RIVIANA FOODS INC /DE/ - 10-K Annual Report

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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 29, 2003

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 77019-2141
HOUSTON, TEXAS (Zip Code)
(Address of principal executive 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 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 Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

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

As of August 26, 2003 the aggregate market value of Registrant's voting
stock held by non-affiliates of the Registrant was approximately $180,058,000.

The number of shares of Common Stock of the Registrant, par value $1.00 per
share, outstanding at August 26, 2003 was 14,335,686.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's definitive Proxy Statement for the 2003 Annual
Meeting of Stockholders to be held October 15, 2003 (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 2003, the Company's domestic operations accounted for
approximately 64% and 75% of net sales and operating income before general
corporate expenses, respectively, and operations in Central America and Europe
accounted for approximately 22% and 14% of net sales and 23% and 2% of operating
income before general corporate expenses, respectively.

Riviana's domestic operations consist primarily of sales of retail branded
and private label rice products, sales of rice products to retail foodservice
chains and to major food processors, sales of rice by-products to industrial
users and export sales of branded and value-added rice products to Puerto Rico
and a number of international markets.

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),
easy-to-prepare, flavored rice mixes (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 1% from fiscal 1999 to 2003.
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.

The Company markets its branded products under a number of nationally
recognized brand names including:

MAHATMA(R) -- the best selling brand of packaged long grain rice in
the U.S. for eleven 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 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.

S&W(R) -- the best selling brand of packaged long grain rice in the
Pacific northwest.

GOURMET HOUSE(R) -- one of the leading brands of packaged wild rice in
the U.S.

CHINA DOLL(R) -- one of the leading brands of packaged rice and
packaged beans in Alabama, Mississippi and Florida.

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 Saffron Yellow Rice, Red Beans & Rice, Spanish Rice, Black
Beans & Rice, Spicy Saffron Yellow Rice, Nacho Cheese Rice, Long Grain & Wild
Rice, Broccoli & Cheese Rice and Beef Rice, Carolina(R) brand Saffron Yellow
Rice, Black Beans & Rice, Pilaf Rice, Long Grain & Wild Rice, Chicken Rice and
Spanish Rice and Success(R) brand Saffron Yellow Rice, Brown & Wild Rice,
Broccoli & Cheese Rice, Red Beans & Rice, Grilled Chicken & Broccoli Rice and
Cheesy Rice.

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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 retailers in the
United States. In July 1998, the Company also began marketing and distributing
retail rice products in the United States, the Bahamas and U.S. military
commissaries for Riceland Foods, Inc., with whom it also participates in rice
flour milling and co-generation projects.

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 markets a range of foodservice products, principally instant rice,
parboiled rice, and rice mixes, to several of the top restaurant chains and
foodservice companies in the United States. Additionally, the Company 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 19% 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 bulk, brand name
and private label rice products to Canada, Mexico, Central America and countries
in the Caribbean, Europe, Africa and the Middle East.

In Central America, the Company operates as one of the largest
manufacturers of cookies and crackers and one of the largest processors of
fruits and vegetables through Pozuelo, S.A. ("Pozuelo") and Alimentos Kern de
Guatemala, S.A. ("Kern"). In cookies and crackers, Costa Rica is the largest
market, followed by Guatemala and El Salvador. In processed fruits and
vegetables, the Company produces a wide variety of products, including fruit
nectars and juices, fruit drinks, tomato products and refried beans. These
products are sold principally in Central America with the largest markets being
Guatemala, Costa Rica and El Salvador. Exports, including refried beans exported
to the United States, represent a part of the Central American business. Many of
the Company's primary brand name products are market leaders in Central America
in their respective categories.

In Europe, the Company is a distributor of rice and other food products
through its subsidiary, Stevens & Brotherton Ltd. ("S&B") and a major rice
miller, marketer and distributor of rice products through its subsidiary, N & C
Boost N.V. ("N&C"). S&B, a United Kingdom subsidiary, distributes a variety of
brand name and private label products including rice, dried fruits, and canned
and frozen fruits and vegetables to retail, wholesale, foodservice and
industrial customers. The products distributed by S&B are all produced by other
manufacturers and generate a lower gross profit margin than other Riviana
operations.

N&C, a Belgian subsidiary, competes in the continental European rice market
through its interest in Boost Nutrition C.V. in Belgium and its subsidiary,
Euryza Reis GmbH in Germany, (collectively "Boost"). Boost is accounted for as
an unconsolidated affiliate and is jointly owned by N&C and the Herba Rice
Division of Ebro Puleva, S.A. ("Herba"). On August 6, 2003, Herba, the Company's
joint venture partner in Boost, completed the acquisition from Kraft Foods Inc.
of the Reis-Fit(R) brand in Germany and Austria and the Ris-Fix(R) brand in
Denmark. The use by Boost of these brands will make Boost the leader in the
German retail rice market and provide a significant entry into the Danish
branded retail market. The Boost joint ownership agreement provides that each
party has certain rights to buy the other's interest or require the other to buy
its interest. N&C and Herba also each own a one-third interest in Herto N.V., a
major European rice cake manufacturer.

Financial segment information by geographic area for the most recent three
fiscal years is set forth in Item 8, Note 14, "Segment information."

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". 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

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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 4% of the Company's consolidated revenues in fiscal 2003.

In the United States, the Company supports its branded business primarily
with national and regional media advertising and trade and consumer promotions.
These programs are coordinated by the Company's marketing and sales departments
through seven 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 some contracts under which it
supplies rice products to industrial, foodservice 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 and mills rough rice from a variety of farm sources,
primarily in Arkansas and Louisiana. No single source accounts for more than 10%
of rough rice purchases. In addition to milling rice in its own facilities, the
Company purchases approximately 31% of its rice requirements from companies
primarily in the United States that mill the rice to the Company's
specifications. In fiscal 2003, 81% of the Company's milled rice purchases were
from one supplier, Riceland Foods, Inc. ("Riceland"), an unrelated third party.
In addition to these rice purchases, the Company is a joint venture partner with
Riceland in rice flour processing and co-generation of power from the
gasification of rice hulls. See Item 8, Note 1, "Organization and nature of
business". The Company believes adequate alternative sources of supply are
readily available, and all purchase transactions are compared to published
market price data and competitive quotes from more than one supplier before
entering into a purchase contract.

