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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 JUNE 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO _______________
COMMISSION FILE NUMBER 0-25294
RIVIANA FOODS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0177572
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
2777 ALLEN PARKWAY
HOUSTON, TX 77019-2141
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 529-3251
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(TITLE OF CLASS )
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 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 the 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. [ ]
As of August 31, 1998 the aggregate market value of the Registrant's voting
stock held by non-affiliates of the Registrant was approximately $138,862,000.
The number of shares of Common Stock of the Registrant, par value $1.00 per
share, outstanding at August 31, 1998 was approximately 15,460,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders to be held October 21, 1998 (the "Proxy Statement")
are incorporated by reference into Part III, Items 10, 11, 12 and 13.
================================================================================
PART I
ITEM 1. BUSINESS.
Riviana Foods Inc. ("Riviana", the "Company", or the "Registrant")
was incorporated on January 31, 1986. The Company's predecessors date back to
1911 when Frank A. Godchaux began the amalgamation of 25 rice mills in southwest
Louisiana.
Riviana processes, markets and distributes rice products in the United
States, cookies, crackers, fruit juices, nectars and drinks, and processed
fruits and vegetables in Central America, and rice and other food products in
Europe. For fiscal 1998, the Company's domestic operations accounted for
approximately 61% and 66% of net sales and operating income before general
corporate expenses, respectively, and international operations accounted for
approximately 39% and 34% of net sales and operating income before general
corporate expenses, respectively. Financial segment information by geographic
area for the most recent three fiscal years is set forth in Item 8, Note 12,
"Segment information."
Riviana's domestic operations consist primarily of sales of retail branded
and private-label rice products, sales of rice products to retail food service
chains, sales of rice and rice by-products to major food processors and other
industrial users and exports of branded and value-added rice products to Puerto
Rico and a number of international markets. Sales of retail branded and
private-label rice products represent the most significant component of the
Company's domestic operations, accounting for approximately 45% of the Company's
total net sales during fiscal 1998.
By volume, Riviana is the largest seller of retail branded and
private-label rice products in the United States, offering a variety of products
in each of the retail rice industry's four categories: dried rice (milled white
and parboiled rice), instant rice (rice that cooks in 10 minutes or less),
prepared rice (specialty mixes) and brown rice.
The Company's domestic sales by hundredweight ("cwt") of retail rice
products have grown at a compound annual rate of 5% from fiscal 1994 to 1998.
The Company believes its consistent growth has resulted from its longstanding
national presence and reputation for quality, and its ability to develop and
market easy-to-prepare, value-added instant and specialty mix products. Sales of
instant and specialty mixes have increased at a compound annual rate of 4% from
fiscal 1994 to 1998.
The Company markets its branded products under a number of nationally
recognized brand names including:
Mahatma(R)-- the best selling brand in the U.S. for nine years.
Success(R) -- the leading brand of instant boil-in-bag rice and the
second leading brand of instant rice in the U.S.
Carolina(R)-- one of the top leading brands of packaged long grain
rice in the northeastern and mid-Atlantic U.S.
WaterMaid(R) -- the leading brand of medium grain rice in the south
and southeastern U.S.
River(R) -- the top-selling brand of packaged medium grain rice in
several northeastern and mid-Atlantic U.S. markets.
Riviana also markets a variety of easy-to-prepare, flavored rice mixes
under the Mahatma(R), Carolina(R) and Success(R) brand names, including
Mahatma(R) brand Yellow Rice, Red Beans & Rice, Spanish Rice and Black Beans &
Rice, Carolina(R) brand Yellow Rice, Black Beans & Rice and Pilaf Rice, and
Success(R) brand Brown & Wild Rice, Broccoli & Cheese Rice and Red Beans & Rice.
In addition to its branded products, the Company supplies a full range of
private-label rice products -- dried rice, instant rice, rice mixes and brown
rice -- to numerous food retailers, including 19 of the top 20 supermarket
chains in the United States. In July 1998, the Company also began marketing and
distributing retail rice products in the United States and the Bahamas for
Riceland Foods, Inc., with whom it also participates in rice flour milling and
co-generation projects.
1
The Company supplies parboiled and instant rice in bulk to a number of the
nation's major food processors for use as an ingredient in other food products.
The Company also markets a range of food service products, principally instant
rice, parboiled rice, and rice mixes, to several of the top restaurant chains
and food service companies in the United States, and sells bulk rice and rice
by-products to industrial users.
Riviana exports brand name and value-added rice products to Puerto Rico and
a number of foreign countries. The Company's Puerto Rican brands, El Mago(R),
Sello Rojo(R) and Mahatma(R), represent approximately 20% of the total Puerto
Rican retail rice market, where per capita rice consumption is approximately
five times the United States level. The Company also exports brand-name and
private-label rice products to Canada, Mexico and countries in the Caribbean,
Europe, Africa and the Middle East.
The Company's Costa Rican subsidiary, Pozuelo, S.A. ("Pozuelo"), is one of
the largest manufacturers of cookies and crackers in Central America. Costa Rica
is Pozuelo's largest market, followed by Guatemala and El Salvador. The Company
has committed significant resources to Pozuelo in the past five years to
modernize its facilities and convert it into a modern, efficient baking
operation. Pozuelo's principal brands are Riviana Pozuelo(R) soda crackers and
saltines, Bokitas(R) oil sprayed crackers, Familia(R) assortments of sweet
biscuits, and Chiky(R), which is a chocolate-enrobed sweet biscuit. Many of
these products are market leaders in Central America. Pozuelo's sales, expressed
in dollars, have grown at a compound annual rate of 6.5% for the past five
fiscal years.
The Company's Guatemalan subsidiary, Alimentos Kern de Guatemala, S.A.
("Kern"), is one of the largest fruit and vegetable processing operations in
Central America. Kern produces a wide variety of products, including fruit
nectars and juices, fruit drinks, tomato products (sauces, ketchup and paste),
canned vegetables and refried beans under the Kern's(R), Ducal(R), Fun-C(R) and
Koolfrut(R) brands. Kern's products are sold principally in Central America with
its largest markets being Guatemala, Costa Rica and El Salvador. Exports,
including refried beans exported to the United States, represent a growing part
of Kern's business. Many of Kern's primary brand name products are market
leaders in Central America in their respective categories. Kern's sales,
expressed in dollars, have grown at a compound annual rate of 5.0% for the past
five fiscal years.
The Company's subsidiaries in Central America accounted for approximately
17% of net sales and 26% of operating income before general corporate expenses
in fiscal 1998.
The Company's Belgian subsidiary, N & C Boost N.V. ("N&C"), competes in the
continental European rice market through its management of Boost Distribution
C.V. ("Boost"). Boost is accounted for as an unconsolidated affiliate and is
jointly owned by N&C and Arrocerias Herba, S.A., a major European rice miller
and marketer. Boost buys parboiled and regular brown rice in bulk, which it then
mills, packages and markets under its own and private-label brand names and in
bulk. Boost markets its own brand name, Bosto(R), which is a leading brand of
consumer packaged rice in Belgium. Boost's Boss(R) brand canned cream rice is
the leading canned creamed rice in Belgium. Boost also distributes bulk and
private-label packaged rice to major retailers in Europe. The Boost joint
ownership agreement provides that after January 1, 1997, each party has certain
rights to buy the other's interest or require the other to buy its interest. N&C
also owns a one-third interest in Herto N.V., a major European rice cake
manufacturer.
Stevens & Brotherton Ltd. ("S&B"), the Company's United Kingdom
subsidiary, is a distribution company that distributes a variety of brand name
and private-label products including rice, and canned fruits, vegetables and
meats to retail, wholesale, food service and industrial customers in the United
Kingdom. S&B also sells branded dried fruits and nuts from Sun-Diamond Growers
of California and Welch's Concord grape juice. The products distributed by S&B
are all produced by other manufacturers and generate a lower gross profit margin
than other Riviana operations.
The Company's European operations accounted for approximately 22% of net
sales and 8% of operating income before general corporate expenses in fiscal
1998.
Financial segment information by geographic area for the most recent three
fiscal years is set forth in Item 8, Note 12, "Segment information."
2
The Company is exposed to certain political, economic and other risks
inherent in doing business abroad, including exposure to currency exchange rate
fluctuations, currency exchange restrictions, potentially unfavorable changes in
tax or other laws, partial or total expropriation, and the risks of war,
terrorism and other civil disturbances. Additional information related to this
matter is set forth in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" under the caption "General."
The Company's strategies for minimizing the effect of currency rate fluctuations
are to borrow in local currencies, denominate accounts receivable in local
currencies and hedge certain short-term foreign product procurement commitments
with specific currency exchange contracts. Currency rate fluctuations have not
materially impacted the historical results of operations. The functional
currencies of the Company's foreign subsidiaries are the local currency of each
subsidiary.
The Company has a large customer base that includes retail supermarket
chains, wholesalers, industrial ingredient users, restaurant chains, breweries
and other food processors. No customer, domestic or international, accounted for
more than 5% of the Company's consolidated revenues in fiscal 1998.
In the United States, the Company supports its branded business primarily
with regional media advertising and trade and consumer promotions, including
significant coupon and product tie-in programs. These programs are coordinated
by Company marketing and sales departments through nine regional managers and a
national network of food brokers.
The Company's sales of retail rice products are executed on a purchase
order basis, although the Company does have a limited number of short-term (one
year or less) contracts under which it supplies rice products to industrial and
international customers. The Company's sales of retail rice products are
conducted through independent food brokers, who are coordinated by the Company's
regional sales managers. Products are distributed through a nationwide network
of Company and public warehouses.
The Company buys rough rice from a variety of farm sources, primarily in
Arkansas and Louisiana. No single source accounts for more than 13% of rough
rice purchases. In addition to milling rice in its own facilities, the Company
purchases significant amounts of rice milled to the Company's specifications
from a number of the leading rice milling companies in the United States. In
fiscal 1998, 81% of the Company's milled rice purchases were from three
suppliers. The Company believes adequate alternative sources of supply are
readily available.
The Company's competitive position depends largely on continued consumer
brand loyalty and its ability to introduce and gain customer acceptance for new
products. The Company competes with three major industry leaders and with
several regional competitors on the basis of price, quality, brand name
recognition, availability of products, and product innovation.
Mars, Inc., through its subsidiary Uncle Ben's, Inc., is the largest seller
of branded rice in the industry measured in dollars. The Company is the industry
leader in sales of branded rice measured by volume. Kraft General Foods Inc., a
subsidiary of Philip Morris Companies, Inc., produces the leading brand of
instant rice (Minute), and The Quaker Oats Company produces the leading brand of
rice mixes (Rice-A-Roni).
