect Miller Milling
Company's Winchester mill and their books and records upon request. The
Winchester Agreement may be terminated by either party if the other party
defaults and the default is not cured within a specified period. See Note 15 of
the Notes to Consolidated Financial Statements for information regarding this
agreement.

     We paid in excess of $38 million to Miller Milling Company in 2001 pursuant
to the Procurement Agreement, the Fresno Agreement and the Winchester Agreement,
and we expect to pay in excess of $38 million in 2002 pursuant to these
contracts.

Tax Sharing Agreement

     Our Company and our former subsidiaries were included in New World Pasta
LLC's consolidated group for U.S. federal income tax purposes as well as in some
consolidated, combined or unitary groups which include New World Pasta LLC for
state income tax purposes through April 30, 2001. Effective May 1, 2001, New
World Pasta LLC made a "check-the-box" election to be treated as a partnership.
Therefore, on that date, the Company and New World Pasta LLC had a
deconsolidation for income tax purposes. The Company, due to the Acquisition
described in "Recent Developments" above, is the parent of a new consolidated
group. Both the former and the current consolidated groups are parties to a Tax
Sharing Agreement. Pursuant to the Tax Sharing Agreement, pro forma tax is
determined on a separate company basis to determine the amount of tax sharing
payments, if any, to be made to the parent company. The Tax Sharing Agreement
does not alter the general responsibility for any individual group member's
taxes with respect to tax returns that include only that member. Due to the
Section 338(h)(10) election as described in Note 1 of the consolidated financial
statements, the consolidated group has a loss for federal and state income tax
purposes in 2001, net operating loss carryforwards, and anticipates a tax loss
in 2002. Accordingly, we do not expect to have any significant tax payments in
fiscal 2001 or 2002.

     New World Pasta LLC, prior to April 30, 2001, and the Company subsequent
thereto, are responsible for filing any tax return with respect to the
consolidated group or any combined group. Pursuant to the Tax Sharing Agreement,
the Company is responsible for preparing these tax returns. The Tax Sharing
Agreement does not alter the general responsibility for preparing and filing any
tax returns that include only the Company or an individual member.

     The applicable parent company is primarily responsible for controlling and
contesting any audit or other tax proceeding with respect to the consolidated
group or any combined group. Pursuant to the Tax Sharing Agreement, the Company
will conduct the contest of any audit or tax proceeding that relates to any tax
return which it is responsible for preparing. However, the entering into of any
settlement or agreement, or any decision in connection with any judicial or
administrative tax proceeding, will be subject to the consent of New World Pasta
LLC for matters through April 30, 2001.

     Each member of a consolidated group for U.S. federal income tax purposes is
jointly and severally liable for the federal income tax liability of each other
member of the consolidated group. Accordingly, although the Tax Sharing
Agreement allocates tax liabilities between the parent and its group members,
for any period in which there is a consolidated group, the Company could be
liable in the event that any federal tax liability was incurred, but not
discharged, by any other member of the consolidated group.

                                     PART IV

ITEM 14.   Financial Statements, Schedules, Exhibits and Report on Form 8-K

<TABLE>
<CAPTION>
                                                                                                                  Page No.
                                                                                                                  --------
<S>     <C>                                                                                                       <C>
(a)      Documents filed as part of this Form 10-K.

1.       Financial Statements:

             -   Independent Auditors' Report ..................................................................       F1
             -   Consolidated Balance Sheets as of December 31, 2001 and 2000 ..................................       F2
             -   Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999 ....       F3
             -   Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Losses
                      for the Years Ended December 31, 2001, 2000 and 1999 .....................................       F4
             -   Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 ....       F5
             -   Notes to Consolidated Financial Statements ....................................................       F7
</TABLE>


                                       24

<PAGE>

2.     Financial Statement Schedules:
       Schedules have been omitted because the information required to be set
       forth therein is not applicable or is shown in the financial statements
       or notes thereto.

3.     Exhibits:

       Exhibit
       Number                                 Description
       ------                                 -----------

       2.1    Recapitalization Agreement, dated as of December 15, 1998, by and
              among Hershey Foods Corporation, Hershey CRE, Inc., Homestead,
              Inc., New World Pasta Company, New World Pasta, LLC, Joseph
              Littlejohn & Levy Fund III, L.P., filed as Exhibit 2.1 to the
              Registration Statement on Form S-4 (Reg. No. 333-76763) declared
              effective August 3, 1999.

       2.2    Amendment No. 1 to Recapitalization Agreement, dated as of January
              28, 1999, by and among Hershey Foods Corporation, Hershey
              Chocolate & Confectionery Corporation (as successor to Hershey
              CRE, Inc.), Homestead, Inc., New World Pasta Company, New World
              Pasta, LLC, Joseph Littlejohn & Levy Fund III, L.P., filed as
              Exhibit 2.2 to the Registration Statement on Form S-4 (Reg. No.
              333-76763) declared effective August 3, 1999.

       2.3    Stock and Asset Purchase Agreement, dated as of July 6, 2001,
              among Borden Foods Corporation, BFC Investments, L.P., BF Foods
              International Corporation, Borden Foods International Corporation,
              Borden, Inc. and JLL Pasta, LLC, filed as Exhibit 2.1 to the
              Company's Form 8-K filed August 3, 2001 and incorporated herein by
              reference.

       2.4    Amendment No. 1, dated as of July 30, 2001 to the Stock and Asset
              Purchase Agreement dated as of July 6, 2001 among Borden Foods
              Corporation, BFC Investments, L.P., BF Foods International
              Corporation, Borden Foods International Corporation, Borden, Inc.
              and JLL Pasta, LLC, filed as Exhibit 2.2 of the Company's Form 8-K
              filed August 3, 2001, filed as Exhibit 10.32 to the Company's Form
              10-Q filed November 14, 2001, and incorporated herein by
              reference.

       2.5    Assignment and Assumption Agreement dated as of July 30, 2001
              between JLL Pasta, LLC and New World Pasta Company, filed as
              Exhibit 2.3 to the Company's Form 8-K filed August 3, 2001 and
              incorporated herein by reference.

       3.1    Amended and Restated Certificate of Incorporation (Composite) of
              New World Pasta Company, as filed with the Secretary of State of
              the State of Delaware, effective July 31, 2001, filed as an
              exhibit hereto.

       3.2    Amended and Restated By-Laws of New World Pasta Company, filed as
              Exhibit 3.2 to the Registration Statement on Form S-4 (Reg. No.
              333-76763) declared effective August 3, 1999.

       4.1    Indenture, dated as of February 19, 1999, among New World Pasta
              Company, as issuer, Winchester Pasta, LLC, as guarantor, Pasta
              Group, LLC, as guarantor, and The Bank of New York, as trustee,
              filed as Exhibit 4.1 to the Registration Statement on Form S-4
              (Reg. No. 333-76763) declared effective August 3, 1999.

       4.2    Senior Subordinated Guarantee, dated February 19, 1999, by Pasta
              Group, LLC in favor of (i) the holders of New World Pasta
              Company's outstanding 9.25% Senior Subordinated Notes due 2009 and
              9.25% Senior Subordinated Exchange Notes due 2009 and (ii) the
              Bank of New York, as trustee under the indenture governing the
              above-referenced notes, filed as Exhibit 4.2 to the Registration
              Statement on Form S-4 (Reg. No. 333-76763) declared effective
              August 3, 1999.

       4.3    Senior Subordinated Guarantee, dated February 19, 1999, by
              Winchester Pasta, LLC in favor of (i) the holders of New World
              Pasta Company's outstanding 9.25% Senior Subordinated Notes due
              2009 and 9.25% Senior Subordinated Exchange Notes due 2009 and
              (ii) the Bank of New York, as trustee under the indenture
              governing the above-referenced notes, filed as Exhibit 4.3 to the
              Registration Statement on Form S-4 (Reg. No. 333-76763) declared
              effective August 3, 1999.

       4.4    Registration Rights Agreement, dated as of February 19, 1999, by
              and among New World Pasta Company, Winchester Pasta, LLC, Pasta
              Group, LLC, Morgan Stanley & Co. Incorporated and


                                       25

<PAGE>

              Scotia Capital Markets (USA), Inc., filed as Exhibit 4.4 to the
              Registration Statement on Form S-4 (Reg. No. 333-76763) declared
              effective August 3, 1999.

       4.5    Form of New World Pasta Company 9.25% Senior Subordinated Notes
              due 2009 (included in Exhibit 4.1), filed as Exhibit 4.5 to the
              Registration Statement on Form S-4 (Reg. No. 333-76763) declared
              effective August 3, 1999.

       4.6    Form of New World Pasta Company 9.25% Senior Subordinated Exchange
              Notes due 2009, filed as Exhibit 4.6 to the Registration Statement
              on Form S-4 (Reg. No. 333-76763) declared effective August 3,
              1999.

       4.7    Warrants to Purchase Common Stock dated as of July 30, 2001, filed
              as Exhibit 4.1 to the Company's Form 8-K filed August 3, 2001 and
              the Company's Form 10-Q filed August 13, 2001 and incorporated
              herein by reference.

       4.8    Warrants to Purchase 1,402,000 Shares of Common Stock dated as of
              August 13, 2001, filed as Exhibit 4.8 to the Company's Form 10-Q
              filed November 14, 2001 and incorporated herein by reference.

       4.9    Warrants to Purchase 50,000,000 Shares of Common Stock, dated as
              of August 13, 2001, filed as Exhibit 4.9 to the Company's Form
              10-Q filed November 14, 2001 and incorporated herein by reference.

       10.1   Stockholders' Agreement, dated as of January 28, 1999, among New
              World Pasta Company, New World Pasta, LLC, Miller Pasta, LLC and
              Hershey Foods Corporation, filed as Exhibit 10.1 to the
              Registration Statement on Form S-4 (Reg. No. 333-76763) declared
              effective August 3, 1999.

       10.2   Credit Agreement, dated as of January 28, 1999, among New World
              Pasta Company, the various financial institutions party thereto
              (the "Lenders"), certain financial institutions as the Co-Agents
              for the Lenders, Morgan Stanley Senior Funding, Inc., as
              Syndication Agent, and The Bank of Nova Scotia, as Lead Arranger
              and as Administrative Agent for the Lenders, filed as Exhibit 10.2
              to the Registration Statement on Form S-4 (Reg. No. 333-76763)
              declared effective August 3, 1999.

       10.3   Borrower Security Agreement, dated as of January 28, 1999, between
              New World Pasta Company, as grantor, and The Bank of Nova Scotia,
              as Administrative Agent, filed as Exhibit 10.3 to the Registration
              Statement on Form S-4 (Reg. No. 333-76763) declared effective
              August 3, 1999.

       10.4   Borrower Pledge Agreement, dated as of January 28, 1999, between
              New World Pasta Company, as pledgor, and The Bank of Nova Scotia,
              as Administrative Agent, filed as Exhibit 10.4 to the Registration
              Statement on Form S-4 (Reg. No. 333-76763) declared effective
              August 3, 1999.

       10.5   Subsidiary Guaranty, dated as of January 28, 1999, made by each of
              Pasta Group, LLC and Winchester Pasta, LLC, in favor of The Bank
              of Nova Scotia, as Administrative Agent, filed as Exhibit 10.5 to
              the Registration Statement on Form S-4 (Reg. No. 333-76763)
              declared effective August 3, 1999.

       10.6   Subsidiary Security Agreement, dated as of January 28, 1999, among
              Pasta Group, LLC and Winchester Pasta, LLC as grantors, and The
              Bank of Nova Scotia, as Administrative Agent, filed as Exhibit
              10.6 to the Registration Statement on Form S-4 (Reg. No.
              333-76763) declared effective August 3, 1999.

       10.8   Procurement Agreement, dated January 28, 1999, between New World
              Pasta Company and Miller Milling Company, filed as Exhibit 10.8 to
              the Registration Statement on Form S-4 (Reg. No. 333-76763)
              declared effective August 3, 1999.

       10.9   Mill Agreement, dated January 28, 1999, between Winchester Pasta,
              LLC and Miller Milling Company, filed as Exhibit 10.9 to the
              Registration Statement on Form S-4 (Reg. No. 333-76763) declared
              effective August 3, 1999.

       10.10  Amended and Restated Mill Agreement, dated March 1, 1998, between
              Hershey Pasta and Grocery Group, the predecessor to New World
              Pasta Company, and Miller Milling Company, filed as Exhibit 10.10
              to the Registration Statement on Form S-4 (Reg. No. 333-76763)
              declared effective August 3, 1999.

       10.11  First Amendment to Amended and Restated Mill Agreement, dated
              January 28, 1999, between New World Pasta Company, as successor to
              Hershey Pasta and Grocery Group, and Miller Milling


                                       26

<PAGE>

              Company, filed as Exhibit 10.11 to the Registration Statement on
              Form S-4 (Reg. No. 333-76763) declared effective August 3, 1999.