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 industry leaders and with several
regional competitors on the basis of price, quality, brand name recognition,
availability of products and product innovation.

The Company is the industry leader in sales of branded rice measured by
volume. The Quaker Oats Company is the largest seller of branded rice in the
industry measured in dollars with its rice brands, Rice-A-Roni and Near East.
Mars, Incorporated, through its subsidiary, Uncle Ben's, Inc., is the largest
seller of parboiled rice. Kraft Foods Inc. produces the leading brand of instant
rice, Minute.

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 and Germany, Boost competes with branded products from
Masterfoods (a division of Mars, Incorporated) as well as branded and private
label 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 market for products other than rice, S&B competes with local producers and
importers representing worldwide 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
impacted by government programs.

In May 2002, the Farm Security and Rural Investment Act of 2002 (the "2002
Farm Bill") was enacted to replace the Federal Agriculture Improvement and
Reform Act of 1996. The 2002 Farm Bill provides for the continuation of direct
decoupled payments for the 2002 through 2007 crop years. The payment base
remains at 85 percent of contract acreage, and the direct decoupled payment for
rice is set at $2.35 per cwt. Producers
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may elect to update base acres and yields. The 2002 Farm Bill maintains the
marketing loan and loan deficiency structure with the use of generic
certificates, contains a new counter-cyclical program, and maintains planting
flexibility, enabling farmers to plant different crops other than rice as market
conditions warrant. The 2002 Farm Bill sets payment limitations at $40,000 for
direct decoupled payments, $65,000 for counter-cyclical payments, and $75,000
for marketing loan gains. Current provisions regarding husband and wife and the
three entity rule are retained and a new means test provision will become
effective for the 2003 crop. The new farm bill currently complies with the World
Trade Organization commitments, but gives the Secretary of Agriculture the
authority to scale back payments if the United States gets close to the $19.1
billion cap for trade-distorting payments.

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 15, 2003, the Company employed approximately 2,752 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 281 employees.
In Memphis, Tennessee, the Company is a party to a collective bargaining
agreement with Teamsters Local Union No. 1196 covering 109 employees. In
Guatemala, Kern is a party to a collective bargaining agreement with a local
union covering 249 employees. The Company believes its labor relations are good.

ITEM 2. PROPERTIES

The following table lists the Company's principal properties, all of which
are owned unless otherwise indicated.

- ---------------

(1) Leased facility.

(2) Contracted space and services.

In addition to the properties listed in the table, the Company owns seven
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 29, 2003, 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,
Note 11, "Capital stock", and Note 15, "Unaudited quarterly financial data."

On August 19, 2003, the Board of Directors declared a quarterly cash
dividend of $0.25 per common share payable October 7, 2003 to stockholders of
record on September 9, 2003.

The Company has a continuing stock repurchase program. The program
authorizes the repurchase of up to 3,000,000 shares of the Company's common
stock from time to time. As of August 29, 2003 the Company had repurchased
2,023,246 shares. The Company expects to finance any future repurchases from
working capital, unused short-term credit lines and cash flow from operations.

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 1999 through
2003. Net sales for fiscal years 1999 and 2000 have been restated

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to reflect the adoption as of July 1, 2001, of the Financial Accounting
Standards Board's Emerging Issues Task Force (EITF) Issue Nos. 00-14 and 00-25.
All amounts are in thousands except per share data.

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.

BUSINESS ACQUISITION

Effective February 10, 2003, the Company purchased all of the Rice
Specialties business of ACH Food Companies, Inc. (ACH) for about $25.4 million.
The business located in Brinkley, Arkansas, and Mobile, Alabama, manufactures
and sells a variety of rice products including quick cooking rice for the U.S.
food manufacturing, retail and foodservice industry. The results of operations
are included in the Company's financial statements beginning February 10, 2003.
See Item 8, Note 13, "Business acquisition."

RESOLUTION OF TAX MATTER

The results of operations for the year ended June 29, 2003 included $1.4
million, or $0.10 per diluted share, net of minority interest of $0.1 million,
reduction in tax expense due to the favorable resolution of a foreign tax matter
in the second quarter of fiscal 2003. For the year ended June 30, 2002, the
results of operations included $0.8 million, or $0.06 per diluted share, net of
minority interest of $0.1 million, reduction in tax expense due to the favorable
resolution of a foreign tax matter in the second fiscal quarter of fiscal 2002.
The current year reduction in tax involved investment tax credits related to the
capital investments made by the Company in fiscal 1998 and the prior year
reduction was related similarly to capital investments made by the Company in
fiscal 1997. The Company did not record the benefit attributable to these
credits while their availability was uncertain; however, the matter has now been
resolved in favor of the Company.

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. Fiscal 2003, fiscal 2002 and fiscal 2001
covered 52 weeks of operations.

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
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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 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 Company's results of operations or
financial position for the three fiscal years ended June 29, 2003. 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.

ACCOUNTING POLICIES

The following accounting policies are integral to understanding the
financial statements contained herein reporting the operating results and
financial position of the Company for the year ended June 29, 2003 with
comparative results for the previous year. For additional accounting policies,
see Item 8, Note 2, "Summary of significant accounting policies."

ACCOUNTING ESTIMATES AND ASSUMPTIONS

Certain estimates and assumptions are used in preparing the financial
statements presented herein and affect the reported amounts and disclosures.
Estimates are used when accounting for certain consumer and trade promotions,
depreciation and amortization, employee benefits contingencies and asset
valuation allowances. For example, in determining the expense related to
consumer coupons, the Company estimates the percentage of coupons that will be
redeemed based on historical results for similar items. The Company is also
subject to risks and uncertainties that could cause actual results to be
different from estimated results such as changes in market conditions,
competition, foreign exchange rates, legislation, accounting rules and
litigation. Actual results could differ from those estimates. Those items are
discussed in more detail in the section entitled "Forward-Looking Information
and Factors that May Affect Future Results."