The Company's Central American subsidiaries have local competitors, some of
which are affiliated with multinational companies. New competition has come from
an influx of international brands imported from the United States, Mexico and
South America attributable largely to declining import duties in Central
America.
In Belgium, Boost competes with branded products from Master Foods (a
subsidiary of Mars, Inc.) as well as branded products packaged by other European
millers and processors. In the United Kingdom, S&B competes with European rice
millers, including mills in the United Kingdom, from which it also purchases
rice, for its share of the rice market. In the private-label market for products
other than rice, S&B competes with importers representing world-wide
manufacturing operations that process fruits, vegetables and other food
products.
Although the Company is not involved in rice farming, certain government
regulations affecting United States rice farmers have an impact on the Company's
cost of raw materials. Substantially all rice grown in the United States is
influenced by government programs.
3
In April 1996, the Federal Agriculture Improvement and Reform Act ("1996
Farm Bill") was enacted to replace the 1990 predecessor, the Food, Agriculture,
Conservation and Trade Act of 1990 ("1990 Farm Bill"). The 1996 Farm Bill
provides marketing loans and agricultural marketing transition payments (as
defined) to qualifying farmers for seven years beginning with the 1996 crop. The
agricultural market transition payments range on a declining scale from $2.75
per cwt for the 1996 crop to $2.03 per cwt in 2002 and replace similar payments
of the 1990 Farm Bill. Unlike the payments under the 1990 Farm Bill, the
agricultural market transition payments are fixed without reference to price
levels. Other important provisions of the 1996 Farm Bill include the elimination
of acreage reduction incentives and increased flexibility of farmers to plant
different crops other than rice as market conditions warrant. The changes
introduced by the 1996 Farm Bill may have a significant impact on the supply and
price level of rice grown in the United States.
The Company is subject to various federal, state and local environmental
laws and regulations concerning air quality, water quality, and the generation,
use and disposal of materials relating to plant operations and to the processing
of rice. The Company procures and maintains the necessary environmental permits
and licenses in order to operate its facilities and considers itself to be in
compliance in all material respects with those environmental laws and
regulations currently applicable to its business and operations. Such compliance
has not materially affected the Company's business, financial condition or
results of operations.
The manufacture and marketing of the Company's products are subject to
regulation in the United States by federal regulatory agencies, including the
Environmental Protection Agency, the Occupational Safety and Health
Administration, the Food and Drug Administration ("FDA"), and by various state
and local authorities. The FDA also regulates the labeling of the Company's
products. The Company's operations outside the United States are subject to
similar regulation in a number of countries. Compliance with existing
requirements of such governmental bodies has not materially affected the
Company's capital expenditures, earnings or competitive position.
The Company's brands are protected by numerous trademark registrations in
the United States and foreign jurisdictions. The Company believes that its
registered trademarks have significant value, and are adequate to protect the
brand names significant to its business.
As of August 31, 1998, the Company employed approximately 2,656 employees,
23% of whom were covered by collective bargaining agreements. In Houston, Texas,
the Company is a party to collective bargaining agreements with General Drivers,
Warehousemen and Helpers Teamsters Local Union No. 968, covering a total of 234
employees. In Memphis, Tennessee, the Company is a party to a collective
bargaining agreement with Teamsters Local Union No. 1196 covering 102 employees.
In Guatemala, Kern is a party to a collective bargaining agreement with a local
union covering 287 employees. The Company believes its labor relations are good.
4
ITEM 2. PROPERTIES.
The following table lists the Company's principal properties, all of which
are owned unless otherwise indicated.
LOCATION NATURE OF FACILITY SQUARE FOOTAGE
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Houston, Texas........................................ Processing, packaging, technical 170,600
center, warehouse
Houston, Texas(1)..................................... Corporate headquarters 52,100
Abbeville, Louisiana.................................. Processing, packaging, warehouse 137,200
Memphis, Tennessee.................................... Packaging, warehouse 99,700
Carlisle, Arkansas.................................... Processing 47,500
Jonesboro, Arkansas(1)................................ Operations, gasification, storage for 6,000
rice hulls
Stuttgart, Arkansas(1)................................ Operations, gasification, storage for 36,705
rice hulls
Edison, New Jersey(1)................................. Warehouse 99,902
Orpington, England(1)................................. Trading office 11,100
Bristol, England(2)................................... Distribution 210,000
San Jose, Costa Rica.................................. Production, packaging, warehouse 257,000
Guatemala City, Guatemala............................. Production, packaging, warehouse 267,000
- ------------
(1) Leased facility.
(2) Contracted space and services.
In addition to the properties listed in the table, the Company owns six
drying and storage facilities strategically located in the rice growing region
of the southeastern United States, and leases warehouse facilities in Houston
and Memphis.
ITEM 3. LEGAL PROCEEDINGS.
The Company is from time to time subject to claims and suits arising in the
ordinary course of business. The Company is not currently a party to any
proceeding which, in management's opinion, would have a material adverse effect
on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the fiscal year ended June 28, 1998, no matter
was submitted to a vote of the stockholders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information relating to the Company's common stock is set forth in Item 8
in Note 10, "Capital stock", and in Note 13, "Selected quarterly financial
data (unaudited)."
On August 28, 1998, the Board of Directors declared a quarterly cash
dividend of $.11 per common share payable October 13, 1998 to stockholders of
record on September 8, 1998.
The Company has a continuing stock repurchase program. The program
authorizes the repurchase of up to 1,500,000 shares of the Company's common
stock from time to time. As of August 31, 1998, the Company had repurchased
514,500 shares. The Company expects to finance any future repurchases from
working capital, unused short-term credit lines and cash flow from operations.
5
ITEM 6. SELECTED FINANCIAL DATA.
The following table represents selected consolidated financial data for the
Company and its subsidiaries for each of the five fiscal years 1994 through
1998. All amounts are in thousands except per
share data.
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
INCOME STATEMENT DATA:
Net sales....................... $ 454,012 $ 460,183 $ 440,492 $ 427,229 $ 419,143
Income before extraordinary
item.......................... 22,590 20,025 18,342 14,931 17,480
Net income...................... 22,590 20,025 18,342 14,931 16,443
Earnings per share:
Income before extraordinary
item
Basic................. 1.44 1.27 1.16 0.96 1.14
Diluted............... 1.42 1.26 1.15 0.96 1.14
Net income
Basic................. 1.44 1.27 1.16 0.96 1.07
Diluted............... 1.42 1.26 1.15 0.96 1.07
BALANCE SHEET DATA (AT END OF YEAR):
Total assets.................... $ 205,328 $ 191,889 $ 182,504 $ 175,683 $ 175,635
Short-term debt and current
maturities of long-term
debt.......................... 2,705 6,874 13,031 13,276 31,597
Long-term debt, net of current
maturities.................... 1,861 2,619 3,644 2,372 2,432
Total debt...................... 4,566 9,493 16,675 15,648 34,029
Stockholders' equity............ 137,744 127,076 116,506 106,795 90,654
Dividends paid per share........ 0.4200 0.3800 0.3466 0.2499 0.2000
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the related notes.
GENERAL
The Company operates on a 52/53-week fiscal year ending on the Sunday
closest to June 30th. This period is utilized because it closely coincides with
the rice crop year in the southern United States and rice is the largest
component of the Company's business.
The Company utilizes derivative financial instruments as hedges to manage a
portion of its exposure to currency fluctuations related to inventory purchases.
These instruments qualify for hedge accounting treatment and, accordingly, gains
and losses on these instruments are deferred and included in the basis of the
inventory hedged. The Company enters into forward exchange contracts to hedge
specific product commitments. The contracts have varying maturities with none
exceeding twelve months and are settled at maturity, based on rates agreed to at
the inception of the contracts. At June 28, 1998, the Company had established
bank lines available to purchase forward exchange contracts in the amount of
$41.6 million, of which $14.5 million was outstanding. Gains and losses deferred
in outstanding instruments at year-end were immaterial. As a matter of policy,
the Company does not engage in foreign currency speculation and does not hedge
to protect the translated results of foreign operations or other economic
exposures for which speculative accounting treatment of the hedging instrument
would be required.
The Company operates in various foreign countries and is therefore subject
to currency fluctuations. Changes in the value of the United States dollar
against these currencies will affect the Company's results of operations and
financial position. When the United States dollar strengthens compared to other
local
6
currencies, the operating results of the Company's foreign units translate into
fewer United States dollars, thus decreasing the revenues and expenses of the
Company on a consolidated basis. If the United States dollar weakens against the
other relevant currencies, the opposite occurs. The Company's foreign units
attempt to minimize the effects of currency risk by borrowing externally in the
local currency and by hedging their limited purchases made in foreign currencies
when that option is available. As a matter of policy, the Company does not
engage in currency speculation. Changes in exchange rates historically have not
materially impacted the Company's net sales, costs or business practices and
management expects this to continue.
Inflationary conditions in the United States and Europe have been moderate
and have not had a material impact on the results of operations or financial
position for the three years ended June 28, 1998. Despite higher inflationary
rates in Central America, inflation has not had a material impact on the results
of operations or financial position of the Company's units located in that
region because the Company has generally been able to pass on cost increases to
its customers.
The Company includes in domestic operations all export sales originating
from the United States and sales in Puerto Rico.