       10.12  Tax Sharing Agreement, dated January 28, 1999, between New World
              Pasta Company and New World Pasta, LLC, filed as Exhibit 10.12 to
              the Registration Statement on Form S-4 (Reg. No. 333-76763)
              declared effective August 3, 1999.

       10.13  Agreement dated February 2, 2000 between New World Pasta Company
              and C. Mickey Skinner, filed as Exhibit 10.21 to the Company's
              Form 10-K filed on March 29, 2000.

       10.14  Employment Agreement dated as of February 4, 2000 between John
              Denton and New World Pasta Company, filed as Exhibit 10.22 to the
              Company's Form 10-K filed on March 29, 2000.

       10.15  New World Pasta Company 1999 Stock Option Plan, as amended and
              restated effective December 13, 2001, filed as an exhibit hereto.

       10.16  Amended and Restated Mill Agreement among Miller Milling Company,
              Winchester Pasta, LLC and Pasta Group LLC dated March 10, 2000,
              filed as Exhibit 10.24 to the Company's Form 10-Q filed on May 17,
              2000.

       10.17  Amended and Restated Mill Agreement between New World Pasta
              Company and Miller Milling Company dated March 10, 2000, filed as
              Exhibit 10.25 to the Company's Form 10-Q filed on May 17, 2000.

       10.18  Amendment No. 1 dated as of January 28, 1999 to the Credit
              Agreement, among New World Pasta Company, the various institutions
              party thereto (the "Lenders"), certain financial institutions as
              the Co-Agents for the Lenders, Morgan Stanley Senior Funding,
              Inc., as Syndication Agent, and The Bank of Nova Scotia, as Lead
              Arranger and as Administrative Agent for the Lenders, filed as
              Exhibit 10.30 to the Company's Form 10-Q filed on August 14, 2000.

       10.19  Amendment No. 2 dated as of July 30, 2001 to the Credit Agreement,
              among New World Pasta Company, the various institutions party
              thereto (the "Lenders"), certain financial institutions as the
              Co-Agents for the Lenders, Morgan Stanley Senior Funding, Inc., as
              Syndication Agent, and The Bank of Nova Scotia, as Lead Arranger
              and as Administrative Agent for the Lenders, filed as Exhibit
              10.30 to the Company's Form 8-K filed on August 3, 2001 and
              incorporated herein by reference.

       10.20  Assignment and Assumption Agreement dated as of July 30, 2001
              between JLL Pasta, LLC and New World Pasta Company, filed as
              Exhibit 10.33 to the Company's Form 10-Q filed November 14, 2001
              and incorporated herein by reference.

       10.21  Employment Agreement dated April 24, 2000 between New World Pasta
              and Angelo Fraggos, filed as Exhibit 10.27 to the Company's Form
              10-Q filed on August 14, 2000.

       10.22  Employment Agreement dated May 8, 2000 between New World Pasta and
              Wayne Robison, filed as Exhibit 10.28 to the Company's Form 10-Q
              filed on August 14, 2000.

       10.23  Employment Agreement dated September 14, 2000 between New World
              Pasta and Stephen H. Vesce, filed as Exhibit 10.29 to the
              Company's Form 10-Q filed on November 14, 2000.

       10.24  Employment Agreement dated November 7, 2001 between New World
              Pasta and Cary A. Metz , filed as Exhibit 10.34 to the Company's
              Form 10-Q filed on November 14, 2000 and incorporated herein by
              reference.

       12.1   Computation of Ratio of Earnings to Fixed Charges and Combined
              Fixed Charges, filed as an exhibit hereto.

       18     Letter from KPMG LLP, independent accountants, regarding
              preferability of change in accounting principle for certain raw
              material inventories, filed as an exhibit hereto.

(b)      Reports on Form 8-K.

         The Company filed a Form 8-K on August 3, 2001, announcing the
         acquisition of the dry pasta business of Borden Foods Corporation and
         certain of its affiliates.

         The Company filed a Form 8-K/A on October 19, 2001, which included
         financial statements and pro forma information for the Acquisition.


                                       27

<PAGE>

                                   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.

                                  NEW WORLD PASTA COMPANY
                                  ----------------------------------------------
                                          (Registrant)

                           By:
                                  /s/ Wayne Robison

                                  ----------------------------------------------
                                  Wayne Robison, Vice President,
                                  Finance, Chief Financial Officer and Treasurer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 26, 2002 by the following persons on behalf of
the registrant and in the capacities indicated.

<TABLE>
<CAPTION>
                                    Signature                                   Title
                                    ---------                                   -----
                                    <S>                                         <C>
                                    /s/ John E. Denton                          Chairman of the Board and
                                    -----------------------------------         Chief Executive Officer and Director
                                    (John E. Denton)


                                    /s/ C. Mickey Skinner                       Chairman Emeritus and Director
                                    -----------------------------------
                                    (C. Mickey Skinner)


                                    /s/ Wayne Robison                           Vice President, Finance, Chief Financial
                                    --------------------------                  Officer and Treasurer
                                     (Wayne Robison)

                                    /s/ Timothy E. Flake                        Controller and Chief Accounting Officer
                                    -----------------------------------
                                    (Timothy E. Flake)


                                    /s/ Paul S. Levy                            Director
                                    -----------------------------------
                                    (Paul S. Levy)


                                    /s/ Jeffrey C. Lightcap                     Director
                                    -----------------------------------
                                    (Jeffrey C. Lightcap)


                                    /s/ Brett N. Milgrim                        Director
                                    -----------------------------------
                                    (Brett N. Milgrim)


                                    /s/ John C. Miller                          Director
                                    -----------------------------------
                                    (John C. Miller)


                                    /s/ Michael L. Snow                         Director
                                    -----------------------------------
                                    (Michael L. Snow)


                                    /s/ David Y. Ying                           Director
                                    -----------------------------------
                                    (David Y. Ying)
</TABLE>


                                       28

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
New World Pasta Company:

We have audited the accompanying consolidated balance sheets of New World Pasta
Company and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity (deficit) and
comprehensive losses and cash flows for each of the years in the three-year
period ended December 31, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of New World Pasta
Company and subsidiaries as of December 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.

As discussed in note 2 to the consolidated financial statements, effective
January 1, 2001, the Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities" and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", and, effective July 1, 2001, the
Company adopted the provisions of SFAS No. 141, "Business Combinations," and
certain provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," as
required for goodwill and intangible assets resulting from business combinations
consummated after June 30, 2001. In addition, as discussed in note 5 to the
consolidated financial statements, the Company changed its method of accounting
for certain raw material inventories.

KPMG LLP

/s/ KPMG LLP

Harrisburg, Pennsylvania
March 21, 2002

                                       F1

<PAGE>

                             NEW WORLD PASTA COMPANY
                           CONSOLIDATED BALANCE SHEETS
                        As of December 31, 2001 and 2000
                        (in thousands, except share data)
<TABLE>
<CAPTION>
                                                                                             2001               2000
                                                                                       ---------------     -------------
<S>                                                                                    <C>                 <C>
           ASSETS
           Current assets:
              Cash and cash equivalents                                                   $      3,127             9,542
              Trade and other receivables, net                                                  66,669            18,182
              Inventories                                                                       42,514            16,387
              Prepaid expenses and other current assets                                          2,851             1,092
              Deferred income taxes                                                             12,671            12,223
                                                                                       ---------------     -------------
                    Total current assets                                                       127,832            57,426
                                                                                       ---------------     -------------
           Property, plant and equipment, net                                                  127,013            92,164
           Deferred income taxes                                                                87,259            93,381
           Intangible assets and other assets, net                                              76,747            63,788
           Deferred debt costs, net                                                              7,323             7,977
                                                                                       ---------------     -------------
                    Total assets                                                          $    426,174           314,736
                                                                                       ===============     =============
           LIABILITIES AND STOCKHOLDERS' DEFICIT
           Current liabilities:
                Current portion of long-term debt                                         $      1,285             1,300
                Accounts payable:
                    Trade                                                                       47,118             6,263
                    Related parties                                                              3,372             1,561
                Accrued interest expense                                                         5,469             6,018
                Accrued marketing expense                                                       10,642             8,923
                Other accrued expenses                                                          19,498             8,089
                                                                                       ---------------     -------------
                Total current liabilities                                                       87,384            32,154
                                                                                       ---------------     -------------
           Long-term debt, less current maturities                                             326,559           286,425
           Employee benefit liabilities                                                         10,987             6,539
           Other long-term liabilities                                                           6,022               712
                                                                                       ---------------     -------------
                     Total liabilities                                                         430,952           325,830
                                                                                       ---------------     -------------
           Mandatorily redeemable 12% cumulative preferred stock, $.01 par
                value; $1,000 liquidation preference value; 115,000 shares
                authorized; none and 114,160 shares issued and outstanding as of
                December 31, 2001 and 2000, respectively                                            --           140,466
           Mandatorily redeemable common stock, $.01 par value; $2.944
                liquidation value; 269,080 and 11,714 shares issued and
                outstanding as of December 31, 2001 and 2000, respectively                         792               117
           Unearned compensation                                                                    --              (344)
                                                                                       ---------------     -------------
                                                                                                   792           140,239
                                                                                       ---------------     -------------
           Stockholders' deficit:
                Common stock, $.01 par value; 120,000,000 and 7,500,000 shares
                  authorized as of December 31, 2001 and 2000, respectively;
                  48,269,891 and 5,000,000 shares issued and outstanding as of
                  December 31, 2001 and 2000, respectively                                         483                50
                Additional paid-in capital                                                     299,309           149,206
                Accumulated other comprehensive losses                                          (2,540)               --
                Accumulated deficit                                                           (302,822)         (300,589)
                                                                                       ---------------     -------------
                     Total stockholders' deficit                                                (5,570)         (151,333)
                                                                                       ---------------     -------------
            Total liabilities and stockholders' deficit                                    $   426,174           314,736
                                                                                       ===============     =============
</TABLE>

See accompanying notes to consolidated financial statements.



                                       F2

<PAGE>


                             NEW WORLD PASTA COMPANY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              For the years ended December 31, 2001, 2000 and 1999
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                 2001                   2000                   1999
                                                                 ----                   ----                   ----
<S>                                                          <C>                     <C>                    <C>
       Net sales                                              $  399,748                300,029                354,019
       Cost of sales                                             231,244                165,550                188,645
                                                             -------------          --------------         --------------

       Gross profit                                              168,504                134,479                165,374
       Selling and marketing expenses                            114,169                 94,184                113,259
       General and administrative expenses                        15,570                 13,722                 13,671
       Recapitalization transaction expenses                          --                     --                  7,764
       Restructuring and integration costs                        20,126                    582                  2,700
       Gain on sale of closed facility                                --                   (251)                    --
                                                             -------------          --------------         --------------

       Income from operations                                     18,639                 26,242                 27,980
       Other income                                                8,136                     --                     --
       Interest expense, net                                     (29,148)               (28,903)               (26,325)
                                                             -------------          --------------         --------------

       Income (loss) before income taxes                          (2,373)                (2,661)                 1,655
       Income tax expense (benefit)                                 (140)                  (942)                 2,221
                                                             -------------          --------------         --------------

       Net loss                                               $   (2,233)                (1,719)                  (566)
                                                             =============          ==============         ==============
</TABLE>


See accompanying notes to consolidated financial statements.