REVENUE RECOGNITION

Sales are recognized at the time the risk of ownership passes to the
customer. Generally this occurs when products are shipped to trade customers. On
sales where the risk of ownership transfers upon delivery to the customer, sales
are recorded when delivery occurs.

SALES INCENTIVES

Certain sales incentives such as coupons, rebates and free products which
are offered to either the retail trade or the consumer are recorded as a
reduction in sales revenue in accordance with recent accounting pronouncements
at the later of either the date the related revenue is recorded or the date at
which the sales incentive is offered.

CASH DISCOUNTS

An estimate of cash discounts offered to customers for early payment of
sales invoices is recorded in the same period the related sales are recorded.

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ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

In the normal course of business the Company extends credit to its
customers. The Company regularly reviews these accounts and makes a provision
for amounts that may become uncollectible. The Company regularly evaluates
accounts receivable and the allowance for doubtful accounts based on historical
loss experience, specific problem accounts and general economic conditions in
its geographic markets, and adjustments to the allowance are charged or credited
to income. Although the Company believes the allowance is adequate to provide
for potential uncollectible accounts, there is a possibility that actual losses
will differ from the amount estimated.

CONTINGENCIES

The Company is subject to certain contingencies including but not limited
to legal issues, and claims covering product liability, environmental, tax and
employment matters. The Company records accruals for such contingencies based on
its assessment of the probability of occurrence and an estimate of the potential
liability. In arriving at the liability to be recorded, it considers past
history, where applicable, and the available facts surrounding each issue.
Reserves are provided if the Company thinks it likely that a taxing authority
may take a sustainable position on a matter contrary to the position taken by
the Company or one of its subsidiaries. See Item 8, Note 10, "Commitments and
contingencies".

FORWARD-LOOKING INFORMATION AND FACTORS THAT MAY AFFECT FUTURE RESULTS

The Securities and Exchange Commission encourages the disclosure of
forward-looking information in order for investors to better understand the
Company and enable more informed investment decisions. From time-to-time the
Company does make oral and written statements that contain forward-looking
statements. The Company tries to identify such statements with the use of words
such as "estimate", "expect", "project", "intend", "plan", "believe", and other
similar terms.

Factors that could cause actual results to differ materially are the
following:

- Changes in business, political and worldwide economic conditions

- Competitive market activity

- Change in product mix sold

- Trade buying patterns

- Litigation

- Interest rate and foreign currency exchange rate fluctuations

- Governmental laws and regulations including tax laws

- Change in generally accepted accounting policies

- Acts of God affecting manufacturing and distribution channels

- Acquisitions, divestitures and restructurings

The Company cannot guarantee that any forward-looking statement will be
realized, but makes every effort to be prudent in its plans and assumptions.
Should known or unknown risks materialize, or should underlying assumptions be
inaccurate, actual results may vary materially from those estimated or
projected.

The Company does not undertake to publicly update forward-looking
statements as a result of new information, future events or otherwise.

This discussion of factors that could affect future results is not meant to
be complete but instead is designed to highlight important factors that may
impact the Company's future results.

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RESULTS OF OPERATIONS

FISCAL 2003 COMPARED TO FISCAL 2002

For the year ended June 29, 2003 sales increased $21.2 million or 5.7% to
$396.3 million from $375.1 million for the previous fiscal year. Higher unit
volumes increased sales by $28.2 million while the combined effect of price and
sales mix decreased sales by $8.0 million. Favorable currency translation
increased sales $1.0 million. In the domestic rice business sales of $247.4
million increased $7.7 million or 3.2% from the prior year sales of $239.7
million. Unit volumes increased 10.2% and added $19.2 million to sales. A
combination of lower prices and sales mix reduced sales by $11.5 million. Total
retail unit volumes increased by 2.8% and non-retail unit volumes, excluding
by-products, increased by 34.8%. In the non-retail sector, foodservice,
industrial specialty and export/commodity volumes increased 35.9%, 32.6% and
41.9%, respectively. The volume increases reported by the industrial specialty
and export/commodity sectors were favorably impacted by the acquisition of the
ACH Food Companies, Inc. rice specialties business. Sales by the Company's
energy co-generation joint venture increased $1.4 million or 30.2% to $6.1
million. This increase was directly related to the increase in natural gas
prices. Sales in Central America increased $4.7 million or 5.6% to $88.5 million
compared to $83.8 million in the prior year. Unit volume sales of fruit nectar
and juice products increased by 10.5%. Unit volume sales of cookie and cracker
products were impacted by increased competitive activity and sales price
increases, and increased 1.4%. In total, the increase in volumes added $5.3
million to sales. Price increases increased sales by $3.1 million and
unfavorable currency translation reduced sales by $3.7 million. In Europe, sales
increased $7.5 million or 16.0% to $54.4 million from $46.9 million in the prior
year. Higher unit volumes increased sales by $3.8 million. A combination of
price and product mix reduced sales by $1.0 million and favorable currency
translation increased sales by $4.7 million.

Gross profit increased $2.0 million or 1.8% to $109.9 million from $107.9
million a year earlier and decreased as a percentage of sales to 27.7% from
28.8%. In the domestic rice business, gross profit decreased $0.5 million or
0.7% to $75.4 million from $75.9 million in the same period in the prior year
and decreased as a percentage of sales to 30.5% from 31.7%. Gross profit
declined primarily as a result of sales mix reflecting lower sales in the
value-added categories of quick cooking rice and prepared rice mixes. The
domestic energy co-generation operations reported gross profit of $0.2 million
versus a loss of $0.2 million in the prior year. The improvement was related to
higher energy prices. Gross profit in Central America increased $1.3 million to
$28.4 million but decreased slightly as a percentage of sales to 32.1% from
32.3% in the prior year. The increase in gross profit was related to the
increase in sales. In Europe gross profit increased by $0.8 million or 14.6% to
$5.9 million, but decreased as a percentage of sales to 10.9% from 11.0% in the
previous year. The increase in gross profit was due to the increase in sales.