FISCAL 1998 COMPARED TO FISCAL 1997
For the fiscal year ended June 28, 1998, sales declined $6.2 million or
1.3% to $454.0 million from $460.2 million for the previous fiscal year. In the
prior year, the Company entered into a joint venture with a major rice milling
company in Arkansas, which began operations in the fourth quarter of the prior
year. The joint venture is involved in the cogeneration of steam and electricity
using rice hulls as fuel. This unit added $2.2 million to sales in the current
year reflecting a full year's operation compared to only one quarter in the
prior year. Excluding the effect of the cogeneration business, sales for the
period ended June 28, 1998 declined by $8.4 million or 1.8% to $451.1 million
from $459.5 last year. Increased volumes added $2.5 million to sales while a
combination of price and product mix reduced sales by $7.6 million and
unfavorable currency translation reduced sales a further $3.3 million. In the
domestic rice business sales of $276.1 million decreased $0.2 million or 0.1%
from the prior year sales of $276.3 million. Despite competitive market
conditions and declining total-market category sales, the Company's retail
sector sales increased by $1.3 million to $203.9 million in fiscal 1998 from
$202.6 million in the prior year. Within the retail sector, sales of regular
rice increased by $1.5 million or 1.5% due primarily to a unit volume increase
of 4.5% that added $2.8 million to sales while the product mix decreased sales
by $1.3 million. Sales of value-added products decreased by $0.4 million or 0.4%
despite a 1.0% increase in unit volume sales due primarily to competitive market
conditions. Sales of brown rice increased over the prior year by $0.2 million
due to a 3.5% increase in unit volumes. In the non-retail sector, sales
decreased $1.5 million or 2.0%. Sales increased $2.0 million or 33.5% in the
foodservice sector with increased volumes adding $3.7 million and a change in
the product mix reducing sales by $1.7 million. The industrial sector recorded a
22.7% increase in unit volumes and a $1.5 million or 15.6% increase in sales. In
the lower margin export/commodity sector, sales declined by $5.0 million or
8.7%. Lower volumes reduced sales by $3.0 million and a combination of price and
product mix decreased sales a further $2.0 million. Sales in Central America
increased $1.5 million or 1.9% to $76.3 million compared to $74.8 million in the
prior year. Higher volumes were recorded in both fruit nectar and juice products
and cookie and cracker product lines. In total, higher volumes increased sales
by $2.6 million. Higher prices, particularly in the cookie and cracker product
lines, increased sales by $4.1 million and unfavorable currency translation
reduced sales by $5.3 million. In Europe, sales declined by $9.7 million or 8.9%
to $98.7 million from $108.4 million last year. Lower unit volumes decreased
sales by $6.0 million as the Company continued to eliminate sales of certain
lower margin products. A combination of price and product mix reduced sales by
$5.6 million and favorable currency translation increased sales by $2.0 million.
Gross profit increased by $3.7 million or 3.0% to $129.0 million from
$125.3 million a year ago and increased as a percentage of sales to 28.4% from
27.2% due to higher percentage margins in all segments of the business. In the
domestic rice business gross profit increased $0.6 million or 0.7% to $94.0
million from $93.4 million in the same period last year. Gross profit increased
primarily as a result of the product mix of
7
sales and reduced rice costs. In the domestic rice business, gross profit as a
percentage of sales increased to 34.1% from 33.8%. The domestic energy
cogeneration operations essentially broke even at the gross profit level. As
anticipated, initial operating costs in the start-up phase were high. Gross
profit in Central America improved by $2.3 million or 10.7% to $24.6 million,
and also improved as a percentage of sales to 32.3% from 29.7% in the prior
year. Gross profit on the sale of cookie and cracker products increased over the
prior year due mostly to improved operating efficiencies. Margins in the
Company's fruit nectar and juice products were up reflecting improvements in
operating efficiencies and increased volumes. In Europe gross profit increased
by $0.8 million or 8.7% to $10.4 million and increased as a percentage of sales
to 10.6% from 8.9% last year. The increase in gross margin was due to improved
margins on the ethnic rice business and the elimination of lower margin
products.
Operating income increased $0.8 million or 2.7% to $30.9 million from $30.1
million in the same period last year. As a percentage of sales, operating income
increased to 6.8% from 6.5% in the prior period. The increase in operating
income was principally due to improved results in Europe and Central America and
$0.2 million lower general corporate expenses. The improvement in European
operations of $0.9 million was related to the improved gross profit as discussed
previously. Operating income in the domestic rice business decreased by $0.8
million or 3.0% to $26.3 million. Competitive market conditions required
additional advertising and promotional spending of $1.0 million which more than
offset the $0.6 million improvement in gross profit. In Central America,
operating income increased by $0.6 million or 6.4% to $10.5 million. The
increase in gross profit of $2.3 million was partially offset by increased
selling and administrative expenses of $1.7 million related to expanded
distribution and new product introductory costs.
Other income of $2.1 million increased by $2.2 million from the prior year
when the category reflected a net expense of $0.1 million. Net interest income
of $0.4 million for the current period improved by $1.8 million from the prior
period's net interest expense of $1.4 million. Improved cash flow and declining
international interest rates were the main factors affecting this item. Equity
in the earnings of unconsolidated affiliates of $1.4 million was $0.6 million
higher than the same period last year. In the prior year, a provision of $0.8
million was made to cover the expected loss on the disposition of an
unconsolidated affiliate. Also, gain on the sale of marketable securities was
$0.1 million lower than the same period last year.
Income tax expense of $10.0 million reflected an increase of $0.4 million
from the same period last year and the effective rate decreased to 30.2% from
31.9%. This decrease in the rate reflected energy tax credits related to the
Company's cogeneration joint venture and Central American investment tax
credits.
The Company periodically reviews estimated useful lives of property, plant
and equipment. Based on the most recent review, the Company determined that
actual lives for certain machinery and equipment were generally longer than the
useful lives for depreciation purposes. Therefore the Company extended the
estimated useful lives of those assets from 10 to 15 years, effective June 30,
1997. This change in estimate reduced depreciation expense for the fiscal year
ended June 28, 1998 by $1.7 million and increased net income by $1.1 million,
and diluted earnings per share by $0.07.
Net income for the current year increased $2.6 million or 12.8% to $22.6
million from $20.0 million in the prior fiscal year. Diluted earnings per share
were $1.42, up from $1.26 in the prior period.
FISCAL 1997 COMPARED TO FISCAL 1996
Sales in fiscal 1997 advanced to $460.2 million, which is an increase of
$19.7 million or 4.5% over sales of $440.5 million in fiscal 1996. Domestic
sales increased 8.9% or $22.6 million to $277.0 million in fiscal 1997 from
$254.4 million last year. During the year the Company entered into a joint
venture with a major rice milling company in Arkansas. The joint venture is
involved in the cogeneration of steam and electricity using rice hulls as fuel.
This venture added $0.7 million to domestic sales in the current year. In the
domestic rice business, unit volumes increased by 9.5% accounting for $14.6
million of the increase in sales. A combination of product mix and higher prices
added $7.3 million to sales. Sales increases were recorded in all sectors of the
domestic rice business with the exception of the industrial sector where strong
8
competition limited growth and volumes declined from the previous year. The
retail sector recorded strong unit volume growth of 11.6% and sales increased by
$13.4 million with $11.9 million of that increase related to the higher volumes.
The export and commodity sectors also recorded good growth with sales increasing
by $6.2 million and $5.7 million, respectively. Of the total increase of $11.9
million in these two sectors, $5.8 million was volume related and $6.1 million
was related to product mix and higher prices. In the industrial sector sales
declined by $4.2 million with $4.0 million related to lower volumes. In the
foodservice sector, sales increased by $0.8 million. Increased volumes added
$0.9 million to sales and a combination of price and product mix reduced sales
by $0.1 million. In Central America, sales increased by $5.1 million or 7.4% to
$74.8 million in fiscal 1997. Increased volumes added $3.0 million and higher
prices added an additional $7.2 million, while unfavorable currency translation
reduced sales by $5.1 million. Healthy volume gains were recorded in cookies and
crackers, fruit nectars and juices and bean products. In Europe, sales declined
by $8.0 million to $108.4 million primarily due to lower volumes, as the Company
discontinued certain lower margin products. Lower volumes reduced sales by $14.0
million and a combination of product mix and higher prices added $1.1 million to
sales. Favorable currency translation added $4.9 million to sales.
Gross profit increased 1.4% or $1.7 million to $125.3 million in fiscal
1997 from $123.6 million in fiscal 1996. As a percentage of sales, gross profit
declined to 27.2% from 28.1% in the previous year. The major factor contributing
to the reduced gross profit percentage was a reduction in gross profit both in
absolute terms and as a percentage of sales in the domestic rice business. Gross
profit in the domestic rice business was $93.4 million, which was $2.6 million
or 2.7% below the gross profit in the prior year. Despite increased sales in
this segment, gross profit declined as a result of the change in sales mix.
Gross profit as a percentage of sales in the domestic rice business declined to
33.8% in fiscal 1997 from 37.8% in the same period last year. In fiscal 1997, a
greater proportion of sales were in the regular white rice category which earns
a lower gross profit than the value added rice products. Sales of value added
rice products were negatively impacted by extremely competitive market
conditions in the category. Lower advertising and promotional spending offset
the reduction in gross profit as noted below. The gross profit for the Central
American business increased by $3.5 million or 18.4% to $22.3 million in fiscal
1997. This increase in gross profit was the result of increased sales, improved
operating efficiencies and better economic conditions in the region aided by the
peace accord signed in December in Guatemala. Gross profit as a percentage of
sales increased significantly to 29.7% in fiscal 1997 from 27.0% last year. In
Europe, gross profit increased by $0.8 million or 9.9% to $9.6 million in the
current year from $8.8 million in the prior year. Also, as a percentage of
sales, gross profit increased to 8.9% from 7.5% last year. This improvement
resulted primarily from discontinuation of sales of certain lower margin
products.
Spending for advertising, selling and warehousing expenses declined $2.6
million in fiscal 1997 to $75.8 million from $78.5 million last year. As a
percentage of sales these expenses declined to 16.5% from 17.8% in the same
period of the previous year. Spending in this category was approximately the
same as last year for both the Central American and European businesses with the
primary decline coming in the domestic rice business due to a reduction in
spending for introductory and other promotional programs.
Administrative and general expenses increased by $0.1 million to $19.4
million in fiscal 1997 from $19.3 million in the prior year. As a percentage of
sales, this expense category declined to 4.2% from 4.4% last year. Most of the
increase was related to normal inflationary increases.
Income from operations increased $4.3 million or 16.4% to $30.1 million
from $25.8 million in the previous year. As a percentage of sales, income from
operations increased to 6.5% from 5.9%. Domestic operating income increased by
$0.2 million to $17.7 million. This increase was primarily related to the
decrease in advertising, selling and warehousing expenses as noted above. In
Central America, operating income increased $3.2 million or 46.2% to $9.9
million from $6.7 million last year. The increase in operating income was
directly related to the increase in gross profit as discussed above. In Europe,
income from operations increased by $0.9 million or 49.8% to $2.5 million from
$1.6 million in the same period last year. This increase, also, was directly
related to the improved gross profit previously discussed.
9
Other income decreased by $0.8 million. The Company recorded an asset
impairment charge of $0.8 million related to the planned disposition of its
equity method investment in a European joint venture operation. Gains from the
sale of marketable securities increased by $0.7 million and interest income
increased by $0.1 million in the current year. Interest expense was reduced
primarily in Central America and Europe by $0.8 million due to reduced financing
requirements for working capital. Miscellaneous other expenses increased by a
net $1.4 million. Dividend income was reduced by $0.3 million due to the sale of
marketable securities. Commercial grain storage income was $0.2 million lower.