                                       F3

<PAGE>

                             NEW WORLD PASTA COMPANY
         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND
                              COMPREHENSIVE LOSSES
              For the years ended December 31, 2001, 2000 and 1999
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                             Accumulated      Retained
                                             Common Stock       Additional    Other Com-       Earnings                 Total Com-
                                                                  Paid-in     prehensive     (Accumulated               prehensive
                                           Shares     Amount      Capital       Losses         Deficit)       Total       Losses
                                           ------     ------      -------       ------         --------       -----       ------
<S>                                        <C>        <C>         <C>           <C>            <C>            <C>       <C>
Balance at January 1, 1999                   --       $ --          --            --             166,944      166,944

Adjustment for cumulative effect on
   prior years of applying retroactively
   the new method of accounting for
   certain raw material inventories          --         --          --            --                 639          639
                                         ----------- ---------- ------------ --------------  -------------- -----------
Balance at January 1, 1999, as adjusted      --         --          --            --             167,583      167,583

Advances and withdrawals with former
     parent prior to recapitalization,
      net                                    --         --          --            --              (5,887)      (5,887)

Recapitalization and repurchase of
     stockholders' common stock
     followed by cancellation of
     treasury stock, including related
     income tax effects                    4,467,869       45      170,196        --            (460,000)    (289,759)

Issuance of common stock                     532,131        5        5,316        --              --            5,321

Net loss                                     --          --         --            --                (566)        (566)       (566)
                                                                                                                        ============

Preferred stock dividend                     --          --        (12,611)       --              --          (12,611)
                                         ----------- ---------- ------------ --------------  -------------- -----------
Balance at December 31, 1999               5,000,000       50      162,901        --            (298,870)    (135,919)

Net loss                                     --          --         --            --              (1,719)      (1,719)     (1,719)
                                                                                                                        ============

Preferred stock dividend                     --          --        (13,695)       --              --          (13,695)
                                         ----------- ---------- ------------ --------------  -------------- -----------
Balance at December 31, 2000               5,000,000       50      149,206        --            (300,589)    (151,333)

Net loss                                     --         --          --            --              (2,233)      (2,233)     (2,233)
Other comprehensive losses:
      Foreign currency translation
         adjustment, net of tax of $189      --         --          --              (311)         --             (311)       (311)
      Minimum pension liability
         adjustment, net of tax of $1,031    --         --          --            (1,646)         --           (1,646)     (1,646)
      Net derivative losses, net of tax
         of $358                             --         --          --              (583)         --             (583)       (583)
                                                                                                                        ------------
      Comprehensive losses                                                                                                 (4,773)
                                                                                                                        ============
Reclassification  of preferred stock to
     common stock                         43,269,891      433      146,206        --              --          146,639

Issuance of warrants                         --         --          10,746        --              --           10,746

Preferred stock dividend                     --         --          (6,849)       --              --           (6,849)
                                         ----------- ---------- ------------ --------------  -------------- -----------
Balance at December 31, 2001              48,269,891  $   483      299,309        (2,540)       (302,822)      (5,570)
                                         =========== ========== ============ ==============  ============== ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F4

<PAGE>

                             NEW WORLD PASTA COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the Years ended December 31, 2001, 2000 and 1999
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                 2001                2000            1999
                                                                                 ----                ----            ----
<S>                                                                          <C>                   <C>                <C>
Cash flows from operating activities:
      Net loss                                                               $   (2,233)            (1,719)           (566)
      Adjustments to reconcile net loss to net cash provided by operating
            activities:
          Depreciation and amortization                                          16,363             13,778          14,376
          Non-cash interest expense                                               2,221                 --              --
          Effect of non-cash charges for equipment writedowns                    12,699                 --              --
          Amortization of deferred debt costs                                     1,406              1,275           1,092
          Loss (gain) from disposal of property, plant and equipment                 --               (192)          1,867
          Compensation expense from issuance of stock                               344                741              --
          Deferred income taxes                                                  (1,013)              (942)          1,894
          Changes in assets and liabilities, net of effect of acquisition:
           Trade and other receivables                                          (34,745)            (1,517)            907
           Inventories                                                             (789)             2,766           4,159
           Prepaid expenses and other current assets                                403               (285)          3,070
           Other long-term assets                                                  (116)                --              --
           Accounts payable                                                      22,270             (1,975)            142
           Accrued interest expense                                                (549)              (536)          6,554
           Accrued marketing expense                                             (3,552)            (1,962)            (47)
           Other accrued expenses and other liabilities                          (4,870)            (2,780)          2,692
                                                                            ---------------    -------------   -------------
      Net cash provided by operating activities                                   7,839              6,652          36,140
                                                                            ---------------    -------------   -------------
Cash flows from investing activities:
      Purchase of business, net of cash acquired                                (49,883)                --              --
      Acquisition of property, plant and equipment                              (11,663)            (5,075)         (3,960)
      Proceeds from disposal of property, plant and equipment                        --              1,099              --
                                                                            ---------------    -------------   -------------
      Net cash used in investing activities                                     (61,546)            (3,976)         (3,960)
                                                                            ---------------    -------------   -------------
Cash flows from financing activities:
     Proceeds from issuance of debt                                              41,044                355         470,481
     Proceeds from issuance of preferred stock                                       --                 --          12,849
     Proceeds from issuance of common stock                                          --                 --           5,321
     Repayment of debt                                                           (3,147)            (5,625)       (177,486)
     Deferred debt costs                                                           (752)              (717)         (9,627)
     Issuance of warrants                                                        10,746                 --              --
     Advances and withdrawals with former parent prior to
         recapitalization, net                                                       --                 --          (5,887)
     Repurchase of preferred stock                                                   --               (293)             --
     Repurchase of common stock                                                      --                 --        (314,685)
                                                                            ---------------    -------------   -------------
     Net cash provided by (used in) financing activities                         47,891             (6,280)        (19,034)
                                                                            ---------------    -------------   -------------
Effect of exchange rate changes on cash                                            (599)                --              --
                                                                            ---------------    -------------   -------------
Net increase (decrease) in cash and cash equivalents                             (6,415)            (3,604)         13,146
Cash and cash equivalents at beginning of year                                    9,542             13,146              --
                                                                            ---------------    -------------   -------------
Cash and cash equivalents at end of year                                     $    3,127              9,542          13,146
                                                                            ===============    =============   =============


See accompanying notes to consolidated financial statements.                                    (continued)
</TABLE>


                                      F5

<PAGE>


                             NEW WORLD PASTA COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the Years ended December 31, 2001, 2000 and 1999
                                 (in thousands)

(continued)

<TABLE>
<CAPTION>
                                                                      2001          2000        1999
                                                                      ----          ----        ----
<S>                                                                <C>             <C>         <C>
Supplemental disclosures of cash flow information:
     Cash paid during the year for:
         Interest                                                  $  26,782       29,008      19,185
         Income taxes                                                     --           --          65
     Noncash investing and financing activities:
         Deferred tax assets from recapitalization                        --           --     106,520
         Issuance of preferred stock                                      --          317     100,636
         Conversion of preferred stock                              (146,639)          --          --
         Issuance of common stock                                    146,639          117      44,679
         Deferred tax liabilities eliminated in recapitalization          --           --      18,662
         Preferred stock dividend                                      6,849       13,695      12,611
         Covenant not to compete                                          --        1,053          --
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F6

<PAGE>

                             NEW WORLD PASTA COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Description of Transaction and Business

       On January 28, 1999 Hershey Foods Corporation (HFC) effected a
recapitalization ("1999 Recapitalization") whereby New World Pasta LLC and
Miller Pasta LLC acquired a controlling interest in Hershey Pasta Group (HPG), a
division of HFC and the predecessor of New World Pasta Company (New World Pasta
or the Company). New World Pasta LLC is controlled by Joseph Littlejohn & Levy
Fund III, L.P., which is controlled by Joseph Littlejohn & Levy. In the 1999
Recapitalization, Hershey Chocolate & Confectionery Corporation (HCCC), an HFC
wholly-owned subsidiary, retained a substantial minority ownership interest.
Prior to the recapitalization, HFC completed a reorganization in which Hershey
Pasta Manufacturing Company (HPMC) became a wholly-owned subsidiary of HCCC and
the net assets of HPG were transferred into HPMC. HPMC subsequently changed its
name to New World Pasta Company.

       As part of the 1999 Recapitalization, New World Pasta repurchased $307.7
million of its common stock from HCCC, and New World Pasta LLC directly
purchased from HCCC $100.6 million of mandatorily redeemable non-voting
preferred stock and $41.7 million of common stock. New World Pasta issued $12.8
million of mandatorily redeemable non-voting preferred stock and $5.3 million of
common stock directly to Miller Pasta LLC. Upon completion of the
recapitalization, HCCC retained 6.0% of the voting equity of New World Pasta,
and New World Pasta LLC and Miller Pasta LLC held 83.4% and 10.6%, respectively.
The historical basis of accounting for New World Pasta has been maintained. The
1999 Recapitalization transaction was finalized with a final settlement payment
of $7.0 million paid to HFC in September 1999, in accordance with the
recapitalization agreement. The total amount paid to HFC for the redemption and
purchase of common stock and preferred stock was $457.0 million. In connection
with the recapitalization, the historical equity was recapitalized into
stockholders' equity and preferred stock.

       HCCC's retained interest consists of $3.0 million of common stock of New
World Pasta based on the implied value. The implied equity investments in New
World Pasta following the recapitalization by the constituent stockholders were
as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                                                  Total
                                                     Preferred          Common             Additional            Equity
                                                       Stock             Stock          Paid-In Capital        Investment
                                                   --------------    --------------    -------------------    --------------
<S>                                               <C>                <C>               <C>                    <C>
    New World Pasta LLC .........................  $   100,636             42               41,637                142,315
    Miller Pasta LLC ............................       12,849              5                5,316                 18,170
    HCCC retained interest (implied value) ......           --              3                2,997                  3,000
                                                   --------------    --------------    -------------------    --------------

                                                   $   113,485             50               49,950                163,485
                                                   ==============    ==============    ===================    ==============

The adjustments to reflect these transactions are as follows (in thousands):

<CAPTION>
                                                                                               Stockholders'
                                                                                                   Equity
                                                                                              -----------------
<S>                                                                                           <C>
      Historical book value ..............................................................     $    167,583
                                                                                              -----------------
      Recapitalization transactions:
           Recapitalization of certain historical equity into preferred stock ............         (100,636)
           Repurchase from HCCC of common stock ..........................................         (314,685)
           Issuance of common stock to Miller Pasta LLC ..................................            5,321
      Adjustments to establish new deferred tax balances under Section 338(h)(10):
           Elimination of historical deferred tax liability ..............................           22,317
           Elimination of historical deferred tax asset ..................................           (3,275)
           Deferred tax asset arising out of Section 338(h)(10) election .................          106,520
                                                                                              -----------------
                                                                                                   (284,438)
                                                                                              -----------------

      Adjusted book value ................................................................     $   (116,855)
                                                                                              =================
</TABLE>

     For U.S. federal and state income tax purposes, New World Pasta and HCCC
have elected to treat the recapitalization as an asset purchase/sale under
Internal Revenue Code Section 338(h)(10). As a result, there is a step-up in the
tax basis of the

                                      F7

<PAGE>

assets, which will provide incremental future income tax deductions of
approximately $267.3 million through 2014 to reduce future taxable income. The
deferred tax asset was determined as follows (in thousands):

<TABLE>

<S>                                                                                             <C>
      Recapitalized equity at implied market value ............................................     $  460,000
      Capitalized fees and expenses incurred in connection with the recapitalization ..........          1,743
                                                                                                 -----------------
      Total acquisition value .................................................................        461,743
      Less historical stockholders' equity (adjusted for deferred taxes) ......................       (186,625)
                                                                                                 -----------------
      Excess of recapitalization value over historic book basis of the net assets acquired ....        275,118
      Estimated corporate tax rate ............................................................          38.71%
                                                                                                 -----------------
       Deferred tax asset arising out of Section 338(h)(10) election ..........................     $  106,520
                                                                                                 =================
</TABLE>

The benefit related to the deferred tax asset has been credited to additional
paid-in capital.

     On July 30, 2001, New World Pasta acquired the dry pasta business of Borden
Foods Corporation ("Borden") and certain of its affiliates (collectively,
"Borden Pasta Brands")(the "Acquisition"). The Acquisition was consummated
pursuant to the terms of a Stock and Asset Purchase Agreement, dated as of July
6, 2001, among Borden, certain affiliates of Borden and JLL Pasta, LLC, a
Delaware limited liability company (which is affiliated with the Company's
majority stockholder) as amended by Amendment No. 1, thereto, dated as of July
30, 2001 (the "Purchase Agreement"). The Purchase Agreement was assigned to New
World Pasta by JLL Pasta, LLC, pursuant to an Assignment and Assumption
Agreement, dated as of July 30, 2001, between the Company and JLL Pasta, LLC.
Pursuant to the Purchase Agreement, the Company paid $45.6 million in cash for
all of the outstanding stock of several Borden subsidiaries engaged in the dry
pasta business, as well as certain trademarks used in the dry pasta business.

     New World Pasta manufactures, distributes and sells quality pasta products
in a variety of shapes, sizes, flavors and packages throughout the United
States, Canada and Italy. New World Pasta markets its U.S. products on a
regional basis under several brand names, including RONZONI, CREAMETTE, SAN
GIORGIO, AMERICAN BEAUTY, SKINNER, PRINCE, IDEAL, LIGHT 'N FLUFFY, MRS. WEISS',
and P&R, as well as certain private labels. New World Pasta products in Canada
are sold under several brand names, including CATELLI and LANCIA, and Italian
products are sold under several brand names, including ALBADORO and MONDER.