Advertising, selling and warehousing expenses decreased $2.2 million to
$50.5 million. A decrease of $3.6 million in the domestic rice business was
partially offset by an increase of $0.5 million in Central America and $0.9
million in Europe. The increase reported in Central America was related to
competitive markets and expanded distribution. In Europe, the increase was
related to increased distribution activity and an increase in pension plan
benefit costs. In Europe, in the prior year, the Company had a favorable
adjustment to pension expense which was not repeated in the current year.

Administrative and general expenses increased by $1.9 million or 9.0% to
$23.6 million from $21.7 million in the prior period. Administrative and general
expenses increased in the domestic rice business, Central America and Europe by
$0.6 million, $0.4 million and $0.5 million, respectively. The increase in
Europe was primarily related to an increase in pension plan expense as noted
above. In the domestic rice business, general and administrative expenses
increased by $0.6 million or 10.1% due to higher legal expenses and normal
inflationary increases. General corporate overhead expenses, reflecting normal
inflationary increases, were higher than the prior year by $0.4 million, or
4.4%.

Operating income increased $2.2 million, or 6.6%, to $35.8 million from
$33.6 million in the prior year. As a percentage of sales, operating income was
even with the prior year at 9.0%. Operating income in the domestic rice business
increased by $2.5 million, or 7.6%, to $35.2 million. The $3.6 million reduction
in advertising, selling and warehousing expenses more than offset the $0.5
million lower gross profit and
9

$0.6 million increase in general and administrative expenses. In Central
America, operating income increased $0.4 million or 4.2% to $10.5 million due to
higher gross profit as discussed previously offset partially by increased
advertising, selling and warehousing expenses and higher administrative
expenses. Operating income in Europe decreased $0.6 million to $1.1 million. The
$0.8 million increase in gross profit was offset by higher advertising, selling
and warehousing and administrative expenses. As previously discussed these
expenses were reduced in the prior year by an adjustment to pension expense.

Other income of $2.6 million increased by $1.2 million from the prior year.
In the current period the Company recorded net interest income of $1.0 million
which was $0.3 million higher than the prior year. Equity in the earnings of
unconsolidated affiliates of $2.8 million was even with the previous year. Other
miscellaneous expenses decreased by $0.8 million to $1.2 million primarily due
to the settlement of a dispute regarding a mineral lease, $0.6 million, and $0.1
million gain from the sale of assets and $0.1 million reduction in the
amortization of intangible assets.

Income tax expense of $9.3 million decreased $0.3 million from the same
period in the prior year notwithstanding an increase in income before tax. The
effective rate decreased to 24.3% from 27.3% in the same period last year. The
effective tax rate is less than the U.S. statutory rate primarily as a result of
foreign earnings which are subject to tax rates that are lower than the U.S.
statutory rate, the utilization of energy tax credits related to the Company's
co-generation joint venture and the resolution of a foreign tax matter in the
second fiscal quarter which resulted in reducing taxes by $1.5 million.

Net income for the year ending June 29, 2003 increased 13.5% to $28.7
million from $25.2 million in the prior fiscal year. Diluted earnings per share
were $1.96, up from $1.77 in the prior year.

FISCAL 2002 COMPARED TO FISCAL 2001

For the fiscal year ended June 30, 2002 sales decreased $6.9 million or
1.8% to $375.1 million from $382.0 million for the previous fiscal year. Higher
unit volumes increased sales $3.6 million while the combined effect of price and
sales mix decreased sales by $6.2 million. Unfavorable currency translation
reduced sales a further $4.3 million. In the domestic rice business sales of
$239.7 million increased $0.5 million or 0.2% from the prior year sales of
$239.2 million. Higher volumes were recorded across all sectors in the domestic
rice business with the exception of the low-margin export/commodity and
by-products sectors. In total, the increased volumes added $4.0 million in
sales. Sales in the domestic rice business were negatively affected $3.5 million
due to a combination of sales mix and pricing reflecting the competitive market
conditions. Total retail unit volumes increased by 1.1% and non-retail unit
volumes declined by 1.9% primarily due to competitive market conditions. Sales
by the Company's energy co-generation joint venture decreased by $1.1 million
due primarily to lower energy prices. Lower gas prices decreased sales $2.1
million and higher volumes increased sales by $1.0 million. Sales in Central
America decreased $0.2 million or 0.2% to $83.8 million compared to $84.0
million in the prior year. Higher volumes were recorded in both fruit nectar and
juice products and cookie and cracker product lines. In total, the increase in
volumes added $2.8 million to sales. Price increases, primarily in cookie and
cracker products increased sales by $1.2 million and unfavorable currency
translation reduced sales by $4.2 million. In Europe, sales declined by $6.1
million or 11.6% to $46.9 million from $53.0 million in the prior year. Lower
unit volumes decreased sales by $4.2 million. A combination of price and product
mix reduced sales by $1.9 million and unfavorable currency translation decreased
sales by $0.1 million.

Gross profit increased $5.4 million or 5.3% to $107.9 million from $102.5
million a year earlier and increased as a percentage of sales to 28.8% from
26.8%. In the domestic rice business, gross profit increased $5.3 million or
7.6% to $75.8 million from $70.5 million in the same period in the prior year
and increased as a percentage of sales to 31.7% from 29.5%. Gross profit
increased primarily as a result of lower rice and energy costs. The domestic
energy co-generation operations reported a loss at the gross profit level of
$0.2 million versus a profit of $0.5 million in the prior year. The decline in
gross profit resulted from the decline in sales related to lower gas prices.
Gross profit in Central America improved by $1.3 million or 5.1% to $27.1
million and increased as a percentage of sales to 32.3% from 30.7% in the prior
year. The increase in gross profit was due to product mix and lower production
costs. In Europe gross profit decreased by $0.5 million or 10.1% to

10

$5.2 million, but increased slightly as a percentage of sales to 11.0% from
10.8% in the prior year. The decrease in gross profit was due to lower sales
volumes.