Also, the Company recorded a $0.1 million loss on the sale of assets while in
the prior year a gain of $0.1 million was recognized. Income from a former
business venture was $0.5 million lower and other miscellaneous expenses
increased by $0.2 million.
Income tax expense increased to $9.6 million from $7.8 million recorded in
the previous year. As a percentage of income before income taxes, tax expense
increased to 31.9% from 29.4% last year. In the prior year, income tax expense
was favorably impacted by a favorable opinion received by the Company in Costa
Rica regarding previously applied for investment tax credits. In Guatemala, the
authorities passed an extraordinary tax that partially offset the benefit
received in Costa Rica. The net effect was a reduction in income tax expense and
excluding this benefit the effective tax rate would have been 31.2%.
LIQUIDITY AND CAPITAL RESOURCES
The financial condition of the Company remained strong during fiscal 1998.
The Company requires liquidity and capital primarily to provide the working
capital and plant and equipment to support its operations and growth. The
Company's primary sources of liquidity are cash provided by operating activities
and external borrowing. A strong working capital position and continued
profitable operations are the key factors that allow the Company to generate
most of its capital requirements internally.
The Company's total of cash and marketable securities at June 28, 1998
exceeded total debt by $17.0 million. The ratio of debt to total capitalization
(total debt plus stockholders' equity) decreased to 3.2% at the end of fiscal
1998 from 7.0% the previous year. The current ratio increased to 2.4 in fiscal
1998 from 2.3 at the end of the prior year.
Consistent with historical results, operations provided a strong, positive
cash flow in fiscal 1998, which resulted in net cash provided by operations of
$32.7 million. This represented an increase of $4.9 million from the prior year.
Net income increased by $2.6 million or 12.8% to $22.6 million and non-cash
depreciation and amortization charges decreased by $0.7 million. Based on the
Consolidated Statements of Cash Flows which eliminate the effect of fluctuations
in foreign currency translation rates, working capital requirements were reduced
and cash of $5.7 million was provided compared to the prior year when working
capital requirements decreased and provided cash of $5.1 million. The largest
change was in inventory levels. In fiscal 1998, inventories increased by $1.9
million whereas in the prior year inventories decreased by $5.2 million. The
increase in inventories in the current year was offset by an increase in
accounts payable of $4.6 million. For the three year period ended June 28, 1998,
net cash provided by operations has exceeded capital expenditures by $34.3
million. The capital spending program in fiscal 1998 was focused on expanding
capacity and cost reduction projects.
Dividends paid per share of common stock increased 10.5% to $0.42 in fiscal
1998.
In fiscal 1996, the board of directors of the Company authorized the
open-market repurchase, from time to time, of up to 500 thousand shares of the
Company's common stock. The repurchased stock will be used for general corporate
purposes including issuance of stock under employee stock option plans. During
1998 the Company spent $3.9 million to repurchase 178.7 thousand shares at an
average price of $21.87 per share. Through the end of fiscal 1998, the Company
has repurchased a total of 343.5 thousand shares and 89.4 thousand shares have
been reissued upon exercise of employee stock options. Subsequent to year end,
the board of directors of the Company authorized the open-market repurchase,
from time to time, of up to an additional 1.0 million shares.
The Company has an aggregate of $45.0 million in domestic, short-term,
unsecured revolving credit facilities with two banks. Under the terms of these
facilities, the Company has the option of borrowing at
10
the bank's prime rate or at the Eurodollar rate plus 3/8%. At June 28, 1998, the
Company had no loans and $1.6 million in letters of credit outstanding under
these credit facilities. One of these facilities will expire in fiscal 1999 and
the Company expects to renew the facility for another one-year period. One of
the agreements contains limited financial covenants and the Company is currently
in compliance with all of these covenants.
The Company's international operations are financed internally or through
borrowings in local currency without the benefit of parent Company guarantees.
The Company's foreign subsidiaries have a total of $16.1 million in short-term
credit lines from local sources and at June 28, 1998, the subsidiaries have
borrowed a total of $1.3 million.
The Company holds a portfolio of marketable securities with a market value
of $4.3 million at June 28, 1998, which is available to provide additional
liquidity.
The Company believes that the combination of its working capital, unused
and available short-term credit lines and cash flow from operations will provide
it with sufficient capital resources and liquidity to meet its foreseeable
needs.
IMPACT OF THE YEAR 2000 ISSUE
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of date-sensitive data by the Company's computerized
information systems. The year 2000 is critical to these systems as many computer
programs are written using two digits rather than four to define the applicable
year. As a result, any of the Company's computer applications that have
date-sensitive programs may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculation causing disruptions including but not limited to a temporary
inability to process transactions, issue invoices, communicate with customers
and financial institutions and update internal accounting systems. If not
corrected, such disruptions could have a significant impact on the Company's
operations.
The Company has initiated a Company-wide program to prepare the Company's
computer systems and applications for the year 2000. Based on present
information, the Company believes that it will be able to achieve year 2000
compliance through modification of some existing programs and the replacement of
other programs with new programs that are already year 2000 compliant. The
Company will utilize both internal and external resources to reprogram, or
replace, and test software for year 2000 compliance. The Company plans to
complete the year 2000 conversion project by July 1, 1999. The total project
costs are presently estimated not to exceed $1.0 million and will be expensed as
incurred, unless new software is purchased in which case costs will be
capitalized.
The Company is taking steps to resolve year 2000 compliance issues that may
be created by customers, suppliers and financial institutions with whom the
Company does business. However, there can be no guarantee that the systems of
other entities will be converted timely. A failure to convert by another entity
could have a significant adverse effect on the Company.
The costs of the year 2000 conversion project and the date on which the
Company plans to complete the project are based on management's best estimates,
which were derived using numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. There can be no guarantee that these estimates will be achieved
and actual results could vary significantly from current estimates.
The Company does not have a written contingency plan to address the issues
that could arise should the Company or any of its suppliers or customers not be
prepared to accommodate year 2000 issues timely. The Company believes that in an
emergency it could revert to the use of manual systems that do not rely on
computers and could perform the minimum functions required to maintain the flow
of goods and provide information reporting to maintain satisfactory control of
the business. Should the Company have to utilize manual systems, it is uncertain
that it could maintain the same level of operations and this could have a
11
material adverse impact on the business. The Company intends to maintain
constant surveillance on this situation and will develop such contingency plans
as are required by the changing environment.
EURO CONVERSION
The Company operates in Europe through a subsidiary and two joint ventures
in the United Kingdom and Belgium. On January 1, 1999 many of the member
countries of the European Union are scheduled to establish fixed conversion
rates between the existing sovereign currencies and the euro. At this time, the
United Kingdom is not participating in this change. However, the Company's
European operations do conduct business in certain of the participating member
countries. The Company believes it is taking the necessary steps to accommodate
this change and does not believe the euro conversion will have a significant
impact on its operations.
FORWARD LOOKING STATEMENTS
The statements contained in this Form 10-K include forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Act of 1934, as amended. Although the
Company believes that the expectations reflected in such forward looking
statements are based upon reasonable assumptions, the Company can give no
assurance that these expectations will be achieved.
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Consolidated Financial Statements:
Consolidated Balance Sheets as
of June 28, 1998, and June 29,
1997........................... 14
Consolidated Statements of
Income for the fiscal years
ended June 28, 1998,
June 29, 1997, and June 30,
1996........................... 15
Consolidated Statements of
Capital Accounts and Retained
Earnings for the fiscal years
ended June 28, 1998, June 29,
1997, and June 30, 1996........ 16
Consolidated Statements of Other
Equity Accounts for the fiscal
years ended June 28, 1998, June
29, 1997, and June 30, 1996.... 16
Consolidated Statements of Cash
Flows for the fiscal years
ended June 28, 1998, June 29,
1997, and June 30, 1996........ 17
Notes to Consolidated Financial
Statements..................... 18
Report of Independent Public
Accountants.................... 31
13
RIVIANA FOODS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JUNE 28, 1998 JUNE 29, 1997
------------- -------------
ASSETS
CURRENT ASSETS:
Cash............................ $ 7,609 $ 4,562
Cash equivalents................ 9,588 2,478
Marketable securities........... 4,328 4,405
Accounts receivable, less
allowance for doubtful accounts
of $1,265 and $529............. 40,514 43,493
Inventories..................... 49,566 48,454
Prepaid expenses................ 2,008 2,295
------------- -------------
Total current assets....... 113,613 105,687
PROPERTY, PLANT AND EQUIPMENT:
Land............................ 3,530 3,550
Buildings....................... 25,271 21,848
Machinery and equipment......... 87,668 81,830
------------- -------------
Property, plant and
equipment, gross....... 116,469 107,228
Less accumulated
depreciation........... (41,241) (38,065)
------------- -------------
Property, plant and
equipment, net......... 75,228 69,163
INVESTMENTS IN UNCONSOLIDATED
AFFILIATES......................... 10,745 11,471
OTHER ASSETS......................... 5,742 5,568
------------- -------------
Total assets............... $ 205,328 $ 191,889
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt................. $ 1,280 $ 5,011
Current maturities of long-term
debt........................... 1,425 1,863
Accounts payable................ 23,988 20,629
Accrued liabilities............. 14,894 13,940
Income taxes payable............ 6,255 5,382
------------- -------------
Total current
liabilities............ 47,842 46,825
LONG-TERM DEBT, net of current
maturities......................... 1,861 2,619
DUE TO AFFILIATES.................... 1,347 135
DEFERRED INCOME TAXES................ 6,805 5,884
OTHER NONCURRENT LIABILITIES......... 3,246 2,995
COMMITMENTS AND CONTINGENCIES........
MINORITY INTERESTS................... 6,483 6,355
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par, 5,000
shares authorized, none
issued.........................