     The Company's net sales by product were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                             For the years ended
                                                                  2001              2000              1999
                                                             --------------    ---------------    -------------
<S>                                                         <C>                <C>                <C>
        Retail products ................................      $  351,380           276,884           318,258
        Industrial & other .............................          48,368            23,145            35,761
                                                             --------------    ---------------    -------------
        Total ..........................................      $  399,748           300,029           354,019
                                                             ==============    ===============    =============
</TABLE>

2.   Summary of Significant Accounting Policies

     Significant accounting policies employed by New World Pasta are discussed
below and in other notes to the consolidated financial statements.

     Principles of Consolidation

     The consolidated financial statements include the accounts of New World
Pasta Company and its wholly-owned subsidiaries which include Pasta Group LLC,
Winchester Pasta LLC, Pasta Acquisition Corporation, Ronzoni Foods Canada
Corporation, Albadoro S.p.A, Monder Aliment S.p.A., Ronzoni Foods International
Corporation, The Prince Company, and NWP Delaware LLC (formed in December 2001
to provide transportation and other services to the Company). Pasta Group LLC
and Winchester Pasta LLC were merged into New World Pasta Company effective
January 1, 2001. All other subsidiaries existing on December 31, 2001, other
than NWP Delaware LLC, were acquired as part of the Acquisition on July 30,
2001.

     All significant intercompany balances and transactions have been eliminated
in consolidation.

                                       F8

<PAGE>

     Cash and Cash Equivalents

     Cash and cash equivalents of $3.1 million and $9.5 million at December 31,
2001 and 2000, respectively, consist of savings and checking accounts and
overnight repurchase agreements. The Company considers all highly liquid
instruments with original maturities of three months or less to be cash
equivalents.

     Derivative Instruments and Hedging Activities

     Effective January 1, 2001, the Company adopted Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activity, an Amendment of SFAS No. 133." These statements require that all
derivative instruments be recorded on the balance sheet at their respective fair
values. In accordance with the transition provisions of SFAS No. 133, the
Company recorded a net-of-tax cumulative-effect-type adjustment of $51,000 in
accumulated other comprehensive income to recognize at fair value all
derivatives that are designated as cash-flow hedging instruments.

     The Company has entered into an interest rate swap agreement which has been
designated as a cash flow hedge. The Company formally documents all
relationships between hedging instruments and hedged items, as well as its
risk-management objective and strategy for undertaking various hedge
transactions. This process includes linking all derivatives to specific assets
and liabilities on the balance sheet or to specific firm commitments or
forecasted transactions. The Company also formally assesses, both at the hedge's
inception and on an ongoing basis, whether the derivatives that are used in
hedging transactions are highly effective in offsetting changes in fair values
or cash flows of hedged items. If it would be determined that a derivative is
not highly effective as a hedge or that it has ceased to be a highly effective
hedge, the Company would be required to discontinue hedge accounting
prospectively. Changes in the fair value of a derivative that is highly
effective and that is designated and qualifies as a cash-flow hedge are recorded
in other comprehensive income, until earnings are affected by the variability in
cash flows of the designated hedged item.

     For the year ended December 31, 2000, prior to the adoption of SFAS No.
133, the Company entered into an interest rate swap agreement to reduce its
exposure to market risks from changing interest rates. For the interest rate
swap, the differential to be paid or received was accrued and recognized in
interest expense. The amount of hedging gain deferred on the interest rate swap
as of December 31, 2000 was $51,000.

     Foreign Currency Translation

     The functional currency for the majority of the Company's foreign
operations is the applicable local currency. Adjustments resulting from
translating foreign functional currency financial statements into U.S. dollars
are included in currency translation adjustments in accumulated other
comprehensive losses. Gains or losses resulting from foreign currency
transactions are included in the results of operations.

     Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of

     The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." This statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.

     Inventories

     Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method for all inventories (see note 5).

                                       F9

<PAGE>

      Property, Plant and Equipment

     Property, plant and equipment are stated at cost. Depreciation of
buildings, machinery and equipment is computed using the straight-line method
over the estimated useful lives of the various classes of assets ranging from 3
to 40 years.

     Intangible Assets

     Intangible assets resulting from business acquisitions principally consist
of the excess of the acquisition cost over the fair value of the net tangible
and identifiable intangible assets of businesses acquired (goodwill). Goodwill,
net of accumulated amortization, was $71.8 million and $62.1 million as of
December 31, 2001 and 2000, respectively. Goodwill is amortized on a
straight-line basis over 40 years. Goodwill of $3.3 million acquired prior to
November 1, 1970 is not being amortized.

     Other intangible assets also include intellectual property (patents,
trademarks and domain names) purchased as part of the Acquisition, totaling
$12.2 million. The book value of these assets as of December 31, 2001, net of
amortization, total $11.8 million. Other intangible assets are amortized on a
straight-line basis over their estimated useful lives.

     The Company periodically evaluates whether events or circumstances have
occurred indicating that the carrying amount of goodwill or other long lived
assets may not be recoverable. When factors indicate that such assets should be
evaluated for possible impairment, the Company uses an estimate of the acquired
businesses' undiscounted future cash flows compared to the related carrying
amount of net assets, including goodwill, to determine if an impairment loss
should be recognized. Accumulated amortization of intangible assets resulting
from business acquisitions was $34.2 million and $31.4 million as of December
31, 2001 and 2000, respectively.

     The Company entered into a non-compete agreement with a former executive
during 2000 which has a cost basis of $888,000 and is being amortized over 41
months. Accumulated amortization against this non-compete agreement was $347,000
and $87,000 as of December 31, 2001 and 2000, respectively.

     Deferred Debt Costs

     Debt issuance costs are amortized on a straight-line basis over the life of
the associated debt.

     Revenue Recognition

     Revenues are recognized when goods are shipped. Revenues include amounts
billed for products as well as any associated shipping costs billed to deliver
such products.

     Shipping and Handling Costs

     Shipping and handling costs are included as a component of cost of sales.

     Promotional Costs

     Promotional costs, which include temporary price reductions, in-store
advertising, secondary display allowances and other trade promotions, are
expensed as incurred and are included in selling and marketing expenses.

     Research and Development and Advertising

     Research and development and advertising costs are expensed as incurred.
Research and development costs amounted to $1.3 million, $1.1 million and $1.0
million, in 2001, 2000 and 1999, respectively. Advertising costs amounted to
$8.5 million, $1.4 million and $1.7 million in 2001, 2000 and 1999,
respectively.

     Original Issue Discount

     The Company accounts for original issue discount, which represents the
difference between the face amount of a loan and the amount of the proceeds, as
a reduction to the total amount of the loan outstanding. The balance is
amortized using the effective interest method over the life of the loan (see
note 9).

                                       F10

<PAGE>

     Income Taxes

     Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

     Stock Option Plan

     The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations, in accounting for
its fixed plan stock options. As such, compensation expense is recorded only if
the current market price of the underlying stock exceeded the exercise price on
the measurement date. SFAS No. 123, "Accounting for Stock-Based Compensation,"
established accounting and disclosure requirements using a fair value-based
method of accounting for stock-based employee compensation plans. As allowed by
SFAS No. 123, the Company has elected to continue to apply the intrinsic
value-based method of accounting described above, and has adopted the disclosure
requirements of SFAS No. 123.

     Use of Estimates

     Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates. Significant estimates which impact the Company's
consolidated financial statements, include, but are not limited to, the
following: allowance for potentially uncollectible receivables and pending
deductions; restructuring charges; income taxes; liabilities for pension and
post-retirement benefits; and workers compensation liabilities.

     Reclassifications

     Certain reclassifications have been made to prior year amounts to conform
to the current year presentation.

     New Accounting Standards

     During May 2000, the Emerging Issues Task Force (EITF) released Issue No.
00-14, "Accounting for Certain Sales Incentives", which provides guidance on
accounting for certain promotional activities. During September 2000, the EITF
released Issue No. 00-25, "Vendor Income Statement Characterization of
Consideration from a Vendor to a Retailer", which provides guidance on
accounting for certain consideration from a vendor to an entity that resells the
vendor's products. The Company is required to implement the requirements of
these pronouncements in the first fiscal quarter of 2002. These pronouncements
will have a significant impact on the manner in which certain expenses are
recorded in the Company's financial statements. Specifically, certain amounts
currently reported as selling and marketing expense will be reported as a
reduction to net sales. If these pronouncements had been implemented, there
would have been a decrease in selling and marketing expenses of $63.8 million
for the year ended December 31, 2001, and a corresponding decrease in net sales.

     In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." Under SFAS No. 142, the Company will no longer amortize goodwill and
intangible assets with indefinite lives, but instead will test those assets for
impairment at least annually. Intangible assets with definite useful lives will
be amortized over such lives to their estimated residual values. The Company is
required to adopt SFAS No. 142 on January 1, 2002, and within six months of that
date, to assess in accordance with the provisions of the Statement, whether
there is an indication that any goodwill or other intangible assets with
indefinite lives are impaired as of that date. As soon as possible after a
determination that any goodwill or other intangible assets may be impaired, but
not later than December 31, 2002, the Company must re-compute the amount of such
goodwill or other intangible asset with an indefinite life in accordance with
the provisions of SFAS No. 142. Any transitional impairment loss will be
recognized as the cumulative effect of a change in accounting principle. Due to
the extensive effort needed to accumulate the information required to comply
with SFAS No. 142, it is not practicable to reasonably estimate the impact of
adopting this Statement on the Company's financial statements at this time.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The Statement supersedes SFAS No. 121, and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30,


                                      F11

<PAGE>

"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions", for the disposal of a segment of a business (as
previously defined in that Opinion). The provisions of this Statement are
effective on January 1, 2002. This Statement is not expected to materially
impact the Company's consolidated financial statements.

3.   Acquisition

     On July 30, 2001, New World Pasta acquired the Borden Pasta Brands. The
Acquisition included Borden's dry pasta production facilities and certain of its
pasta brands in the United States, Canada and Italy. New World Pasta is using
certain plant, equipment and physical assets acquired in the Acquisition to
expand its manufacturing and distribution network, as well as reduce its overall
cost structure.

     Pursuant to the Purchase Agreement, the Company paid $45.6 million in cash
for all of the outstanding stock of several Borden subsidiaries engaged in the
dry pasta business, as well as certain trademarks used in the dry pasta
business.

     The following table summarizes the purchase price and purchase price
allocation based on the estimated fair value of the assets acquired and
liabilities assumed at the date of acquisition (amounts in thousands):

                   Purchase price:
                            Cash paid                            $    45,580
                            Transaction fees and expenses              6,520
                                                                 ------------
                   Total purchase price                          $    52,100
                                                                 ============
                   Current assets                                $    41,123
                   Property, plant and equipment                      48,165
                   Intangible assets                                  12,188
                   Other long-term assets                              4,494
                                                                 ------------
                            Total assets acquired                    105,970
                                                                 ------------
                   Current liabilities                                36,032
                   Other long-term liabilities                        17,838
                                                                 ------------
                            Total liabilities assumed                 53,870
                                                                 ------------
                   Net assets acquired                           $    52,100
                                                                 ============

     The $12.2 million of acquired intangible assets were assigned to registered
trademarks that are subject to amortization over their estimated useful lives of
14 years.

     The Acquisition has been accounted for as a purchase business combination
in accordance with SFAS No. 141, "Business Combinations." The results of Borden
Pasta Brands' operations have been included in the consolidated financial
statements of the Company since the date of the Acquisition. Management has used
various estimates in valuing assets, liabilities, and expenses, certain of which
will be subject to further review and may necessitate a change to the purchase
price calculation, or its allocation.

     The Company has developed a plan to restructure and integrate the Borden
Pasta Brands' operations into the Company's operations. In connection with the
plan, a restructuring reserve of $3.6 million was recorded in the third quarter
of 2001 and included in the purchase price allocation as set forth above. The
reserve includes costs for the closure of Borden Pasta Brands' facilities in
Chicago and Lethbridge and related personnel rationalizations. The plan
anticipated that personnel employed at the facilities will be displaced. As the
Borden Pasta Brands restructuring actions are implemented, the allocation of the
purchase price may change. The following summarizes the estimated restructuring
costs relating to Borden Pasta Brands (in thousands):

<TABLE>
<CAPTION>
                                             Estimated              Cash            Remaining
                                            Total Costs          Payments           Accruals
                                            -----------          --------           --------
<S>                                        <C>                  <C>                <C>
     Severance costs                          $ 3,050              (1,347)             1,703
     Contractual obligations and
       other facility exit costs                  563                 (43)               520
                                          -----------------    --------------     --------------

     Total                                    $ 3,613              (1,390)             2,223
                                          =================    ==============     ==============
</TABLE>


                                      F12

<PAGE>


     Summary pro forma information reflecting the combined results of operations
of the Company and Borden Pasta Brands prior to the actual acquisition date is
not being presented, as such information for Borden Pasta Brands is not
available.