Advertising, selling and warehousing expenses of $52.7 million were down
$0.9 million from the prior year. A decrease of $1.3 million in the domestic
rice business and $1.0 million in Europe was offset by an increase of $1.4
million in Central America. Expenses in Central America increased due to market
conditions and increased costs of expanding distribution. In the domestic rice
business, these costs were reduced primarily due to a lower spending level in
promotional programs and media advertising. Selling expenses were also reduced
by a lower level of bad debt expense. In Europe, the reduction in these expenses
reflects the lower sales volumes of the restructured operations.

Administrative and general expenses increased by $0.4 million or 1.6% to
$21.7 million from $21.3 million in the prior period. An increase in general
corporate expense of $0.8 million was offset by a reduction of $0.7 million in
European operations. Administrative expenses were reduced in Europe as a result
of the restructuring undertaken in the third fiscal quarter of the previous
year. The restructuring was initiated to adjust for a reduction in business
resulting from the loss of two product line distributorships. In Central
America, administrative and general expenses increased by $0.2 million. This
increase reflects normal inflationary increases.

During the third quarter of fiscal 2001, the Company recorded a pre-tax
charge of $1.4 million in continuing operations for restructuring and other
charges related to its European operations in the United Kingdom. The charges
were for activities related to work-force reductions and downsizing operations.
The charges include $0.4 million for redundancy payments for employee
termination benefits, $0.6 million for excess facility costs and $0.4 million
for equipment and other asset write-downs. The $1.4 million liability originally
recorded in accrued expenses has been reduced to $0.4 million as of June 30,
2002. The remaining liability primarily relates to long-term office and
equipment leases.

Operating income increased $7.4 million or 28.5% to $33.6 million from
$26.2 million in the same period in the prior year. As a percentage of sales,
operating income increased to 9.0% from 6.9% in the prior period. Operating
income in the domestic rice business increased by $6.5 million or 25.3% to $32.7
million. The increase in operating profit resulted primarily from the $5.3
million increase in gross profit and lower advertising, selling and warehousing
expenses of $1.3 million as discussed above and a small increase in general and
administrative expense. In Central America, operating income decreased $0.3
million or 2.7% to $10.0 million. Higher advertising, selling and warehousing
expenses of $1.4 million and a $0.2 million increase in administrative expenses
more than offset the $1.3 million increase in gross profit. Operating income in
Europe increased $2.6 million from the prior year's loss of $0.9 million to $1.7
million. The prior year was negatively impacted by the recording of a $1.4
million restructuring charge in the third fiscal quarter. Net of the
restructuring charge, operating income increased by $1.2 million.
Administrative, selling and warehousing expenses were lower in the current year
by $1.0 million and administrative expenses were lower by $0.7 million as a
result of the restructuring. Combined, these expense reductions more than offset
the $0.5 million reduction in gross profit.

Other income of $1.4 million decreased by $0.4 million from the prior year.
In fiscal 2002 the Company recorded net interest income of $0.6 million as
compared to net interest expense of $0.1 million in the prior year. The increase
in interest income was primarily related to improved cash flow associated with
the higher level of operating profit. Equity in the earnings of unconsolidated
affiliates of $2.8 million was $0.6 million higher than the same period in the
prior year due to record volumes at the Company's rice flour joint venture
operation and earnings from its affiliate, Boost Nutrition. In the current
period the Company recorded no gain from the sale of marketable securities while
in the prior year $1.4 million was recorded. Other miscellaneous expenses
increased by $0.3 million to $2.0 million.

Income tax expense of $9.6 million reflected an increase of $1.2 million
from the same period in the prior year due to the increase in income before tax.
The effective rate decreased to 27.3% from 29.9% in the same period last year.
The effective tax rate is less than the U.S. statutory rate primarily as a
result of foreign earnings which are subject to tax rates that are lower than
the U.S. statutory rate, the utilization of energy tax

11

credits related to the Company's co-generation joint venture and the resolution
of a foreign tax matter in the second fiscal quarter which resulted in reducing
taxes by $0.9 million.

Net income for fiscal 2002 increased $6.0 million or 31.2% to $25.2 million
from $19.2 million in the prior fiscal year. Diluted earnings per share were
$1.77, up from $1.36 in the prior period.

LIQUIDITY AND CAPITAL RESOURCES

The financial condition of the Company remained strong during fiscal 2003.
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.

The Company's total of cash, cash equivalents and marketable securities at
June 29, 2003 totaled $22.8 million and total short-term and long-term debt was
$24.2 million. The ratio of debt to total capitalization (total debt plus
stockholders' equity) increased to 11.8% at the end of fiscal 2003 from 1.5% the
previous year. The increase in short-term debt was related to the purchase of
the Rice Specialties business from ACH Food Companies, Inc. in February 2003.
The current ratio decreased to 1.9 in fiscal 2003 from 2.5 at the end of the
prior year as a result of the increase in short-term debt.

Consistent with historical results, operations provided a strong, positive
cash flow in fiscal 2003, which resulted in net cash provided by operations of
$24.3 million. This was a decrease of $3.3 million from the preceding year. Net
income increased by $3.4 million or 13.5% to $28.7 million and non-cash
depreciation and amortization charges increased by $1.1 million. Based on the
Consolidated Statements of Cash Flows which eliminate the effect of fluctuations
in foreign currency translation rates, working capital requirements increased
$11.8 million compared to the prior year when working capital requirements
increased by $3.5 million. In fiscal 2003, excluding the effect of exchange rate
changes, inventory increased by $3.8 million whereas in the prior year inventory
increased by $3.2 million. Accounts receivable in the current year increased
$7.1 million while in the prior year accounts receivable decreased $4.1 million.
Accounts payable and accrued liabilities increased by $2.1 million in the
current year compared to a decrease of $3.0 million in the previous year. For
the three year period ended June 29, 2003, net cash provided by operations has
exceeded capital expenditures and dividend requirements by $13.2 million.