Common stock, $1 par, 24,000
shares authorized, 15,883
issued......................... 15,883 15,883
Paid-in capital................. 6,455 6,215
Retained earnings............... 125,503 109,851
Unrealized gains on marketable
securities, net of taxes....... 2,394 2,273
Cumulative foreign currency
translation adjustment......... (7,358) (5,059)
Treasury stock, at cost, 254 and
130 shares..................... (5,133) (2,087)
------------- -------------
Total stockholders'
equity................. 137,744 127,076
------------- -------------
Total liabilities and
stockholders' equity... $ 205,328 $ 191,889
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
14
RIVIANA FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED
-----------------------------------------------
JUNE 28, 1998 JUNE 29, 1997 JUNE 30, 1996
------------- ------------- -------------
NET SALES............................ $ 454,012 $ 460,183 $ 440,492
COST OF SALES........................ 324,919 334,837 316,913
------------- ------------- -------------
Gross profit.................... 129,093 125,346 123,579
------------- ------------- -------------
COSTS AND EXPENSES:
Advertising, selling and
warehousing................... 78,199 75,879 78,445
Administrative and general...... 20,026 19,413 19,311
------------- ------------- -------------
Total costs and expenses... 98,225 95,292 97,756
------------- ------------- -------------
Income from operations..... 30,868 30,054 25,823
OTHER INCOME (EXPENSE):
Gain on sale of marketable
securities.................... 1,584 1,676 977
Interest income................. 1,061 587 465
Interest expense................ (619) (2,002) (2,814)
Equity in earnings of
unconsolidated affiliates..... 1,363 796 1,819
Other income (expense), net..... (1,324) (1,189) 176
------------- ------------- -------------
Total other income
(expense)............... 2,065 (132) 623
------------- ------------- -------------
Income before income taxes
and minority interests.. 32,933 29,922 26,446
INCOME TAX EXPENSE................... 9,956 9,559 7,770
MINORITY INTERESTS IN EARNINGS OF
CONSOLIDATED SUBSIDIARIES.......... 387 338 334
------------- ------------- -------------
Net income...................... $ 22,590 $ 20,025 $ 18,342
============= ============= =============
Earnings per share:
Basic........................... $ 1.44 $ 1.27 $ 1.16
Diluted......................... 1.42 1.26 1.15
Weighted average common shares
outstanding:
Basic........................... 15,727 15,814 15,873
Diluted......................... 15,936 15,919 15,931
The accompanying notes are an integral part of these consolidated financial
statements.
15
RIVIANA FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL ACCOUNTS AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COMMON STOCK TREASURY STOCK
------------------- PAID-IN RETAINED ------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
--------- ------- -------- --------- ------- ------- ----------
BALANCE, July 2, 1995................ 15,883 $15,883 $ 6,060 $ 83,314 $ 105,257
Net income...................... 18,342 18,342
Sales of common stock........... (12) 12 $ 158 146
Dividends declared ($.3533 per
share)........................ (5,608) (5,608)
Repurchases of common stock..... 7 (28) (366) (359)
--------- ------- -------- --------- ------- ------- ----------
BALANCE, June 30, 1996............... 15,883 15,883 6,067 96,036 (16) (208) 117,778
Net income...................... 20,025 20,025
Sales of common stock........... (47) 23 323 276
Dividends declared ($.39 per
share)........................ (6,163) (6,163)
Repurchases of common stock..... (137) (2,202) (2,202)
Collection of employee discount
on stock...................... 117 117
Tax credit for disqualifying
dispositions of stock......... 31 31
--------- ------- -------- --------- ------- ------- ----------
BALANCE, June 29, 1997............... 15,883 15,883 6,215 109,851 (130) (2,087) 129,862
Net income...................... 22,590 22,590
Sales of common stock........... (181) 55 861 680
Dividends declared ($.43 per
share)........................ (6,757) (6,757)
Repurchases of common stock..... (179) (3,907) (3,907)
Collection of employee discount
on stock...................... 120 120
Tax credit for disqualifying
dispositions of stock......... 120 120
--------- ------- -------- --------- ------- ------- ----------
BALANCE, June 28, 1998............... 15,883 $15,883 $ 6,455 $ 125,503 (254) $(5,133) $ 142,708
========= ======= ======== ========= ======= ======= ==========
CONSOLIDATED STATEMENTS OF OTHER EQUITY ACCOUNTS
(IN THOUSANDS)
UNREALIZED CUMULATIVE
GAINS ON FOREIGN
MARKETABLE CURRENCY
SECURITIES, TRANSLATION
NET OF TAXES ADJUSTMENT
------------- -----------
BALANCE, July 2, 1995................ $ 2,040 $ (502)
Marketable securities, net of
taxes:
Realized (gains)........... (634)
Unrealized gains........... 958
Effect of balance sheet
translations................... (3,134)
------------- -----------
BALANCE, June 30, 1996............... 2,364 (3,636)
Marketable securities, net of
taxes:
Realized (gains)........... (1,161)
Unrealized gains........... 1,070
Effect of balance sheet
translations................... (1,423)
------------- -----------
BALANCE, June 29, 1997............... 2,273 (5,059)
Marketable securities, net of
taxes:
Realized (gains)........... (1,029)
Unrealized gains........... 1,150
Effect of balance sheet
translations................... (2,299)
------------- -----------
BALANCE, June 28, 1998............... $ 2,394 $(7,358)
============= ===========
The accompanying notes are an integral part of these consolidated financial
statements.
16
RIVIANA FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED
-----------------------------------------------
JUNE 28, 1998 JUNE 29, 1997 JUNE 30, 1996
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 22,590 $ 20,025 $ 18,342
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization............ 4,506 5,228 4,328
Deferred income taxes...... 876 (413) 551
Gain on disposition of
assets.................. (1,567) (1,566) (1,068)
Equity in earnings of
unconsolidated
affiliates.............. (1,363) (796) (1,819)
Change in assets and
liabilities:
Accounts receivable,
net................ 1,750 (187) (3,012)
Inventories........... (1,920) 5,193 (4,167)
Prepaid expenses...... 217 (177) (415)
Other assets.......... 1,560 (18) 3,452
Accounts payable and
accrued
liabilities........ 4,649 (1,224) (3,898)
Income taxes
payable............ 967 1,448 (33)
Other noncurrent
liabilities........ 341 67 172
Minority interests.... 142 242 249
------------- ------------- -------------
Net cash
provided by
operating
activities.... 32,748 27,822 12,682
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment..................... (11,498) (22,031) (11,041)
Proceeds from disposals of
property, plant and
equipment..................... 157 63 432
Investment by joint venture
partner....................... 75 4,759 749
Proceeds from sale of marketable
securities.................... 1,727 5,503 3,594
Increase (decrease) in due to
affiliates.................... 1,208 (707) 593
Increase in marketable
securities.................... (10) (95) (335)
Other........................... 166 52 14
------------- ------------- -------------
Net cash used in
investing
activities.... (8,175) (12,456) (5,994)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term debt..... (3,574) (5,903) (560)
Additions to long-term debt..... 888 763 5,835
Repayments of long-term debt.... (1,759) (2,440) (3,753)
Dividends paid.................. (6,613) (6,017) (5,504)
Repurchases of common stock..... (3,907) (2,202) (359)
Sales of common stock........... 680 276 146
Collection of employee discount
on stock...................... 120 117
------------- ------------- -------------
Net cash used in
financing
activities.... (14,165) (15,406) (4,195)
------------- ------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS.......... (251) (310) (245)
------------- ------------- -------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................ 10,157 (350) 2,248
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 7,040 7,390 5,142
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 17,197 $ 7,040 $ 7,390
============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
17
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1998, JUNE 29, 1997 AND JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) ORGANIZATION AND NATURE OF BUSINESS:
Riviana Foods Inc. (Riviana) and subsidiaries (collectively, Company) are
primarily engaged in the processing, marketing and distributing of rice and
other food products. The Company has rice operations in the United States and in
Belgium through unconsolidated affiliates, Boost Distribution C.V. (Boost) and
Herto N.V. (Herto), food operations in Guatemala and Costa Rica, Alimentos Kern
de Guatemala, S.A., (Kern) and Pozuelo, S.A., (Pozuelo) and a food distribution
operation in the United Kingdom, Stevens & Brotherton Ltd. (S&B).
In the United States, the Company processes, markets and distributes
branded and private-label rice products to the retail grocery trade and food
service industry, rice and rice by-products to industrial customers and branded
products to Puerto Rico and international markets. Riviana's primary domestic
brand names are Success(R), Mahatma(R), Carolina(R), River(R), Watermaid(R),
Sello Rojo(R) and El Mago(R). Also, the Company is a partner in joint ventures
with another rice company in rice flour processing and co-generation of power
from the gasification of rice hulls.
Through unconsolidated affiliates Boost and Herto, the Company processes
and sells packaged rice products under the Bosto(R) brand within Belgium,
private-label packaged rice products to major retailers in the European Union
and both bulk and branded rice products to Eastern Europe and other export
markets.
In Central America, Kern produces and markets a wide range of processed
fruits and vegetables under the Kern's(R), Ducal(R), Koolfrut(R) and Fun-C(R)
brands. Pozuelo produces and markets cookies and crackers under the Riviana
Pozuelo(R) brand. Both Kern's and Pozuelo's products are sold primarily in
Central America with some products under the Ducal(R) and Pozuelo(R) brands
exported to certain United States markets.
S&B distributes rice under the Phoenix(R) brand and private labels as well
as dried fruits, processed meats and other food products in the United Kingdom
to retail, wholesale, food service and industrial customers.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
FISCAL REPORTING PERIODS
The Company operates on a 52/53 week fiscal year ending on the Sunday
closest to June 30. This period is utilized as it is a natural business year
closely coinciding with the rice crop year in the southern United States, rice
being the largest component of the Company's sales. All fiscal years presented
are 52-week fiscal years.
CONSOLIDATION
The consolidated financial statements include the accounts of Riviana and
its majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company has equity investments in certain food processing, marketing
and distribution companies, which are accounted for utilizing the equity method
of accounting. Ownership interests range from 33 to 50 percent in these
unconsolidated affiliates.
18
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following represents summarized financial information with respect to
the assets, liabilities and results of operations of the unconsolidated
affiliates.
BALANCE SHEET DATA JUNE 28, 1998 JUNE 29, 1997
- ------------------- ------------- -------------
Current assets....................... $29,448 $28,809
Noncurrent assets.................... 14,736 15,866
------------- -------------
Total assets............... $44,184 $44,675
============= =============
Current liabilities.................. $14,707 $12,981
Noncurrent liabilities............... 7,827 8,365
Common equity:
Riviana......................... 10,144 10,986
Other........................... 11,506 12,343
------------- -------------
Total liabilities and
equity.................. $44,184 $44,675
============= =============
INCOME STATEMENT DATA 1998 1997 1996
- ---------------------- --------- ---------- ----------
Net sales............................ $ 95,832 $ 122,734 $ 129,620
Gross profit........................ 16,596 16,496 16,467
Income before income taxes........... 3,464 4,311 5,845
Net income........................... 2,393 3,042 3,846
Equity in earnings of unconsolidated
affiliates......................... 1,363 796 1,819
CHANGES IN ACCOUNTING PRINCIPLES
Effective July 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and SFAS No.