4.   Accounts Receivable -- Trade

     In the normal course of business, the Company extends credit to customers
that satisfy pre-defined credit criteria. New World Pasta operates in a single
industry and is not dependent upon any single or major group of customers for
its sales. The Company's ten largest customers accounted for approximately 43%,
49% and 49% of gross sales for 2001, 2000 and 1999, respectively. The Company
believes that it has little concentration of credit risk due to the diversity of
its customer base. Receivables, as shown on the balance sheets, were net of
allowances and anticipated discounts of approximately $4.6 million and $5.2
million as of December 31, 2001 and 2000, respectively.

     The following summarizes allowances and anticipated discounts and their
related activity:

<TABLE>
<CAPTION>
                                            Balance at           Charged to            Deductions            Balance
                                            Beginning             Costs and               From                At End
                                             of Year              Expenses              Reserves             of Year
                                          ---------------      ----------------      ---------------      ---------------
                                                                          (in thousands)
<S>                                        <C>                    <C>                  <C>                   <C>
     Year Ended December 31, 2001            $  5,179               10,789               (11,382)              4,586

     Year Ended December 31, 2000               4,850               11,511               (11,182)              5,179

     Year Ended December 31, 1999               5,058               12,609               (12,817)              4,850
</TABLE>

5.   Inventories

     In the fourth quarter of 2001, the Company changed its method of accounting
 for certain raw material inventories from the last-in, first-out ("LIFO")
 method to the FIFO method. The new method of accounting for these inventories
 was adopted because the FIFO method of valuing inventories more clearly follows
 the actual usage of the components of inventory in the production process and
 more closely matches actual costs and revenues resulting in an enhanced
 measurement of operating results. All prior year financial statements have been
 restated to apply the new method retroactively.

     As a result of the adoption of the new accounting method described above,
 the 2001 net loss was reduced by $164,000, net of applicable taxes of $89,000.
 The effect of the accounting change on net income (loss) as previously reported
 for 2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                                                         2000               1999
                                                                    ---------------    ---------------
                                                                             (in thousands)
<S>                                                                 <C>                 <C>
                  Net income (loss) as previously reported            $ (1,677)               460
                  Adjustment for effect of change in accounting
                     principle that is applied retroactively, net
                     of tax of $22 and $553, respectively                  (42)            (1,026)
                                                                    ---------------    ---------------

                  Net loss                                            $ (1,719)              (566)
                                                                    ===============    ===============
</TABLE>

     Due to the change in accounting principle, inventory previously reported at
 December 31, 2000 decreased by $660,000. The balances of accumulated deficit
 have been restated to reflect retroactive application of this new accounting
 method.

     Total inventories, as adjusted for the change in accounting principle, are
as follows:

<TABLE>
<CAPTION>
                                                                      December 31,             December 31,
                                                                          2001                     2000
                                                                    -----------------        -----------------
                                                                                 (in thousands)
<S>                                                                 <C>                      <C>
                  Raw materials ...............................      $   12,133                    3,823
                  Work in process .............................             581                      120
                  Finished goods ..............................          29,800                   12,444
                                                                    -----------------        -----------------
                        Total inventories .....................      $   42,514                   16,387
                                                                    =================        =================
</TABLE>

                                      F13

<PAGE>

 6.  Fair Value of Financial Instruments

     The following table presents the carrying amounts and estimated fair values
 of the Company's financial instruments at December 31, 2001 and 2000. The fair
 value of a financial instrument is the amount at which the instrument could be
 exchanged in a current transaction between willing parties.

<TABLE>
<CAPTION>
                                                             2001                               2000
                                                  ---------------------------        ---------------------------
                                                   Carrying          Fair              Carrying         Fair
                                                    Amount          Value               Amount         Value
                                                  ------------    -----------        -------------   -----------
                                                                         (in thousands)
<S>                                               <C>             <C>                <C>             <C>
           Financial Assets:
                Cash and cash equivalents          $   3,127          3,127               9,542          9,542
           Financial Liabilities:
                Long-term debt, including
                current portion                      327,844        321,351             287,725        188,207
</TABLE>

     The carrying amounts shown in the table are included in the consolidated
balance sheets under the indicated captions.

     The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

     Cash and cash equivalents: The carrying amount approximates fair value
     -------------------------
because of the short maturity of these instruments.

     Long-term debt: The fair value of the Company's term loans is estimated by
     --------------
discounting the future cash flows at rates currently offered to the Company for
similar debt instruments of comparable maturities by the Company's lenders. The
fair value of the Company's notes is based on quoted market prices.

 7.  Property, Plant and Equipment

     Property, plant and equipment balances include construction in progress of
 $15.1 million and $1.0 million as of December 31, 2001 and 2000, respectively.
 Major classes of property, plant and equipment were as follows:

<TABLE>
<CAPTION>
                                                                            December 31,        December 31,
                                                                                2001                2000
                                                                          -----------------   -----------------
                                                                                     (in thousands)
<S>                                                                       <C>                 <C>
               Land ...................................................     $    4,343                3,530


               Buildings ..............................................         32,530               30,977
               Machinery and equipment ................................        188,165              185,017
                                                                          ----------------     ----------------
               Property, plant and equipment, gross ...................        225,038              219,524
               Accumulated depreciation ...............................        (98,025)            (127,360)
                                                                         ----------------     ----------------
                    Property, plant and equipment, net ................     $  127,013               92,164
                                                                          ================     ================
</TABLE>

 8.  Other Accrued Expenses

     Other accrued expenses were as follows:

<TABLE>
<CAPTION>
                                                                            December 31,        December 31,
                                                                                2001                2000
                                                                          -----------------    ----------------
                                                                                     (in thousands)
<S>                                                                       <C>                 <C>
                 Accrued payroll and compensation                         $      6,941                4,867
                 Accrued insurance                                                 425                  980
                 Accrued employee benefits                                       1,279                1,033
                 Accrued income taxes                                              688                  260
                 Accrued restructuring and integration                           5,675                   24
                 Other                                                           4,490                  925
                                                                         ------------------   -----------------
                                                                          $     19,498                8,089
                                                                         ==================   =================
</TABLE>


                                      F14

<PAGE>

 9.   Long-Term Debt

     The Company's long-term debt is summarized as follows:

<TABLE>
<CAPTION>
                                                                            December 31,         December 31,
                                                                                2001                 2000
                                                                          ------------------    ----------------
                                                                                     (in thousands)
<S>                                                                       <C>                   <C>
               9.25% Senior Subordinated Notes due 2009 ("Notes") .......    $ 160,000               160,000
               Term Loan B ..............................................      124,966               127,725
               Term Loan C, including pay-in-kind interest ..............       53,137                    --
               Original Issue Discount to Term Loan C, net of
                  amortization ..........................................      (10,259)                   --
                                                                          ------------------    ---------------
               Total ....................................................      327,844               287,725
               Less current portion .....................................       (1,285)               (1,300)
                                                                          ------------------    ---------------
                                                                             $ 326,559               286,425
                                                                          ==================    ===============
</TABLE>


     The Notes are general unsecured obligations of New World Pasta, ranking
 subordinate in right of payment to all senior indebtedness of New World Pasta,
 equal in right of payment with all senior subordinated indebtedness of New
 World Pasta and senior in right of payment to all junior subordinated
 indebtedness of New World Pasta. The Notes are effectively subordinated to all
 indebtedness of New World Pasta's subsidiaries. The Notes were guaranteed by
 New World Pasta's subsidiaries on the date of original issuance of the old
 notes.

     The Company has entered into a Senior Credit Facility (the "Credit
Facility") that currently provides for a term loan ("Term Loan B") that bears
interest at either an alternate base rate, as defined, plus 2.25% or a
reserve-adjusted LIBOR rate plus 4.00%. On December 31, 2001 the effective
interest rate on Term Loan B was 5.9375%. Term Loan B matures in 2006. Term Loan
B is repaid in quarterly payments of $321,250 through March 2005, $30.2 million
on June 30, September 30 and December 31, 2005 with the balance paid at
maturity. The Company has fixed the interest rate on $50.0 million of the
outstanding debt at a base rate of 5.645%, plus the credit agreement interest
spread, by entering into an interest rate swap agreement which expires in June
2002. The interest rate on the portion of the debt covered by the swap is
approximately 8.9%. The Credit Facility also provides for a revolving loan of up
to $20.0 million. This portion of the Credit Facility bears interest at variable
rates as provided in the terms of the Credit Facility. No amount has been
borrowed under this portion of the Credit Facility at December 31, 2001. The
Company is required to pay a commitment fee of 0.5% on the unused portion of the
revolving loan.

     To finance the Acquisition, the Company entered into Amendment No. 2
("Amendment 2"), dated as of July 30, 2001 to its Credit Agreement dated as of
January 28, 1999 (as amended, "Credit Agreement"), among the Company, the
various financial institutions parties thereto, Morgan Stanley Senior Funding,
Inc., as syndication agent, and The Bank of Nova Scotia, as lead arranger and
administrative agent. Amendment 2 modified certain covenants of the Company
under the Credit Agreement and added a new tranche facility of secured term
loans to the Credit Agreement ("Term Loan C") in the aggregate principal amount
of $51.4 million. JLL Pasta LLC purchased a 100% participation in the Term Loan
C. In conjunction with their purchase of the 100% participation in the Term Loan
C, the Company issued to JLL Pasta LLC warrants to purchase an aggregate of
51,402,000 shares of common stock, par value $.01 per share, of the Company at a
purchase price equal to $1.00 per share. Term Loan C has an 8% pay-in-kind
coupon, no amortization requirement, matures in full on June 30, 2006, and is
subject to the same covenants and events of default which govern all other loans
outstanding under the Credit Agreement. The proceeds received of $51.4 million
have been allocated between the Term Loan C ($40.7 million) and the warrants
($10.7 million). The difference between the face amount of the loan and the
amount of the proceeds allocated to the loan has been classified as original
issue discount, and is being amortized to interest expense using the effective
interest method. Accumulated amortization of the original issue discount totaled
$487,000 at December 31, 2001. The effective interest rate on the Term Loan C,
considering the impact of the original issue discount (the "OID"), is 12.9%. As
of December 31, 2001, the accrued pay-in-kind liability totaled $1.7 million and
is included in the outstanding balance of Term Loan C.

     The Credit Facility is secured by a first-priority perfected lien on a
 portion of the capital stock of New World Pasta and all property and assets,
 tangible and intangible, of New World Pasta. The Credit Facility is guaranteed
 by the following subsidiaries: Pasta Acquisition Corporation, Ronzoni Foods
 International, and The Prince Company.

     New World Pasta may voluntarily prepay some or all of its obligations under
 the Credit Facility. In addition, the loans under the Credit Facility are
 subject to mandatory prepayment under certain circumstances, including if New
 World Pasta generates excess cash flow.

                                      F15

<PAGE>

     The Credit Facility requires the Company to comply with specified financial
 tests, to maintain specified financial ratios and restricts the Company's
 ability to undertake certain actions. The Company entered into an amendment and
 waiver ("Amendment 1") to its Credit Facility effective as of May 10, 2000,
 pursuant to which, among other things: (i) the lenders waived compliance by the
 Company with certain financial covenants contained thereunder with respect to
 the quarter ended April 2, 2000; (ii) certain financial covenants contained
 therein were revised or eliminated for all periods ending on or before December
 31, 2002; (iii) the revolving credit portion of the Credit Facility was reduced
 to $20.0 million; and (iv) the interest rates on the Credit Facility were
 increased.


     In conjunction with Amendment 2, the Credit Facility was amended and
 included, among other things, the following changes to specified financial
 tests, specified financial ratios, and restrictions of the Company to undertake
 certain actions: (i) certain financial covenants were revised for all periods
 ending on or after June 30, 2001; (ii) spending for acquisitions other than the
 Acquisition is limited to $25 million; and (iii) maximum capital expenditures
 for fiscal years 2001 and beyond were revised. The Company is in compliance
 with the provisions of the Credit Facility as of December 31, 2001.

     The aggregate maturities of long-term debt as of December 31, 2001 are as
follows (in thousands):

                       2002              $     1,285
                       2003                    1,285
                       2004                    1,285
                       2005                   90,914
                       2006                   83,334
                  Thereafter                 160,000
                                        -----------------
                                             338,103
                  Less:  OID                 (10,259)
                                        -----------------
                                           $ 327,844
                                        =================

10.   Redeemable Preferred Stock

      Prior to the Acquisition, New World Pasta had one class of preferred
stock. A total of 115,000 shares of preferred stock was authorized and zero and
114,160 shares were outstanding at December 31, 2001 and 2000, respectively.
Holders of the preferred stock were not entitled to preemptive rights. The
preferred stock was mandatorily redeemable by New World Pasta on January 28,
2010 for $1,000 per share plus all accrued and unpaid dividends to the
redemption date or as soon thereafter as would not be prohibited by New World
Pasta's then-existing debt agreements. The preferred stock had a liquidation
preference over the common stock equal to the redemption price of $1,000 per
share plus all accrued and unpaid dividends.