Cash used in investing activities totaled $37.6 million. Purchases of
property, plant and equipment totaled $12.6 million, which was $2.9 million more
than last year. Cash inflows related to amounts due from affiliates was $0.4
million more than the prior year. Proceeds from the sale of property plant and
equipment were $0.2 million more than in the prior year. The Company used $25.4
million to purchase the Rice Specialties business from ACH Food Companies, Inc.

Cash provided by financing activities totaled $15.3 million for the current
year, while in the prior year $10.7 million was used in financing activities. In
the current period, the Company increased debt by $22.1 million while in the
prior year debt was reduced by $3.7 million. Dividend payments during the
current year were $9.5 million, up $0.4 million from $9.1 million paid last
year. Dividends paid per share of common stock increased 3.1% to $0.67 in fiscal
2003.

The board of directors of the Company has authorized the open-market
repurchase, from time to time, of up to 3.0 million 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 fiscal
2002 the Company did not repurchase any shares. Through the end of fiscal 2003,
the Company has repurchased a total of 2.0 million shares and 471 thousand
shares have been reissued upon exercise of employee stock options.

The Company has a $35.0 million domestic, short-term, unsecured revolving
credit facility with one bank. Under the terms of this facility, the Company has
the option of borrowing at the bank's prime rate or at the Libor rate plus
0.625%. At June 29, 2003, the Company had $11.5 million in unused and available
credit net of $22.0 in outstanding loans and $1.5 million in letters of credit
outstanding under this credit facility. This facility will expire in fiscal 2004
and the Company expects to renew the facility for another one-year period.

12

The agreement 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 $11.0 million in short-term
credit lines from local sources and at June 29, 2003 no amounts are borrowed.

The Company holds a portfolio of marketable securities with a market value
of $0.2 million at June 29, 2003 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.

CONTRACTUAL OBLIGATIONS

As of June 29, 2003 contractual obligations arising in the normal course of
business were as follows:

OFF BALANCE SHEET ARRANGEMENTS

As of June 29, 2003, the Company co-guaranteed two loans made to Herto N.V.
by foreign banks. A loan made in 2002 contains terms which provide for a maximum
credit available to Herto N.V. of E 7.5 million ($8.6 million) reducing over the
term with a final maturity in 2008. The Company has provided the bank with an
unconditional guarantee for an amount not to exceed 50% of the maximum credit
facility of E 7.5 million. The Company has an indemnity agreement from one of
the other three shareholders of Herto N.V. that provides the Company would be
reimbursed for 33 1/3% of any payment it was required to make under the terms of
the guarantee. This guarantee was made prior to December 30, 2002, the effective
date of Financial Accounting Standards Board Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." Accordingly, no liability has
been recorded by the Company. A second loan made in May 2003 contains terms
which provide for a maximum credit available to Herto N.V. of E 3.0 million
($3.4 million) with repayment beginning in 2005 and a final maturity in 2007.
The Company has provided the bank with an unconditional guarantee for an amount
not to exceed E 1.0 million ($1.1 million). The Company has calculated the fair
value of the guarantee and determined it to be immaterial.

Also, the Company and Kennedy Rice Dryers, Inc., a corporation of which Mr.
Elton Kennedy, a director of the Company, 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 $1.9
million promissory note payable by the Partnership. This guarantee was made
prior to December 30, 2002, the effective date of FIN No. 45. Accordingly, no
liability has been recorded by the Company.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company utilizes derivative financial instruments as hedges to manage a
portion of its exposure to fluctuations in exchange rates related to inventory
purchases denominated in foreign currencies. 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 utilizes
forward currency exchange contracts to hedge specific purchase commitments. The
contracts have varying maturities with none exceeding twenty-four months and are
settled at maturity, based on prices agreed to at the inception of the
contracts. At

13

June 29, 2003, the Company had established bank lines available to purchase
forward currency exchange contracts in the amount of $91.8 million of which $7.5
million was outstanding. Gains and losses deferred in outstanding instruments at
June 29, 2003 were $0.1 million and $0.2 million. As a matter of policy, the
Company does not engage in speculative activity 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 from time to time utilizes rough rice futures contracts to
hedge specific purchase commitments. The contracts have varying maturities with
none exceeding twelve months and are settled at maturity, based on prices agreed
to at the inception of the contracts. At June 29, 2003, the Company had no
outstanding futures contracts.

FOREIGN EXCHANGE RISK

A material amount of the Company's total sales and earnings are exposed to
changes in foreign exchange rates. The Company seeks to manage this risk in part
through operational means, including managing local currency revenues in
relation to local currency costs and local currency assets in relation to local
currency liabilities. The Company does not engage in any type of forward foreign
currency speculation to hedge its investment in foreign subsidiaries and
affiliates.

Forward foreign currency contracts are utilized by our European operations
to cover specific inventory purchases that are denominated in a foreign
currency. See discussion in "Quantitative and Qualitative Disclosure About
Market Risk" above.

INTEREST RATE RISK

The Company's U.S. dollar interest-bearing investments and loans are
subject to interest rate risk. The Company invests and borrows primarily on a
short-term or variable-rate basis and does not employ any techniques to hedge
this risk. At June 29, 2003, the Company had outstanding $22.0 million in short
term debt borrowed for 90 days at a 1.9% rate of interest. The Company expects
to be able to renew this debt at the end of the 90 day term. However, upon
renewal of the debt, the Company is subject to changes in interest rates. An
increase in the interest rate of 1/2 of 1% would increase annual interest
expense by $0.1 million before taxes.

The Company's foreign subsidiaries and affiliates invest and borrow in
their functional currency on both a short-term and long-term basis and are
subject to interest rate risk on these assets and liabilities. The Company does
not employ any techniques to hedge this risk.

LEGAL MATTERS

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.

RISK RELATING TO ARTHUR ANDERSEN LLP'S LACK OF CONSENT

REPRESENTATIVES OF ARTHUR ANDERSEN LLP ARE NOT AVAILABLE TO CONSENT TO THE
INCLUSION OF THEIR REPORT ON THE FINANCIAL STATEMENTS OF RIVIANA FOODS INC. IN
THIS ANNUAL REPORT, AND THE READER WILL NOT BE ABLE TO RECOVER AGAINST ARTHUR
ANDERSEN LLP UNDER SECTION 11 OF THE SECURITIES ACT OF 1933, AS AMENDED.