123, "Accounting for Stock-Based Compensation". As allowed by SFAS No. 123,
the Company elected to continue to account for stock option grants in accordance
with Accounting Principles Board (APB) Opinion No. 25, and, accordingly, will
recognize no compensation expense for stock options granted, as all option plans
require that the option exercise price be equal to the fair value of the common
stock at the date of grant. See Note 11 for the pro forma impact of adoption of
SFAS No. 123. Effective January 1, 1997, the Company adopted SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities". Effective December 28, 1997, the Company adopted SFAS No. 128,
"Earnings per Share", which revises the manner in which earnings per share is
calculated. All per share amounts included herein have been restated
accordingly. The effect of adopting these statements had no material impact on
the Company's results of operations or financial position.
RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS No. 130, "Reporting Comprehensive Income", was issued in June 1997.
The Company will adopt SFAS No. 130 in the first quarter of 1999. Had SFAS No.
130 been adopted as of June 28, 1998, net income, as reported, would have been
adjusted by changes in unrealized gains on marketable securities, net of taxes,
and cumulative foreign currency translation adjustment.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued in June 1998. In March 1998 and April 1998, the
American Institute of Certified Public Accountants issued Statement of Position
(SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use", and SOP 98-5, "Reporting on the Costs of Start-Up
Activities". The Company will adopt all of these pronouncements in the first
quarter of 2000 and does not expect adoption to have a material impact on the
Company's results of operations or financial position.
19
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent gains and losses at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated balance sheets and the consolidated
statements of cash flows, the Company considers all investments with original
maturities of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
In the normal course of business, the Company extends credit to its
customers. The Company regularly reviews the accounts and makes adequate
provision for any potentially uncollectible balances. Management believes that
the Company has no significant concentrations of credit risk and has incurred no
impairments in the carrying values of its accounts receivable, other than that
for which provision has been made.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
on the first-in, first-out (FIFO) method. Inventories were composed of the
following:
JUNE 28, 1998 JUNE 29, 1997
------------- -------------
Raw materials........................ $ 9,390 $ 8,555
Work in process...................... 23 31
Finished goods....................... 34,007 33,130
Packaging supplies................... 6,146 6,738
------------- -------------
Total...................... $49,566 $48,454
============= =============
PROPERTY, PLANT AND EQUIPMENT
Land, buildings, machinery and equipment are stated at cost. Depreciation
is provided for financial reporting purposes on the straight-line basis over the
following estimated useful lives:
Buildings........................................... 30 to 40 years
Machinery and equipment............................. 3 to 15 years
Maintenance, repairs and minor replacements are charged against income as
incurred; major replacements and betterments are capitalized. The cost of assets
sold or retired and the related accumulated depreciation is removed from the
accounts at the time of disposition, and any resulting gain or loss is reflected
as other income or expense for the period.
OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities are composed primarily of certain
postretirement benefits and staff termination indemnities.
REVENUE RECOGNITION
Sales are recognized when products are shipped.
20
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ADVERTISING
The costs of advertising, promotion and marketing programs are charged to
operations in the period incurred.
EARNINGS PER SHARE
Basic and diluted earnings per share are computed by dividing net income by
the respective number of weighted average common shares outstanding. The
reconciliation of weighted average common shares outstanding used in computing
basic and diluted earnings per share is as follows:
1998 1997 1996
--------- --------- ---------
Weighted Average Common Shares
Outstanding:
Basic.............................. 15,727 15,814 15,873
Stock options...................... 209 105 58
--------- --------- ---------
Diluted............................ 15,936 15,919 15,931
========= ========= =========
TRANSLATION OF FOREIGN CURRENCIES
The assets and liabilities of consolidated foreign subsidiaries are
translated into United States dollars at exchange rates in effect at the date of
the financial statements. Revenues and expenses are translated at the average
rates during the reporting periods. Resulting translation gains and losses are
accumulated as a separate component of stockholders' equity. Because the Company
follows the policy of not providing taxes on unremitted foreign earnings as
discussed in Note 6, such translation gains and losses are not tax effected.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, cash
equivalents, trade receivables, trade payables and debt instruments. The Company
periodically reviews these instruments for any impairment of value and records a
provision for any impairment identified. The book values of these instruments
are considered to be representative of their respective fair values.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments as hedges to manage a
portion of its exposure to currency fluctuations related to inventory purchases.
These instruments qualify for hedge accounting treatment and, accordingly, gains
and losses on these instruments are deferred and included in the basis of the
inventory hedged. The Company enters into forward exchange contracts to hedge
specific product commitments. The contracts have varying maturities with none
exceeding twelve months and are settled at maturity, based on rates agreed to at
the inception of the contracts. At June 28, 1998, the Company had established
bank lines available to purchase forward exchange contracts in the amount of
$41,615, of which $14,494 was outstanding. Gains and losses deferred in
outstanding instruments at year end were immaterial. As a matter of policy, the
Company does not engage in foreign currency speculation and does not hedge to
protect the translated results of foreign operations or other economic exposures
for which speculative accounting treatment of the hedging instrument would be
required.
RECLASSIFICATION
Certain prior-year balances have been reclassified to conform with the
current-year presentation.
21
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) MARKETABLE SECURITIES:
Investments in debt and equity securities are recorded as required by SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities".
The Company's marketable securities consist of high-grade equity securities that
are all considered available for sale. Available-for-sale securities, securities
that the Company purchased without any specific intent to sell in the near term,
are carried at fair value with unrealized gains and losses included directly in
stockholders' equity, net of applicable deferred income taxes. The basis upon
which costs were determined in computing realized gains was specific
identification.
JUNE 28, 1998 JUNE 29, 1997
------------- -------------
Aggregate fair value................. $ 4,328 $ 4,405
Cost basis........................... 645 908
------------- -------------
Unrealized net gain before taxes... 3,683 3,497
Income taxes......................... 1,289 1,224
------------- -------------
Unrealized gain, net of taxes...... $ 2,394 $ 2,273
============= =============
Unrealized gains..................... $ 3,699 $ 3,503
Unrealized losses.................... (16) (6)
------------- -------------
Unrealized net gain before
taxes......................... $ 3,683 $ 3,497
============= =============
1998 1997 1996
--------- --------- ---------
Proceeds from sales of marketable
securities......................... $ 1,727 $ 5,503 $ 3,594
Realized gross gains................. 1,584 1,681 992
Realized gross losses................ (5) (15)
(4) ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
JUNE 28, 1998 JUNE 29, 1997
------------- -------------
Payroll, commissions and bonuses..... $ 8,111 $ 7,508
Coupon redemption and advertising.... 1,557 2,185
Taxes, other than income taxes....... 2,364 1,132
Other................................ 2,862 3,115
------------- -------------
Total...................... $14,894 $13,940
============= =============
(5) BORROWING ARRANGEMENTS:
Interest rates related to short-term debt vary according to the country in
which the funds are borrowed, but generally approximate the market rate of
interest. The weighted average interest rate at June 28, 1998, and June 29,
1997, was 12.0% and 14.5%. A portion of the short-term debt at June 28, 1998,
and June 29, 1997, is secured by certain assets of the foreign subsidiaries. The
Company has unused lines of credit totaling about $58,236 at June 28, 1998, net
of borrowings and $1,901 in letters of credit.
22
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt consisted of the following:
JUNE 28, 1998 JUNE 29, 1997
------------- -------------
Total long-term debt................. $ 3,286 $ 4,482
Less -- Current maturities........... 1,425 1,863
------------- -------------
Long-term debt, net of current
maturities.................... $ 1,861 $ 2,619
============= =============
Total long-term debt at June 28, 1998, matures as follows:
1999................................. $ 1,425
2000................................. 745
2001................................. 350
2002................................. 192
2003................................. 192
Thereafter........................... 382
---------
Total........................... $ 3,286
=========
Total interest paid was $930, $2,025 and $2,862 for 1998, 1997 and 1996.
(6) INCOME TAXES:
The provision for income taxes consisted of the following:
1998 1997 1996
--------- --------- ---------
Federal.............................. $ 5,351 $ 6,432 $ 2,140
State................................ 517 556 523
Foreign.............................. 3,167 3,035 1,805
--------- --------- ---------
Total current provision......... 9,035 10,023 4,468
--------- --------- ---------
Federal.............................. 953 (443) 3,316
Foreign.............................. (32) (21) (14)
--------- --------- ---------
Total deferred provision
(benefit)..................... 921 (464) 3,302
--------- --------- ---------
Income tax expense.............. $ 9,956 $ 9,559 $ 7,770
========= ========= =========
Total income taxes paid.............. $ 8,444 $ 8,396 $ 7,807
========= ========= =========
23
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the statutory United States federal income tax rate
and the Company's global effective tax rate as reflected in the consolidated
statements of income was as follows:
1998 1997 1996
-------------------- -------------------- --------------------
PERCENT PERCENT PERCENT
TAX OF TAX OF TAX OF
EXPENSE PRETAX EXPENSE PRETAX EXPENSE PRETAX
(BENEFIT) INCOME (BENEFIT) INCOME (BENEFIT) INCOME
--------- ------- --------- ------- --------- -------
Taxes at U.S. federal statutory
rate............................... $ 11,527 35.0% $ 10,473 35.0% $ 9,256 35.0%
Resolution of issues at less than
estimate previously provided....... (753) (2.3) (2,032) (7.7)
Foreign earnings subject to tax rates
that are different than the U.S.
federal statutory rate............. (1,122) (3.4) (923) (3.1) (443) (1.7)
State taxes, net of federal
benefit............................ 336 1.0 362 1.2 340 1.3
Taxes on dividends received from
foreign subsidiaries............... 210 0.6 211 0.7 495 1.9
Other................................ (242) (0.7) (564) (1.9) 154 0.6
--------- ------- --------- ------- --------- -------
Income tax expense / effective
rate.......................... $ 9,956 30.2% $ 9,559 31.9% $ 7,770 29.4%
========= ======= ========= ======= ========= =======
The components of deferred taxes were as follows:
JUNE 28, 1998 JUNE 29, 1997
-------------- --------------
Staff termination indemnities........ $ 204 $ 328
Accrued employee benefits............ 983 948
State taxes.......................... 833 823
Accrued liabilities.................. 1,282 1,214
Allowance for doubtful accounts...... 255 160
Other................................ 2 33
-------------- --------------
Total deferred tax
assets.................. 3,559 3,506
-------------- --------------
Property, plant and equipment and
other.............................. 7,907 6,626
Inventories.......................... 1,168 1,540
Marketable securities................ 1,289 1,224
-------------- --------------
Total deferred tax
liabilities............. 10,364 9,390
-------------- --------------
Net deferred tax
liabilities........ $ 6,805 $5,884
============== ==============
Income before income taxes and minority interest of foreign subsidiaries
was $14,030, $10,959 and $6,878 for 1998, 1997 and 1996.