      Dividends on the preferred stock were cumulative and payable when and if
declared by the Company's board of directors, at an annual rate of 12% per year.
No dividends or distributions were to be made on the common stock unless all
accrued and unpaid dividends were first paid to the holders of the preferred
stock. Without the consent of the holders of a majority of the outstanding
preferred stock, New World Pasta could not enter into any merger, consolidation
or other business combination, unless and until the preferred stock was
repurchased for an amount equal to $1,000 per share plus all accrued and unpaid
dividends thereon. Except as required by law, the holders of the preferred stock
were not entitled to vote on any matter submitted to a vote of the stockholders.
The redemption of, and payment of cash dividends on, the preferred stock was
generally prohibited by the terms of the Credit Facility and restricted by the
indenture for the Notes.

      In conjunction with the Acquisition, the Company recapitalized its capital
stock such that each outstanding share of 12% cumulative redeemable preferred
stock was reclassified into 381.2829 shares of common stock (the
"Recapitalization"). The Recapitalization was effected through an amendment and
restatement of the Company's Amended and Restated Certificate of Incorporation.

11.   Derivative Instruments and Hedging Activities

     The Company uses a mix of fixed rate and variable-rate debt to finance its
operations. Certain debt obligations expose the Company to variability in
interest payments due to changes in interest rates. Management believes it is
prudent to limit the variability of a portion of its interest payments. To meet
this objective, management entered into an interest rate swap agreement to
manage fluctuations in cash flows resulting from interest rate risk. The swap
changes the variable-rate cash flow exposure on the debt obligations to
fixed-rate cash flows. Under the terms of the interest rate swap, the Company
receives variable interest rate payments and makes fixed interest rate payments,
thereby creating the equivalent of fixed-rate debt. By


                                      F16

<PAGE>

using derivative financial instruments to hedge exposures to changes in interest
rates, the Company exposes itself to credit risk and market risk. Credit risk is
the failure of the counterparty to perform under the terms of the derivative
contract, however, the Company does not anticipate nonperformance by the
counterparties to the transaction.

     Changes in the fair value of interest rate swaps designated as hedging
instruments that effectively offset the variability of cash flows associated
with variable-rate, long-term debt obligations are reported in accumulated other
comprehensive losses. These amounts subsequently are reclassified into interest
expense as a yield adjustment of the hedged debt obligation in the same period
in which the related interest affects earnings. The interest rate swap agreement
has a notional amount of $50 million. The agreement provides for a fixed
interest rate of 5.645% plus the credit agreement interest spread, and expires
in June 2002.

     As of December 31, 2001, $583,000 of deferred losses, net of tax benefit of
$358,000, on derivative instruments are accumulated in other comprehensive
losses.

12.  Rental and Lease Commitments

     The Company leases its headquarters, certain warehouses and sales offices,
and various office equipment. The leases expire at various dates through 2006.
Rent expense was approximately $7.5 million, $7.2 million and $7.1 million for
the years ended December 31, 2001, 2000 and 1999, respectively. Future minimum
lease payments under noncancelable operating leases (with initial or remaining
lease terms in excess of one year) as of December 31, 2001 are as follows (in
thousands):

                      2002              $ 7,662
                      2003                3,720
                      2004                  417
                      2005                  165
                      2006                   94
                Thereafter                   94

13.  Income Taxes

     Total income taxes (benefit) for the years ended December 31, 2001, 2000
and 1999 were allocated as follows:

<TABLE>
<CAPTION>
                                                                         For the years ended
                                                              2001              2000               1999
                                                         ---------------    --------------     --------------
                                                                           (in thousands)
<S>                                                      <C>                <C>                <C>
        Income tax expense (benefit) ..................  $      (140)             (942)             2,221
        Accumulated other comprehensive loss ..........       (1,578)             --                --
        Stockholders' equity for recapitalization......         --                --             (106,520)
                                                         ---------------    --------------     --------------

                                                          $   (1,718)             (942)          (104,299)
                                                         ===============    ==============     ==============
</TABLE>

     Income tax expense (benefit) consists of:

<TABLE>
<CAPTION>
                                                                         For the years ended
                                                              2001               2000              1999
                                                         ---------------     -------------     --------------
                                                                           (in thousands)
<S>                                                      <C>               <C>                 <C>
       Current:
               Federal ...............................   $      --                --                  271

               State .................................          --                --                   56
                                                        ---------------    --------------     --------------
                                                                --                --                  327
                                                        ---------------    --------------     --------------
        Deferred:
               Federal ...............................          (416)             (807)             1,588
               State .................................           263              (135)               306
               Foreign ...............................            13                --                 --
                                                        ---------------    --------------     --------------
                                                                (140)             (942)             1,894
                                                         ---------------    --------------     --------------
                                                         $      (140)             (942)             2,221
                                                        ================    ==============     ==============
</TABLE>


                                      F17

<PAGE>


     Income tax expense (benefit) for the years ended December 31, 2001, 2000
and 1999 differed from the amounts computed by applying the U.S. federal income
tax rate of 35% to pretax income (loss) as a result of the following:

<TABLE>
<CAPTION>
                                                                         For the years ended
                                                              2001               2000              1999
                                                         ---------------    --------------     --------------
<S>                                                      <C>                <C>                <C>
        Expense (benefit) at statutory rate                   (35.0%)            (35.0%)             35.0%

        Increase (decrease) resulting from:
             State income taxes, net of federal income
                   tax benefit                                 (2.4)              (3.3)               7.4
             Change in valuation allowance                     22.1                 --                 --

             Non-deductible recapitalization costs              1.5                 --               90.3
             Foreign                                             .1                 --                 --
             Other, net                                         7.8                2.9                1.5
                                                         ---------------    --------------     --------------

       Effective income tax rate                              (5.9%)             (35.4%)            134.2%
                                                         ===============    ==============     ==============
</TABLE>

    The significant components of deferred income tax expense (benefit) for the
years ended December 31, 2001, 2000 and 1999 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                               2001               2000               1999
                                                         ----------------   --------------    ---------------
<S>                                                     <C>                <C>               <C>
        Deferred tax expense (exclusive of
           the effects of other components below)
        Increase in beginning of year balance of           $   (665)              (942)            2,221
           the valuation allowance for deferred
           tax assets
                                                                525                 --                --
                                                         ----------------   --------------    ---------------

                                                           $   (140)              (942)            2,221
                                                         ================   ==============    ===============
</TABLE>

     The tax effects of temporary differences that give rise to the significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2001 and 2000 were as follows:

<TABLE>
<CAPTION>
                                                                               2001              2000
                                                                           --------------    --------------
                                                                                   (in thousands)
<S>                                                                         <C>                   <C>
        Deferred tax assets:
              Accounts receivable allowances                                $    2,431             2,349
              Inventory, cost differences                                          516               454
              Compensated absences accruals                                        808             1,439
              Accrued expenses and other reserves                                3,533             1,245
              Post-retirement benefit accruals                                     476             1,944
              Net operating loss carryforwards                                  30,321            18,724
              Plant and equipment, due to taxable asset acquisition for
                   tax purposes                                                  2,544            11,359
              Amortizable goodwill and other intangible assets                  59,610            67,051
              Accumulated other comprehensive loss                               1,578            --
              Other                                                                718             1,039
                                                                           -------------     --------------
                   Total gross deferred tax assets                             102,535           105,604
                   Less valuation allowance                                      2,605            --
                                                                           -------------     --------------
                   Net deferred tax assets                                   $  99,930           105,604
                                                                           =============     ==============

        Reflected on the consolidated balance sheet as:

              Current deferred income tax assets                             $  12,671            12,223
              Long-term deferred income tax assets                              87,259            93,381
                                                                           -------------     --------------
              Net deferred tax assets                                        $  99,930           105,604
                                                                           =============     ==============
</TABLE>

     There was no valuation allowance for deferred tax assets as of January 1,
2001 and 2000. A valuation allowance of $2.1 million was recorded in the
purchase price allocation of the Acquisition (see note 3) for certain tax
benefits of the acquired company's temporary differences and carryforwards. The
net change in the total valuation allowance for the year ended December 31,
2001, was an increase of $525,000. In assessing the realizability of deferred
tax assets, management considers


                                      F18

<PAGE>

whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. In order to fully realize
the deferred tax assets, the Company will need to generate future taxable income
of approximately $265 million prior to the expiration of the net operating loss
carryforwards which expire in various years through 2021. Taxable loss for the
years ended December 31, 2001 and 2000 was approximately ($15.1) million and
($40.4) million, respectively. Based upon the projections for future taxable
income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not that the Company will realize the
benefits of these deductible temporary differences, net of existing valuation
allowances at December 31, 2001. The amount of the deferred tax assets
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced.

    Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of December 31, 2001, will be allocated as follows (in
thousands):

      Income tax benefit that would be reported in
          the consolidated statement of operations            $     525
      Property, plant and equipment and other non-
          current intangible assets                               2,080
                                                        -------------------

               Total                                          $   2,605
                                                        ===================

     At December 31, 2001, the Company had a net operating loss carryforward for
federal and state income tax purposes of approximately $71.4 million and $50.3
million, respectively. These net operating loss carryforwards are available to
offset future federal or state taxable income, if any, through 2021 for federal
and for varying periods through 2021 for state purposes.

14.   Segment Reporting

      The Company operates in one industry segment; the manufacture and sale of
quality pasta products.

      As a result of the Acquisition, the Company now has operations in three
geographic segments: United States, Canada, and all other. The Company manages
the non-U.S. operations as separate segments of the business. The table below
represents the Company's operating results by segment (in thousands):

                                                              Year Ended
                                                          December 31, 2001
                                                        -----------------------
            Net sales:
                     U.S. .............................        $ 351,672
                     Canada ...........................           35,680
                     Other ............................           12,396
                                                        -----------------------

                     Total ............................        $ 399,748
                                                        =======================

            Income (loss) from operations:

                     U.S. .............................        $  18,736
                     Canada ...........................               28
                     Other ............................             (125)
                                                        -----------------------

                     Total ............................        $  18,639
                                                        =======================

            Total assets (as of December 31, 2001):

                     U.S. .............................        $ 369,471




                     Canada ...........................           39,137
                     Other ............................           17,566
                                                        -----------------------

                     Total ............................        $ 426,174
                                                        =======================

                                      F19

<PAGE>

15.   Related Party Transactions

     The Company and Miller Milling Company ("Miller Milling") have entered into
various milling supplier and procurement arrangements which cover a significant
amount of the Company's durum and semolina requirements. These supplier
arrangements expire December 31, 2009. John Miller, President and CEO of Miller
Milling, is a stockholder through Miller Pasta LLC, and is a Board member of New
World Pasta. Additionally, Michael Snow, a principal in Miller Milling, and C.
Mickey Skinner, a member of Miller Milling's Board of Directors, are
stockholders of New World Pasta through Miller Pasta LLC, and are Board members
of New World Pasta. The Company paid in excess of $38 million and $39 million to
Miller Milling Company in 2001 and 2000, respectively, pursuant to these
procurement and supplier arrangements. As of December 31, 2001 and 2000, the
Company had trade and other payables to Miller Milling of $3.4 million and $1.6
million, respectively. Messrs. Miller and Snow also serve on the Board of
Governors of Miller Pasta II, LLC, which holds warrants to purchase additional
shares of the Company's common stock.

     During the first quarter of 2000, New World Pasta entered into agreements
 with Miller Milling whereby a reconfiguration of certain mill equipment was
 performed at the Fresno, CA and Winchester, VA mills. These mills are owned and
 operated by Miller Milling and are primarily used to supply the aforementioned
 New World Pasta plants with raw materials. The total amount incurred by New
 World Pasta under the reconfiguration was $2.1 million, which has been
 capitalized and is being depreciated on a straight-line basis over the
 four-year term of the agreement. Under the terms of the agreement, New World
 Pasta is required to sell the equipment to Miller Milling for $1 in 2004.

