Monterey Pasta Company today [Monday] reported net income for the quarter ended 30 June of US$1.1m, or US$0.07 per share, on net revenues of US$13.794m, based on 14.8 million diluted shares outstanding.

This compares with a net income of US$833,000 for the quarter ended 1 July, 2001, which resulted in earnings of US$0.06 per share, on net revenues of US$13,396,000, based on 14.2 million diluted shares outstanding. The 2002 net income number reflects a 12.0% combined State and Federal tax rate for book purposes, while the 2001 before tax income number was taxed for book purposes at 38.5%. Adjusting the 2002 income before tax for the same rates applicable in 2001 results in comparable net income of US$769,000, and earnings per share of US$.05, a decrease of US$.01 per share when compared with second quarter 2001.

Sales before reclassification of certain selling expenses as required by Emerging Issues Task Force Issue 01-09 ("Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products.") were US$14,334,000 for the quarter as compared with US$14,012,000 for second quarter 2001, an increase of 2%. After reclassification of the selling expenses, second quarter 2002 sales were US$13,794,000, an increase of 3% from the adjusted 2001 second quarter sales of US$13,396,000.

On a year-to-date basis Monterey Pasta's net income of US$3,087,000 on sales of US$29,856,000 and diluted shares of 14.7 million, resulted in earnings per share of US$.21, compared with 2001 results, which showed net income of US$2,058,000 or US$.14 per share on sales of US$27,577,000 and 14.2 million diluted shares outstanding. Applying a level of taxation to the 2002 net income, consistent with the 2001 rate, results in a proforma year-to-date 2002 net income of US$2,157,000, or US$.15 per share. After adjusting for consistent taxation, the proforma year-to-date 2002 net income represents a 5% increase over the 2001 results.

Quarterly gross profit was 35.7% compared with 33.7% for the prior year, an improvement of 2.0%. Selling general and administrative expenses were 26.9% in second quarter 2002, compared with 23.8% in second quarter 2001. Operating income was 8.8%, down 1.1% compared with 9.9% for second quarter 2001. To enable the investor to better understand the impact of the reclassifications in analysing current versus historical performance, a table has been attached to this press release. The table presents the financial results for second quarters 2002 and 2001 and year-to-date results, both before and after reclassification of selling expenses. On a comparable basis with 2001, before reclassification of selling expenses, quarterly gross profit was 38.1% compared with 36.6% the prior year, selling, general and administrative expenses were 29.6% of sales compared with 27.1% the prior year, and operating income was 8.5% compared with 9.5%.

Commenting on the results, Lance Hewitt, Chief Executive Officer and President, said, "This was a challenging quarter, which was influenced by weak sales growth and a per share impact of US$.01 for one-time expenses related to the employees' rejection of a union organising effort. However, we feel good about our prospects for the future. The dairy ingredients and energy pricing issues, which plagued us a year ago, are not an issue at this time, nor are the plant issues we faced a year ago. These improvements have favourably influenced our gross margins. If sales grow as expected over the next six months, we should see a significant improvement in profitability over the remainder of the year, before one-time expenses associated with the search for a new President."

Founded as a regional brand, Monterey Pasta now has national distribution in over 7,500 retail and club stores throughout the United States and selected regions of Canada. Monterey Pasta manufactures USDA inspected, fresh gourmet refrigerated food products at its integrated 130,000 square foot corporate headquarters, distribution, and manufacturing facilities in Salinas, (Monterey County) CA.