The Company does not provide deferred income taxes on unremitted earnings
of foreign subsidiaries, since such earnings are considered to be permanently
invested. Cumulative unremitted earnings of foreign subsidiaries were $36,323,
$32,967 and $30,274 as of June 28, 1998, June 29, 1997 and June 30, 1996.
(7) PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS:
Riviana has a defined benefit plan covering substantially all United States
employees. The benefits are based on years of service and the employee's
compensation. The Company's funding policy is to contribute annually at least
the minimum amount actuarially necessary to provide for retirement benefits.
24
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets:
JUNE 28, 1998 JUNE 29, 1997
------------- -------------
Actuarial present value of benefit
obligations:
Accumulated benefit obligation,
including vested benefits of
$15,523 and $12,799........... $17,878 $14,901
============= =============
Projected benefit obligation for
service rendered through
fiscal year end............... $21,317 $17,717
Plan assets at fair value, primarily
listed stocks, short-term cash
investments, and government
securities......................... 21,288 17,453
------------- -------------
Plan assets below projected benefit
obligation......................... (29) (264)
Unrecognized net gain from experience
different from that assumed........ (736) (97)
Unrecognized prior service costs..... 529 400
------------- -------------
(Accrued) prepaid pension cost
included in accrued
liabilities................... $ (236) $ 39
============= =============
Net pension costs included the following components:
1998 1997 1996
--------- --------- ---------
Service cost-benefits earned during
the year........................... $ 1,943 $ 1,719 $ 1,588
Interest cost on projected benefit
obligation......................... 1,292 1,185 1,005
Actual return on plan assets......... (3,601) (3,254) (2,421)
Net amortization and deferral........ 1,915 1,900 1,428
--------- --------- ---------
Net pension costs............... $ 1,549 $ 1,550 $ 1,600
========= ========= =========
Significant assumptions:
Weighted average discount
rate.......................... 7.0% 7.25% 7.0%
Rate of increase in compensation
levels........................ 4.5 4.5 5.0
Long-term rate of return on plan
assets........................ 9.0 9.0 9.0
Riviana has a defined contribution plan which covers substantially all
United States employees. The Company contributes an amount equal to a percentage
of employee contributions. Total expense related to this plan was $548, $547 and
$403 during 1998, 1997 and 1996.
Riviana provides death and additional retirement benefits to certain key
employees. These plans are funded through Company-owned life insurance. The net
cash surrender value of the insurance policies is recorded as a noncurrent asset
in the accompanying consolidated balance sheets. The actuarially computed
present value of the retirement benefits is recorded as an other noncurrent
liability in the accompanying consolidated balance sheets. The Company recorded
expense of $219, $204 and $175 related to these plans for 1998, 1997 and 1996.
(8) RELATED PARTY TRANSACTIONS:
The Company paid $935, $1,318 and $2,234 for 1998, 1997 and 1996, to W.
Elton Kennedy, a director of the Company, or entities controlled by him for rice
purchases at market prices. Also, the Company and Kennedy Rice Dryers, Inc., a
corporation of which Mr. Kennedy is the principal stockholder and a director and
officer, each owns a 50% interest in South LaFourche Farm Partnership. The
Company and Mr. Kennedy are each contingently liable on a $2,108 promissory note
payable by the Partnership. The Company has also executed transactions with
other companies owned by certain directors which were not
25
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
material to the Company's results of operations or financial position.
Management of the Company believes that the foregoing transactions were on terms
no less favorable to the Company than could normally be obtained from
unaffiliated parties.
(9) COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
At June 28, 1998, future minimum lease payments and sublease rentals under
long-term operating lease obligations amounted to:
GROSS SUBLEASE
LEASE RENTAL NET LEASE
PAYMENTS INCOME PAYMENTS
-------- -------- ----------
1999................................. $ 3,052 $ 278 $ 2,774
2000................................. 2,327 132 2,195
2001................................. 1,462 111 1,351
2002................................. 1,147 113 1,034
2003................................. 956 114 842
Thereafter........................... 2,850 65 2,785
-------- -------- ----------
Total........................... $ 11,794 $ 813 $ 10,981
======== ======== ==========
Rent expense net of rental income was $3,311, $2,777 and $3,252 for 1998,
1997 and 1996.
LITIGATION
Various actions and claims, which arose in the ordinary course of business,
are pending against the Company. In the opinion of management, the ultimate
liability, if any, which may result from these actions and claims will not
materially affect the financial position or future results of operations of the
Company.
BUY-SELL AGREEMENT
As of June 28, 1998, the Company had a $6,926 investment in Boost which
represents a 49% ownership interest. The Boost stockholder agreement provides,
effective in 1997, that either stockholder has the right to purchase the other's
interest. The initial bid price offered by one stockholder to the other, if not
accepted, would require the rejecting stockholder to counteroffer the initial
bid price plus five percent. Each rejection thereafter would also require a five
percent premium over the prior offer until one stockholder accepts.
(10) CAPITAL STOCK:
COMMON STOCK
At June 28, 1998, the Company had outstanding 1,966 shares of common stock
sold before the initial public offering to directors, officers and key employees
of the Company or Boost at a discount of $2,051. The amount of discount was
determined by the Board of Directors and represents a percentage reduction of
about 50% from the formula based estimate of fair value at the time of sale. The
majority of the shares discounted were sold as an inducement for predecessor
management to continue employment and to participate in the initial
capitalization of the Company in 1986. The discount is recorded in the
accompanying consolidated financial statements as a reduction of stockholders'
equity. Under a contractual agreement with the stockholders, the discount must
be repaid when the shares are sold.
The Company's common stock trades on The Nasdaq Stock Market (trading
symbol RVFD).
26
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PREFERRED STOCK
At June 28, 1998, 5,000 shares of $1.00 per share par value preferred stock
are authorized. No shares of preferred stock have been issued.
(11) STOCK OPTION PLANS:
On December 28, 1994, and October 22, 1997, the Company's stockholders
adopted incentive stock option plans (1994 Plan and 1997 Plan). On October 11,
1995, the Company's stockholders adopted a non-employee directors stock option
plan (1995 NEDSOP) which was retroactively effective May 17, 1995. Collectively,
these are the "Plans".
Under the 1994 Plan and 1997 Plan, a total of 795 and 1,000 shares of
common stock have been reserved for issuance pursuant to options that may be
granted by a committee of the Board of Directors to eligible employees of the
Company or Boost, including officers. Options granted allow the holders of the
options to purchase shares of common stock at the fair market value on the date
of the grant for a period of ten years. No options will become exercisable
sooner than one year after the date of the grant.
The 1995 NEDSOP, as amended, permits the issuance of options to purchase up
to 250 shares of common stock to directors who are not employees of the Company
and who beneficially own less than 2% of the outstanding common stock of the
Company. Such directors receive options to purchase 2 shares annually on May 17.
Options granted allow holders of the options to purchase shares of common stock
at the fair market value on the date of the grant for a period of ten years. No
options will become exercisable sooner than one year after the date of the
grant.
The Plans' activity is summarized below:
1998 1997 1996
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
Options outstanding, beginning of
year............................... 558 $13.74 403 $12.21 418 $12.08
Granted.............................. 246 17.42 209 16.40 8 18.50
Exercised............................ (54) 12.53 (23) 12.00 (12) 12.00
Canceled............................. (29) 15.92 (31) 13.13 (11) 12.00
------ ------ ------
End of year:
Options outstanding................ 721 15.00 558 13.74 403 12.21
====== ====== ======
Options exercisable................ 192 13.04 129 12.23 70 12.12
====== ====== ======
Options outstanding price range.... $12.00-$22.41 $12.00-$18.50 $12.00-$18.50
All options outstanding at June 28, 1998, have a weighted average remaining
contractual life of 7.9 years.
27
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for options granted under
the Plans. Accordingly, no compensation expense has been recognized. Had
compensation expense been determined based on the Black-Scholes option pricing
model value at the grant date for awards in 1998, 1997 and 1996 consistent with
the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company's net income and earnings per share would have been as follows:
1998 1997 1996
--------- --------- ---------
Net income:
As reported..................... $ 22,590 $ 20,025 $ 18,342
Pro forma....................... 21,576 19,469 18,338
Earnings per share -- basic:
As reported..................... $ 1.44 $ 1.27 $ 1.16
Pro forma....................... 1.37 1.23 1.16
Earnings per share -- diluted:
As reported..................... $ 1.42 $ 1.26 $ 1.15
Pro forma....................... 1.36 1.23 1.15
The SFAS No. 123 method of accounting has not been applied to options granted
prior to July 3, 1995, and the resulting pro forma compensation expense may not
be indicative of pro forma expense in future years.
The Black-Scholes option pricing model was used to value the grants issued
in 1998, 1997 and 1996. The weighted average value and the assumptions used were
as follows:
1998 1997 1996
----- ----- -----
Weighted average value per share..... $7.32 $6.92 $7.92
Option term until exercised
(years)............................ 7 7 7
Risk-free interest rate.............. 6.3% 6.5% 6.7%
Expected dividend yield.............. 2.4% 2.5% 2.6%
Volatility........................... 0.37 0.37 0.39
(12) SEGMENT INFORMATION:
INDUSTRY SEGMENTS
The Company operates in one dominant industry segment which involves the
processing, marketing and distribution of food products.
GEOGRAPHIC SEGMENTS
The Company's export sales, other than those intercompany sales reported
below as sales between geographic areas, are not significant. Sales between
geographic areas consist of sales of raw materials and finished food products
which are sold at adjusted market prices. The Company does not derive more than
10% of its revenue from any single customer. Corporate assets consist primarily
of cash, cash equivalents, marketable securities, investments in unconsolidated
affiliates and other assets.