     Activity in the intercompany accounts with HFC is as follows:

<TABLE>
<CAPTION>
                                                                         For the year ended
                                                                          December 31, 1999
                                                                           (in thousands)
                                                                        ----------------------
                     <S>                                                    <C>
                     Beginning balance due from HFC ...................      $   77,350
                      Collections .....................................          24,065
                      Bank account disbursement funding ...............         (16,524)

                      Employee benefits ...............................          12,302
                      Non-employee insurance ..........................             (81)
                      Income taxes ....................................          (5,342)
                      Shared service chargebacks ......................          (1,446)
                      Payroll and payroll taxes .......................          (2,676)
                      Grocery selling expense .........................             216
                     Flour future losses ..............................              73

                      Closed to retained earnings .....................         (83,882)
                      Other ...........................................          (4,055)
                                                                        ----------------------
                      Ending balance due from HFC .....................      $       --
                                                                        ======================
                      Average balance during the period ...............      $      N/A
                                                                        ======================
</TABLE>

16.   Stock Option Plan

     In January 1999, the Company adopted a stock option plan (the "Plan")
pursuant to which the Company's Board of Directors may grant stock options to
officers and key employees. The Plan authorized grants of options to purchase up
to 910,166 shares of authorized but unissued common stock. At December 31, 2000,
147,066 additional shares were made available for grant under the Plan through
resolution by the Board of Directors. Stock options are granted with an exercise
price equal to or greater than the stock's fair market value at the date of
grant. All stock options have 10-year terms and vest and become fully
exercisable over a several-year period from the date of grant.

     In December 2001, the 1999 Stock Option Plan was amended and restated and
the maximum number of shares of stock reserved for the grant or settlement of
awards under the plan was increased to 12,369,514, of which 1,057,231 shares
were reserved for the grant or settlement of awards under the plan prior to
December 2001.

     The per share weighted-average fair value of stock options granted during
2001, 2000 and 1999 were $0.07, $2.25 and $1.74, respectively, on the date of
grant using the Black-Scholes option-pricing model, with the following
weighted-average assumptions: 2001 - expected dividend yield 0%, risk-free
interest rate of 4.95% and an expected term of 10 years; 2000 - expected
dividend yield 0%, risk-free interest rate of 6.27% and an expected term of 7
years; 1999 - expected dividend yield 0%, risk-free interest rate of 4.8% and an
expected term of 7 years.


                                      F20

<PAGE>


     The Company applies APB Opinion No. 25 in accounting for its Plan, and
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net loss would have increased to the pro-forma amounts indicated below
(in thousands):


<TABLE>
<CAPTION>
                                                                      2001             2000            1999
                                                                  ------------     ------------     -----------
                      <S>                      <C>                <C>              <C>              <C>
                      Net income (loss)        As reported          $ (2,233)         (1,719)          (566)
                                               Pro forma              (2,520)         (1,894)          (759)
</TABLE>

     Stock option activity during the year is as follows:


                                                           Weighted-
                                       Number of            Average
                                        Shares           Exercise Price
                                    -----------------  -------------------
Balance at January 1, 1999 ........        --               $ --
Granted ...........................      910,166              34.74
Exercised .........................        --                 --
Forfeited .........................        --                 --
Expired ...........................        --                 --
                                    -----------------

Balance at December 31, 1999 ......      910,166              34.74
Granted ...........................      547,453              33.14
Cancelled .........................      (29,930)             34.74
Reissued ..........................       29,930              34.74
Exercised .........................        --                 --
Forfeited .........................     (400,388)             34.74
Expired ...........................        --                 --
                                    -----------------

Balance at December 31, 2000 ......    1,057,231              33.87
Granted ...........................   10,788,213               3.49
Exercised .........................        --                 --
Forfeited .........................      (31,158)             30.48
Expired ...........................        --                 --
                                    -----------------

Balance at December 31, 2001 ......   11,814,286               6.13
                                    =================

     At December 31, 2001, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $2.16 - $73.50 and 9.80
years, respectively.

     At December 31, 2000, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $10.00 - $73.50 and 8.75
years, respectively.

     At December 31, 1999, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $10.00 - $73.50 and 9.08
years, respectively.

     At December 31, 2001, there were 349,232 options exercisable at a
weighted-average price of $36.20.

     At December 31, 2000, there were 139,449 options exercisable at a
weighted-average price of $34.74. There were no exercisable options at December
31, 1999.


17.      Employee Benefits

      Prior to the 1999 Recapitalization, the Company participated in several
HFC defined benefit plans which provided retirement benefits to substantially
all non-union and certain union employees, as well as union administered
multi-employer plans. Upon completion of the 1999 Recapitalization, the
Company's salaried employees and all Winchester, VA plant employees no longer
participated in the HFC retirement plan. Hourly employees at the Omaha, NE and
Louisville, KY manufacturing facilities participate in single employer pension
plans administered by New World Pasta. Hourly employees at the Fresno, CA and
retirees from the Lebanon, PA manufacturing facilities participate in
multi-employer plans.


                                      F21

<PAGE>

      Pursuant to and as defined by the terms of the Purchase Agreement,
effective July 30, 2001, New World Pasta assumed the obligation formerly held by
Borden to provide benefits under a defined benefit plan to certain current and
former employees of Borden. In 2001, New World Pasta established a new defined
benefit plan, the New World Pasta Company St. Louis Plant Retirement Plan, and a
related pension trust, to provide such benefits. Pursuant to the Purchase
Agreement, assets are to be transferred to New World Pasta's defined benefit
plan in an amount equal to the pension liability assumed by New World Pasta. We
expect that asset transfer to occur in the first or second quarter of 2002.

      The Company's policy is to fund pension liabilities in accordance with the
minimum and maximum limits imposed by the Employee Retirement Income Security
Act of 1974 and Federal income tax laws, respectively. Plan assets are invested
in a broadly diversified portfolio consisting primarily of domestic and
international common stocks and fixed income securities. Other post-retirement
benefits are provided to a limited group of employees and include health care
and life insurance. The health care plan is contributory, with participants'
contributions adjusted annually; the life insurance plan is non-contributory.

     The following table sets forth the funded status and amounts recognized in
the Company's consolidated balance sheets:

<TABLE>
<CAPTION>
                                                         Pension Benefits           Post-retirement Benefits
                                                    ---------------------------    ---------------------------
                                                                           December 31,
                                                    ----------------------------------------------------------
                                                       2001            2000            2001            2000
                                                    -----------    ------------    ------------    -----------
                                                                         (in thousands)
<S>                                                 <C>            <C>             <C>              <C>
Change in benefit obligation:
Benefit obligation at beginning of year ............  $ 7,784          6,628           1,119           1,475
Benefit obligation of Borden Pasta Brands at
   acquisition date ................................   30,579            --            3,474             --
Service cost .......................................      459            239              49              64
Interest cost ......................................    1,380            536             146              71
Elimination of Omaha benefits ......................    --               --              --             (521)
Elimination of Lebanon and Louisville benefits .....    --               --           (1,201)            --
Amendments .........................................       31            483             --              --
Settlements and curtailments .......................   (1,430)           --              (31)            --
Actuarial loss .....................................      127            495             --              --
Benefits paid ......................................   (2,010)          (597)           (105)            --
Change due to change in experience .................     (211)           --              --               30
Change in assumptions ..............................    1,156            --               95             --
                                                    -----------    ------------    ------------    -----------
Benefit obligation at end of year .................. $ 37,865          7,784           3,546           1,119
                                                    ===========    ============    ============    ===========
Change in plan assets:
Fair value of plan assets at beginning of year ..... $  6,155          6,185             --              --
Fair value of plan assets of Borden Pasta
     Brands at acquisition date ....................   34,020           --               --              --
Actual return on plan assets .......................      472            307             --              --
Employer contribution ..............................      816            260             --              --
Settlements ........................................     (883)          --               --              --
Benefits paid ......................................   (2,010)          (597)            --              --
                                                    -----------    ------------    ------------    -----------
Fair value of plan assets at end of year ........... $ 38,570          6,155             --              --
                                                    ===========    ============    ============    ===========
Funded status ......................................$      705        (1,629)         (3,546)         (1,119)
Unrecognized transition obligation .................       (3)            12             --              --
Unrecognized prior service cost ....................    --               180             --           (2,345)
Unrecognized net actuarial loss (gain) .............    3,158          1,533              95          (1,073)
Additional minimum pension liability ...............   (2,677)           (44)            --              --
                                                    -----------    ------------    ------------    -----------
Prepaid (accrued) benefit cost .....................$   1,183             52          (3,451)         (4,537)
                                                    ===========    ============    ============    ===========
Weighted-average assumptions:
Discount rate ......................................    6.75%           7.25%           6.75%           7.25%
Expected long-term rate of return on assets ........    8.72            9.50             N/A             N/A
Rate of increase in compensation levels ............    3.61            3.50             N/A             N/A
</TABLE>

                                      F22

<PAGE>

      For measurement purposes, a 9.25% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2001, decreasing
0.5% per annum until an ultimate rate of 5.75% in 2008.

      Accrued other benefit costs of $1.9 million and $5.1 million are included
in long-term liabilities at December 31, 2001 and 2000, respectively. $1.2
million and $291,000 of accrued other benefits are included in accrued expenses
at December 31, 2001 and 2000, respectively. $870,000 and $916,000 of prepaid
pension benefits are included in intangible assets and other assets, net at
December 31, 2001 and 2000, respectively.

      The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $21.4 million, $21.4 million and $17.8 million as
of December 31, 2001, respectively, and $7.8 million, $7.8 million and $6.2
million as of December 31, 2000, respectively.

      During 2001, the Company renegotiated two collective bargaining agreements
where, as part of the renegotiation, post-retirement benefits were eliminated.
This resulted in a settlement of post-retirement benefits of $4.4 million.

     Net periodic benefit costs include the following components:
<TABLE>
<CAPTION>

                                                                      For the years ended December 31,
                                          --------------------------------------------------------------------------
                                                  Pension Benefits                    Post-retirement Benefits
                                            2001         2000         1999         2001         2000          1999
                                          ---------    ---------    --------      --------    ---------     --------
                                                                        (in thousands)
<S>                                        <C>          <C>         <C>           <C>          <C>          <C>
Components of net periodic benefit cost
   Service cost .......................... $  459          239          240           49          64            113
   Interest ..............................  1,380          536          436          146          71             98
   Expected return on plan assets ........   (638)        (234)        (465)          --         --             --
   Amortization of net transition
     asset/obligation ....................     15           11         --             --         --             --
   Amortization of prior service cost ....    180           25           25         (184)      (260)           (260)
   Amortization of unrecognized net
      gain ...............................     41         --           --           --           --             --
   Asset gain (loss) deferred ............   (774)        (348)        --            (50)        (54)           --
   Recognized net actuarial loss (gain) ..   (298)          32          (23)          --         --             (71)
                                          ---------    ---------    ---------     --------    ---------     --------
   Corporate sponsored plans .............    365          261          213          (39)       (179)          (120)
   Multi-employer plans ..................     --         --            377           --         --             --
                                          ---------    ---------    ---------     --------    ---------     --------

                                            $ 365          261          590          (39)       (179)          (120)
                                          =========    =========    =========     ========    =========     ========
</TABLE>

     Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage point change in
assumed health care cost trend rates would have the following effects:

<TABLE>
<CAPTION>

                                           1 Percentage Point         1 Percentage Point
                                                Increase                   Decrease
                                          ----------------------     ----------------------
                                                           (in thousands)
<S>                                       <C>                        <C>
Effect on total service and interest
   cost components ......................         $ 19                       (16)

Effect on post-retirement benefit
   obligation ...........................          721                      (626)
</TABLE>

     The Company sponsors a defined contribution plan. For all eligible
employees, the Company will match 75% of the first 2% and 50% on the next 2% of
the employees' contribution. In addition, for all eligible salaried and certain
eligible non-salaried employees, the Company is required to make an annual
contribution into the plan equal to 5% of the employees' regular compensation.
The Company's total contribution for 2001, 2000 and 1999 was approximately $1.3
million, $1.2 million and $1.4 million respectively.

18.   Restructuring and Integration Costs

     During 2001, the Company recorded a restructuring and integration charge of
$20.1 million, including $17.4 million for restructuring and $2.7 million for
on-going integration costs. The restructuring relates to the closure of the
Company's

                                      F23

<PAGE>

manufacturing facilities in Lebanon, PA; Louisville, KY; and Omaha, NE in
connection with the integration of the Acquisition. The closing of the
facilities was announced in September 2001. The Lebanon plant ceased operations
during the fourth quarter of 2001. The Omaha and Louisville facilities are
expected to be closed in 2002. The restructuring anticipates that personnel
employed at the facilities will be displaced. Included in the restructuring
charge is a non-cash charge of $12.7 million for impairment of equipment, and
accruals for cash charges of $4.7 million as follows (in thousands):
<TABLE>
<CAPTION>
                                      Costs              Non-Cash              Cash             Remaining
                                     Incurred          Write-downs           Payments            Accrual
                                  ---------------    -----------------    ----------------    --------------
<S>                                <C>                  <C>                   <C>                <C>
Property, plant and
     equipment write-downs         $  12,699              (12,699)                --                 --
Severance costs                        2,804                   --             (1,243)              1,561
Contractual obligations and
     other facility exit costs         1,932                   --                (41)              1,891
                                  ---------------    -----------------    ----------------    --------------

Total restructuring charges           17,435              (12,699)            (1,284)              3,452

Integration costs                      2,691                   --             (2,691)                 --
                                  ---------------    -----------------    ----------------    --------------

Total restructuring and

     integration costs            $   20,126              (12,699)            (3,975)              3,452
                                  ===============    =================    ================    ==============
</TABLE>

     The integration costs are predominately equipment relocation costs related
to the Acquisition and the restructuring plan. The Company expects to incur
significant additional integration costs during 2002 as the restructuring plan
is completed. The Company anticipates that the remaining accrual as of December
31, 2001 will be paid within the next twenty-four months.