14

Arthur Andersen LLP were previously the independent accountants for Riviana
Foods Inc. until May 24, 2002. Representatives of Arthur Andersen LLP are not
available to provide the consent required for the inclusion of their report on
the financial statements of Riviana Foods Inc. incorporated in this annual
report, and we have dispensed with the requirement to file their consent in
reliance upon rule 437a of the Securities Act of 1933, as amended. Because
Arthur Andersen LLP have not consented to the inclusion of their report in this
annual report, the reader will not be able to recover against Arthur Andersen
LLP under Section 11 of the Securities Act of 1933, as amended for any untrue
statements of a material fact contained in the financial statements audited by
Arthur Andersen LLP that are incorporated by reference or any omissions to state
a material fact required to be stated therein.

15

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

16

INDEPENDENT AUDITORS' REPORT

The Shareholders and the Board of Directors
Riviana Foods Inc.:

We have audited the accompanying consolidated balance sheets of Riviana
Foods Inc. and subsidiaries as of June 29, 2003 and June 30, 2002, and the
related consolidated statements of income, capital accounts and retained
earnings, comprehensive income and accumulated other comprehensive loss and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Riviana
Foods Inc. and subsidiaries as of June 29, 2003 and June 30, 2002, and the
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.

KPMG LLP

Houston, Texas
August 14, 2003

17

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Riviana Foods Inc.:

We have audited the accompanying consolidated balance sheets of Riviana
Foods Inc. (a Delaware corporation) and subsidiaries as of July 1, 2001 and July
2, 2000, and the related consolidated statements of income, capital accounts and
retained earnings, comprehensive income and accumulated other comprehensive
income, and cash flows for each of the three fiscal years in the period ended
July 1, 2001. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 July 1, 2001 and July 2, 2000, and the results
of their operations and their cash flows for each of the three fiscal years in
the period ended July 1, 2001, in conformity with accounting principles
generally accepted in the United States.

ARTHUR ANDERSEN LLP

Houston, Texas
August 13, 2001

THE REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS SIGNED BY ARTHUR ANDERSEN LLP
AND DATED AUGUST 13, 2001 IS REPRINTED IN ITS ENTIRETY EXACTLY AS IT WAS PRINTED
IN THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR ENDED JULY 1, 2001. THIS REPORT
HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. THE REPORT REFERS TO CERTAIN
FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEARS ENDED JULY 1, 2001, JULY 2,
2000 AND JUNE 27, 1999. THE CONSOLIDATED BALANCE SHEETS OF RIVIANA FOODS INC.
AND SUBSIDIARIES AS OF JULY 1, 2001 AND JULY 2, 2000, AND THE RELATED
CONSOLIDATED STATEMENTS OF INCOME, CAPITAL ACCOUNTS AND RETAINED EARNINGS,
COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME AND CASH FLOWS
FOR THE FISCAL YEARS ENDED JULY 2, 2000 AND JUNE 27, 1999, ARE NOT INCLUDED
HEREIN.

ARTHUR ANDERSEN LLP WERE PREVIOUSLY THE INDEPENDENT ACCOUNTANTS FOR RIVIANA
FOODS INC. UNTIL MAY 24, 2002. REPRESENTATIVES OF ARTHUR ANDERSEN LLP ARE NOT
AVAILABLE TO PROVIDE THE CONSENT REQUIRED FOR THE INCLUSION OF THEIR REPORT ON
THE FINANCIAL STATEMENTS OF RIVIANA FOODS INC. INCORPORATED IN THIS ANNUAL
REPORT. BECAUSE ARTHUR ANDERSEN LLP HAVE NOT CONSENTED TO THE INCLUSION OF THEIR
REPORT IN THIS ANNUAL REPORT, THE READER WILL NOT BE ABLE TO RECOVER AGAINST
ARTHUR ANDERSEN LLP UNDER SECTION 11 OF THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY UNTRUE STATEMENTS OF A MATERIAL FACT CONTAINED IN THE FINANCIAL
STATEMENTS AUDITED BY ARTHUR ANDERSEN LLP OR ANY OMISSIONS TO STATE A MATERIAL
FACT REQUIRED TO BE STATED THEREIN.

18

RIVIANA FOODS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial
statements.
19

RIVIANA FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

The accompanying notes are an integral part of these consolidated financial
statements.
20

RIVIANA FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL ACCOUNTS AND RETAINED EARNINGS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND
ACCUMULATED OTHER COMPREHENSIVE LOSS

The accompanying notes are an integral part of these consolidated financial
statements.
21

RIVIANA FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial
statements.
22

RIVIANA FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 29, 2003, JUNE 30, 2002 AND JULY 1, 2001

(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 and Germany through unconsolidated affiliates, Boost Nutrition C.V.
(Boost) and Herto N.V. (Herto), food operations in Central America through
Alimentos Kern de Guatemala, S.A. (Kern) and Pozuelo, S.A. (Pozuelo) in Costa
Rica, 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
foodservice 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), S&W(R), Gourmet House(R), China Doll(R), Sello Rojo(R) and El
Mago(R).

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 through similar distribution channels with some products under
the Ducal(R) and Riviana Pozuelo(R) brands exported to certain United States
markets.

In Europe, S&B distributes rice under the Phoenix(R) brand and private
labels as well as dried fruits, processed meats and other food products to
retail, wholesale, foodservice and industrial customers. Through unconsolidated
affiliates Boost and Herto, the Company processes and sells packaged rice
products under the Bosto(R) brand within Belgium, the Oryza(R) brand within
Germany, 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. The Company owns a 49% interest in Boost and a 33% interest in Herto.