28
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's geographic area data are as follows:
1998 1997 1996
---------- ---------- ----------
Sales to unaffiliated customers:
Domestic........................... $ 279,054 $ 277,019 $ 254,403
Europe............................. 98,690 108,315 116,384
Central America.................... 76,268 74,849 69,705
---------- ---------- ----------
Total consolidated............ $ 454,012 $ 460,183 $ 440,492
========== ========== ==========
Sales between geographic areas:
Domestic........................... $ 872 $ 1,552 $ 1,717
Central America.................... 11,253 9,384 11,041
Eliminations....................... (12,125) (10,936) (12,758)
---------- ---------- ----------
Total consolidated............ $ 0 $ 0 $ 0
========== ========== ==========
Income:
Operating income:
Domestic........................ $ 26,254 $ 27,140 $ 26,509
Europe.......................... 3,319 2,455 1,639
Central America................. 10,493 9,865 6,746
---------- ---------- ----------
Total operating income........ 40,066 39,460 34,894
Equity in earnings of
unconsolidated affiliates....... 1,363 796 1,819
General corporate expenses......... (9,198) (9,406) (9,071)
Interest expense................... (619) (2,002) (2,814)
Other income, net.................. 1,321 1,074 1,618
---------- ---------- ----------
Income before income taxes and
minority interests.............. $ 32,933 $ 29,922 $ 26,446
========== ========== ==========
Identifiable assets at end of year:
Domestic........................... $ 116,393 $ 112,017 $ 96,381
Europe............................. 31,461 31,131 39,619
Central America.................... 37,813 36,687 31,108
---------- ---------- ----------
Total identifiable assets..... 185,667 179,835 167,108
Corporate assets................... 19,661 12,054 15,396
---------- ---------- ----------
Total assets.................. $ 205,328 $ 191,889 $ 182,504
========== ========== ==========
29
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
QUARTERS ENDED
----------------------------------------------
SEPTEMBER DECEMBER MARCH JUNE YEAR
--------- -------- ---------- ---------- ----------
1998
Net sales....................... $ 108,014 $121,472 $ 114,068 $ 110,458 $ 454,012
Gross profit.................... 27,358 37,011 32,461 32,263 129,093
Income before income taxes and
minority interests............ 6,144 9,272 8,221 9,296 32,933
Net income...................... 3,924 6,408 5,868 6,390 22,590
Per share:
Earnings:
Basic...................... .25 .41 .37 .41 1.44
Diluted.................... .25 .40 .37 .40 1.42
Cash dividends paid........... .10 .10 .11 .11 .42
Market price:
High....................... 21.000 21.000 22.500 25.000 25.000
Low........................ 17.250 18.750 19.750 21.500 17.250
1997
Net sales....................... $ 105,005 $118,791 $ 119,022 $ 117,365 $ 460,183
Gross profit.................... 26,564 33,606 33,056 32,120 125,346
Income before income taxes and
minority interests............ 4,996 8,685 7,705 8,536 29,922
Net income...................... 3,240 5,778 5,184 5,823 20,025
Per share:
Earnings:
Basic...................... .20 .37 .33 .37 1.27
Diluted.................... .20 .36 .33 .37 1.26
Cash dividends paid........... .09 .09 .10 .10 .38
Market price:
High....................... 17.000 18.500 18.500 19.500 19.500
Low........................ 14.500 14.875 16.750 15.250 14.500
Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not equal
the annual earnings per share.
30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Riviana Foods Inc.:
We have audited the accompanying consolidated balance sheets of Riviana
Foods Inc. (a Delaware corporation) and subsidiaries as of June 28, 1998, and
June 29, 1997, and the related consolidated statements of income, capital
accounts and retained earnings, other equity accounts and cash flows for each of
the three fiscal years in the period ended June 28, 1998. 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 generally accepted auditing
standards. 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 Riviana
Foods Inc. and subsidiaries as of June 28, 1998, and June 29, 1997, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended June 28, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 11, 1998
31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There is nothing to be reported under this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to the Directors of the Company is set forth under the
captions "General" and "The Company recommends Voting "FOR" the nominees"
in the Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to executive compensation is set forth under the
captions "Compensation Tables" and "Retirement Plan" in the Proxy Statement
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to the ownership of equity securities of the Company
by certain beneficial owners and management is set forth under the caption
"Common Stock Outstanding and Principal Holders Thereof" in the Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to certain relationships with a beneficial stockholder
and certain related transactions is set forth under the captions "Compensation
and Stock Option Committee Interlock and Insider Participation" and "Certain
Transactions" in the Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Consolidated Financial Statements -- See Index to Consolidated
Financial Statements on page 13.
(2) Consolidated Financial Statement Schedules -- None.
(3) Exhibits required to be filed by Item 601 of Regulation S-K are
listed below and are filed as a part hereof. Documents not designated as being
incorporated herein by reference are filed herewith. The paragraph numbers
correspond to the exhibit numbers designated in Item 601 of Regulation S-K.
3(i) -- The Company's Restated Certificate of Incorporation dated December 28, 1994 is
incorporated herein by reference to Exhibit 3.01 to the Company's Registration Statement
on Form S-1, NO. 33-87838 under the Securities Act of 1933, as amended (the "Registration
Statement")
3(ii) -- The Company's By-laws, as amended effective May 17, 1995, is incorporated herein by
reference to Exhibit 3(ii) to the Company's Annual Report on Form 10-K for the fiscal year
ended July 2, 1995
*10(i) -- Consulting Agreement between Riviana Foods Inc. and Frank A. Godchaux III dated January 1,
1996 is incorporated herein by reference to Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996
*10(ii) -- Consulting Agreement between Riviana Foods Inc. and Charles R. Godchaux dated July 1, 1994
is incorporated herein by reference to Exhibit 10.02 to the Registration Statement
*10(iii) -- Benefit Restoration Plan is incorporated herein by reference to Exhibit 10.03 to the
Registration Statement
*10(iv) -- Management Security Agreement between the Registrant and Joseph A. Hafner, Jr. dated July
17, 1989 is incorporated herein by reference to Exhibit 10.04 to the Registration
Statement
32
10(v) -- Shareholders Agreement between Sun-Land Products of California and Stevens & Brotherton
Ltd. dated March 24, 1994 is incorporated herein by reference to Exhibit 10.05 to the
Registration Statement
10(vi) -- Shareholder Agreement among N&C Boost N.V., Arrocerias Herba, S.A. and Ricegrowers'
Co-Operative Limited dated January 29, 1992 is incorporated herein by reference to Exhibit
10.06 to the Registration Statement
10(vii) -- Stock Purchase Agreement by and among N&C Boost N.V., Riceherba International Inc. and
Ricegrowers' Co-Operative Limited dated as of January 29, 1992 is incorporated herein by
reference to Exhibit 10.07 to the Registration Statement
10(viii) -- Shareholder Agreement among N&C Boost N.V., Arrocers Herba, S.A. and Herto B.V.B.A. dated
January 1, 1991, as amended, is incorporated herein by reference to Exhibit 10.08 to the
Registration Statement
10(ix) -- Agreement of Partnership between Riviana Foods Inc. and Kennedy Rice Dryers, Inc. dated
February 12, 1990 is incorporated herein by reference to Exhibit 10.09 to the Registration
Statement
10(x) -- Partnership Agreement between Riviana Foods Inc. and Riceland Foods, Inc. dated March 22,
1989 is incorporated herein by reference to Exhibit 10.10 to the Registration Statement
*10(xi) -- 1994 Stock Option Plan is incorporated herein by reference to Exhibit 10.11 to the
Registration Statement
*10(xii) -- Amendment and Restatement of Executive Officer's Stock Purchase Agreement between Riviana
Foods Inc. and W. David Hanks dated December 15, 1994 is incorporated herein by reference
to Exhibit 10.12 to the Registration Statement
*10(xiii) -- Amendment and Restatement of Executive Officer's Stock Purchase Agreement between Riviana
Foods Inc. and Jack M. Nolingberg dated December 15, 1994 is incorporated herein by
reference to Exhibit 10.13 to the Registration Statement
*10(xiv) -- Amendment and Restatement of Executive Officer's Stock Purchase Agreement between Riviana
Foods Inc. and Robert D. Watts dated December 15, 1994, as amended, is incorporated herein
by reference to Exhibit 10.14 to the Registration Statement
*10(xv) -- Director's Stock Purchase Agreement between Riviana Foods Inc. and W. Elton Kennedy dated
March 27, 1986 is incorporated herein by reference to Exhibit 10.15 to the Registration
Statement
*10(xvi) -- Amended and Restated 1995 Non-Employee Director Stock Option Plan dated May 17, 1996 is
incorporated herein by reference to Exhibit 10.16 to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996
*10(xvii) -- Amendment of Amendment and Restatement of Executive Officer's Stock Purchase Agreement
dated December 15, 1994 between Riviana Foods Inc. and W. David Hanks dated November 8,
1996
*10(xviii) -- Amendment of Amendment and Restatement of Executive Officer's Stock Purchase Agreement
dated December 15, 1994 between Riviana Foods Inc. and Jack M. Nolingberg dated November
8, 1996
*10(xviv) -- Amended and Restated 1997 Stock Option Plan dated September 1, 1997
21 -- A list of the subsidiaries of the Registrant is incorporated herein by reference to
Exhibit 21.01 to the Registration Statement
23 -- The following Exhibit is filed by incorporation by reference to Item 14(a)(2) of this
Report: (a) Consent of Arthur Andersen LLP
24 -- Powers of Attorney of the Company's directors
(b) Reports on Form 8-K--None.
- ------------
* A management contract, compensatory plan or arrangement
33
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, on September 23, 1998.
RIVIANA FOODS INC.
(Registrant)
By /s/ JOSEPH A. HAFNER, JR.
JOSEPH A. HAFNER, JR.
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, on September 23, 1998.
SIGNATURE CAPACITY
---------------- ------------
/s/JOSEPH A. HAFNER, JR. Chief Executive Officer, President
JOSEPH A. HAFNER JR. and Director (Principal Executive
Officer)
/s/W. DAVID HANKS Executive Vice President and Director
W. DAVID HANKS
/s/E. WAYNE RAY, JR. Vice President, Chief Financial
E. WAYNE RAY, JR. Officer, Treasurer and Director
(Principal Financial and Accounting
Officer)
*FRANK A. GODCHAUX III Chairman of the Board
*CHARLES R. GODCHAUX Vice Chairman of the Board
*THERESA G. PAYNE Director
*W. ELTON KENNEDY Director
*E. JAMES LOWREY Director
*PATRICK W. ROSE Director
*THOMAS B. WALKER, JR. Director
*MARY GODCHAUX WIECK Director
*By /s/ ELIZABETH B. WOODARD
ELIZABETH B. WOODARD
(AS ATTORNEY-IN-FACT FOR EACH
OF THE PERSONS INDICATED)
34