19.  Other Comprehensive Losses

     Other comprehensive losses are recognized as a component of stockholders'
equity in the consolidated balance sheet. The accumulated balances for each
component of comprehensive losses at December 31, 2001 are as follows (in
thousands):

                                                    December 31,
                                                        2001
                                                  -----------------
Other comprehensive losses:
     Foreign currency translation adjustment,
          net of tax of $189                         $   (311)
     Minimum pension liability adjustment,
         net of tax of $1,031                          (1,646)
     Net derivative losses, net of tax of
          $358                                           (583)
                                                  -----------------
Accumulated other comprehensive losses              $  (2,540)
                                                  =================

20.   Stock-Based Compensation

     On February 4, 2000, New World Pasta finalized an employment agreement with
John Denton for the position of Chairman of the Board and Chief Executive
Officer. As a provision of that agreement, Mr. Denton received 29,286 shares of
common stock and 792 shares of preferred stock. Of those shares, 11,714 shares
of common stock and 317 shares of preferred stock were restricted. The
forfeiture restrictions on these shares were to lapse over four years, in
amounts of 2,929 shares of common stock and 80 shares of preferred stock
annually. Tax withholding on the value of the shares originally received was
satisfied through a reduction in the issuance of unrestricted shares. As a
result, 17,572 common shares and 41 preferred shares were not issued in
connection with the agreement. Additionally, 76 preferred shares were
repurchased by the Company during 2000 to pay additional tax withholdings. The
76 shares were then cancelled by the Company. In 2001, the forfeiture
restrictions on the remaining restricted shares were removed. On July 31, 2001,
as a result of the Company's reclassification of its capital stock, each of the
preferred shares held by Mr. Denton was reclassified into 381.2829 shares of
common stock.

     Compensation expense was recognized upon the date of grant for the
unrestricted shares based on the estimated fair market value of each share and
amounted to approximately $651,000. Unearned compensation was recorded upon the
date of grant for the restricted shares based on the estimated fair market value
of each share and amounted to approximately $434,000. Compensation expense was
being charged to operations on a straight-line basis over the four-year
restriction period. As a result


                                      F24

<PAGE>

of the removal of the forfeiture restrictions, compensation expense of
approximately $344,000 was recognized in 2001. The employment agreement has a
provision which requires the repurchase of shares by the Company should Mr.
Denton's employment be terminated in accordance with provisions set forth in the
agreement.

21.   Commitments and Contingencies

      In the ordinary course of business, the Company is involved in various
pending or threatened litigation claims. Although the outcome of any legal
proceeding cannot be predicted with certainty, management believes that any
ultimate liability arising from such matters in the aggregate will not have a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.

        The Company and Miller Milling have entered into various milling
supplier and procurement arrangements which cover certain of the Company's durum
and semolina requirements. These supplier arrangements have various expiration
dates through December 31, 2009. John Miller, President and CEO of Miller
Milling, is a stockholder, through Miller Pasta LLC, and a Board member of New
World Pasta. Michael Snow, a Director of Miller Milling, is also a stockholder,
through Miller Pasta LLC, and a Board member of New World Pasta. C. Mickey
Skinner, a member of Miller Milling's Board of Directors, is a stockholder
through Miller Pasta LLC and a Board member of New World Pasta.

      New World Pasta is a party to employment agreements with certain executive
officers and directors of New World Pasta. The total amount due under these
agreements was $2.1 million and $2.4 million at December 31, 2001, and 2000,
respectively.

22.      Subsidiary Financial Information

      As of December 31, 2001, the Company had six wholly-owned subsidiaries
(collectively, the "Subsidiaries"). Certain of these Subsidiaries have, jointly
and severally, fully and unconditionally guaranteed the obligations of the
Company with respect to the Notes. The covenants of the Notes and the Credit
Facility do not restrict the ability of the Subsidiaries to make cash
distributions to the Company. Set forth below is consolidating financial
information for the parent company, subsidiaries that are guarantors of the
Notes and all other subsidiaries. The consolidating financial information may
not necessarily be indicative of the results of operations or financial position
had the Subsidiaries operated as independent entities.

<TABLE>
<CAPTION>
                                                                       Subsidiary
Balance Sheets                                                         Guarantors        All Other
                                                         Parent         of Debt        Subsidiaries         Total
                                                       -----------    -------------    --------------    ------------
                                                                                (in thousands)
<S>                                                    <C>            <C>              <C>               <C>
ASSETS
Current assets:
     Cash and cash equivalents                          $  1,114              20             1,993           3,127
     Trade and other receivables, net                     43,014             522            23,133          66,669
     Inventories                                          28,777           4,027             9,710          42,514
     Prepaid expenses and other current assets             1,379              11             1,461           2,851
     Deferred income taxes                                12,645             164              (138)         12,671
                                                       -----------    -------------    --------------    ------------

         Total current assets                             86,929           4,744            36,159         127,832
                                                       -----------    -------------    --------------    ------------

Property, plant and equipment, net                        72,348          37,963            16,702         127,013
Deferred income taxes                                     88,180              --              (921)         87,259
Intangible assets and other assets, net                   60,978          11,724             4,045          76,747
Deferred debt costs, net                                   7,323              --                --           7,323
                                                       -----------    -------------    --------------    ------------

         Total assets                                   $315,758          54,431            55,985         426,174
                                                       ===========    =============    ==============    ============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:

   Current portion of long-term debt                    $   1,285             --                --           1,285
   Accounts payable:
      Trade                                               23,069             677            23,372          47,118
      Related parties                                      3,484              --              (112)          3,372
      Intercompany                                       (24,838)           (478)           25,316              --
   Accrued interest expense                                5,469              --                --           5,469
   Accrued marketing expense                               8,481              --             2,161          10,642
   Other accrued expenses                                 16,033             343             3,122          19,498
                                                       -----------    -------------    --------------    ------------

         Total current liabilities                        32,983             542            53,859          87,384
                                                       -----------    -------------    --------------    ------------
Long term-debt, less current maturities                  326,559              --                --         326,559
Employee benefit liabilities                               9,915              --             1,072          10,987
</TABLE>


                                      F25

<PAGE>

<TABLE>


<S>                                                    <C>            <C>              <C>               <C>
Other long-term liabilities                                4,157              --             1,865           6,022
                                                       -----------    -------------    --------------    ------------
                  Total liabilities                      373,614             542            56,796         430,952
                                                       -----------    -------------    --------------    ------------
Mandatorily redeemable common stock                          792              --                --             792
Stockholders' deficit:
    Intercompany                                         (53,714)         53,714                --              --
    Common stock                                             483              --                --             483
    Additional paid-in-capital                           299,309              --                --         299,309
    Accumulated other comprehensive loss                  (2,188)             --              (352)         (2,540)
    Accumulated deficit                                 (302,538)            175              (459)       (302,822)
                                                       -----------    -------------    --------------    ------------
          Total stockholders' equity (deficit)           (58,648)         53,889              (811)         (5,570)
                                                       -----------    -------------    --------------    ------------
Total liabilities and stockholders' equity (deficit)    $315,758          54,431            55,985         426,174
                                                       ===========    =============    ==============    ============
Statements of Operations

Net sales                                               $302,472          50,260            47,016         399,748
Cost of sales                                            164,303          32,537            34,404         231,244
                                                       -----------    -------------    --------------    ------------
Gross profit                                             138,169          17,723            12,612         168,504
Selling and marketing expenses                            86,799          15,599            11,771         114,169
General and administrative expenses                       12,877           1,580             1,113          15,570
Restructuring and integration costs                       20,136             (10)               --          20,126
                                                       -----------    -------------    --------------    ------------
Income from operations                                    18,357             554              (272)         18,639
Other income                                               8,136              --                --           8,136
Interest expense, net                                    (28,948)            (12)             (188)        (29,148)
                                                       -----------    -------------    --------------    ------------
Income (loss) before income taxes                         (2,455)            542              (460)         (2,373)
Income tax expense (benefit)                                (507)            367                --            (140)
                                                       -----------    -------------    --------------    ------------
Net income (loss)                                      $  (1,948)            175              (460)         (2,233)
                                                       ===========    =============    ==============    ============
Statement of Cash Flows

Cash flows from operating activities:
    Net income (loss)                                  $  (1,948)            175              (460)         (2,233)

    Adjustments to reconcile net income (loss) to
       net cash provided by operating activities:
    Depreciation and amortization                         15,231              --             1,132          16,363
    Non-cash interest expense                              2,221              --                --           2,221
    Effect of non-cash charges for equipment writedowns   12,699              --                --          12,699
    Amortization of deferred debt costs                    1,406              --                --           1,406
    Compensation expense from issuance of stock              344              --                --             344
    Deferred income taxes                                 (1,013)             --                --          (1,013)
    Changes in assets and liabilities, net of effect
       of acquisition:
     Trade and other receivables                         (24,833)            112           (10,024)        (34,745)
     Inventories                                          (2,911)             --             2,122            (789)
     Prepaid expenses and other warrant assets             1,093            (175)             (515)            403
     Other long-term assets                               (3,227)            164             2,947            (116)
     Accounts payable                                     14,811             219             7,240          22,270
     Accrued interest expense                               (549)             --                --            (549)
     Accrued marketing expense                            (4,742)             --             1,190          (3,552)
     Other accrued expenses and other liabilities         (4,077)           (475)             (318)         (4,870)
                                                       -----------    -------------    --------------    ------------
Net cash provided by operating activities                  4,505              20             3,314           7,839
                                                       -----------    -------------    --------------    ------------
Cash flows from investing activities:
    Purchase of business, net of cash acquired           (49,883)             --                --         (49,883)
    Acquisition of property, plant and equipment         (10,342)             --            (1,321)        (11,663)
                                                       -----------    -------------    --------------    ------------
    Net cash used in investing activities                (60,225)             --            (1,321)        (61,546)
                                                       -----------    -------------    --------------    ------------
Cash flows from financing activities:
    Proceeds from issuance of debt                        41,044              --                --          41,044
    Repayment of debt                                     (3,147)             --                --          (3,147)
    Deferred debt costs                                     (752)             --                --            (752)
</TABLE>


                                      F26

<PAGE>

<TABLE>

<S>                                                    <C>            <C>              <C>               <C>
    Issuance of warrants                                  10,746              --                --          10,746
                                                       -----------    -------------    --------------    ------------
    Net cash provided by financing activities             47,891              --                --          47,891
                                                       -----------    -------------    --------------    ------------
Effect of exchange rate changes on cash                     (599)             --                --            (599)
                                                       -----------    -------------    --------------    ------------
Net increase (decrease) in cash and cash equivalents      (8,428)             20             1,993          (6,415)
Cash and cash equivalents at beginning of year             9,542              --                --           9,542
                                                       -----------    -------------    --------------    ------------
Cash and cash equivalents at end of year               $    1,114             20             1,993           3,127
                                                       ===========    =============    ==============    ============
</TABLE>

23. Quarterly Financial Data - Unaudited

    Summary quarterly results were as follows (in thousands):

<TABLE>
<CAPTION>
                                         First            Second           Third           Fourth
                                        Quarter          Quarter          Quarter          Quarter          Total
                                      -------------    -------------    -------------    ------------    -------------
<S>                                    <C>               <C>              <C>              <C>            <C>
Year ended December 31, 2001:
   Net sales                           $ 76,355           69,617          114,023          139,753         399,748
   Gross profit                          33,951           30,175           48,633           55,745         168,504
   Income (loss) from operations          7,589            7,163           (6,971)          10,858          18,639
   Net income (loss)                        266              176          (10,670)           7,995          (2,233)

Year ended December 31, 2000:
   Net sales                           $ 81,999           72,448           75,138           70,444         300,029
   Gross profit                          36,950           31,633           33,074           32,822         134,479
   Income from operations                 5,237            3,079            7,445           10,481          26,242
   Net income (loss)                     (1,068)          (2,697)               1            2,045          (1,719)
</TABLE>

     The above quarterly financial data reflect retroactive application of the
new accounting method discussed at Note 5.


                                      F27