In addition to the U.S. operations above, the Company is a partner with
Riceland Foods, Inc. (Riceland) in joint ventures in Arkansas in rice flour
processing and co-generation of power from the gasification of rice hulls. The
rice flour processing operation is a 50/50 joint venture with Riceland in which
each partner shares equally in profits and in any future capital contributions.
The venture has no debt. The Company accounts for the joint venture using the
equity method of accounting and its results are included in Note 2, "Summary of
significant accounting policies, Investments in unconsolidated affiliates".

The Company is a partner with Riceland in two joint ventures to co-generate
power from the gasification of rice hulls. Riceland is the ultimate purchaser of
the energy output from these ventures. The Company's ownership in the two
ventures is 51% and 49% with the remaining equity of 49% and 51% owned by
Riceland. The results of both are included in the consolidated results of the
Company. Notwithstanding the 49% ownership, the Company consolidates the entire
operation at this venture since it controls the operation, and is the 100% owner
of the gasifier assets that are utilized to provide the gasification of rice
hulls that in turn is the heat source for the production of energy. The
consolidated financial statements fully reflect all obligations of both of these
joint ventures.

(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

23

RIVIANA FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

States, rice being the largest component of the Company's sales. The fiscal
years ended June 29, 2003, June 30, 2002 and July 1, 2001 were 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.

The following represents summarized financial information with respect to
the assets, liabilities and results of operations of the unconsolidated
affiliates.

Subsequent to June 29, 2003, the Company's unconsolidated affiliate, Boost,
entered into a trademark license agreement and put option contract expiring in
2018 with the Company's joint venture partner, Ebro Puleva (Ebro). Boost
committed to pay Ebro E1,400 ($1,600) annually, adjusted for local inflation,
until 2018 for the right to use the trademark Reis Fit(R) and Ris-Fix(R) in
certain European countries. At any time prior to 2018, Ebro has the right to
require Boost to purchase the trademarks for an amount equal to the gross
remaining payments on the license agreement, adjusted for local inflation.

The Company guarantees certain notes payable of these unconsolidated
affiliates. See Note 9, "Related party transactions", and Note 10, "Commitments
and contingencies: Loan Guarantees".

CHANGES IN ACCOUNTING PRINCIPLES

Effective July 3, 2000, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities", SFAS No. 137,

24

RIVIANA FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133" and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities". The effect of
adopting these statements had no material impact on the Company's results of
operations or financial position.

Effective July 1, 2001, the Company adopted the Financial Accounting
Standards Board's Emerging Issues Task Force (EITF) Issue No. 00-14, "Accounting
for Certain Sales Incentives", and EITF Issue No. 00-25, "Vendor Income
Statement Characterization of Consideration paid to a Reseller of the Vendor's
Products". These issues address the recognition, measurement and income
statement classification for various types of sales incentives including
discounts, coupons, rebates, free products and payments to retailers to obtain
shelf space for products of the Company. The effect of these issues
significantly impacted revenue and expense classifications but did not change
reported net income.

Effective July 1, 2002, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 141, "Business Combinations", and SFAS No. 142,
"Goodwill and Other Intangible Assets". In addition to requiring the use of the
purchase method for all business combinations, SFAS No. 141 requires intangible
assets that meet certain criteria to be recognized as assets apart from
goodwill. SFAS No. 142 addresses accounting and reporting standards for acquired
goodwill and other intangible assets, and generally requires that goodwill and
indefinite life intangible assets no longer be amortized but be tested for
impairment annually. Finite life intangible assets will continue to be amortized
over their useful lives. As of July 1, 2002, the Company completed the required
impairment tests of goodwill and other intangible assets with indefinite lives
and, based on the results of the tests, determined no reserve for impairment to
the carrying values of these assets was needed. In accordance with SFAS No. 142,
prior period amounts were not restated. For the twelve months ended June 30,
2002 and July 1, 2001, amortization net of taxes of indefinite life intangibles
was $97 and $46. Had the prior period been restated, the effect of adopting this
statement would have had no material effect on the Company's results of
operations or financial position. The net carrying value of goodwill and other
indefinite life intangibles as of June 29, 2003 was $9,585 and $1,694.

Effective July 1, 2002, the Company adopted SFAS No. 143, "Accounting for
Asset Retirement Obligations". SFAS No. 143 addresses accounting and reporting
for legal obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The effect of adopting this
statement had no material impact on the Company's results of operations or
financial position.

Effective July 1, 2002, the Company adopted SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets". This pronouncement establishes
the methods of accounting for the impairment or disposal of long-lived assets by
sale or otherwise. The effect of adopting this statement had no material impact
on the Company's results of operations or financial position.

Effective December 30, 2002, the Company adopted SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities." This statement broadens
the presentation of discontinued operations to include more disposal
transactions and restructurings planned and controlled by management that
materially change the scope of the business or the manner in which that business
is conducted. This statement is effective for business exit or disposal
activities initiated after December 31, 2002. The effect of adopting this
statement had no material impact on the Company's results of operations or
financial position.

Effective December 30, 2002, the Company adopted Financial Accounting
Standards Board Interpretation (FIN) No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This interpretation significantly changes the previous
practice in the accounting for, and disclosure of, guarantees. Guarantees
meeting the characteristics described in the interpretation are required to be
initially recorded at fair value, which is different from general current
practice of recognition of a liability only when loss is probable and reasonably
estimable, as prescribed in SFAS No. 5, "Accounting for Contingencies." The
interpretation also requires a guarantor to make significant new

25

RIVIANA FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

disclosures for virtually all guarantees even if the likelihood of the
guarantor's having to make payments under the guarantee is remote. The
disclosure requirements are effective for financial statements of interim or
annual periods ending after December 15, 2002. The initial recognition and
measurement provisions are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The effect of adopting this
interpretation did not have a material impact on the Company's results of
operations or financial position. See Note 10, "Commitments and contingencies:
Loan Guarantees".

Effective December 30, 2002, the Company adopted SFAS No. 148, "Accounting
for Stock-Based Compensation -- Transition and Disclosure". This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation", to provide
alternative methods of transition to Statement 123's fair value method of
accounting for stock-based compensation. The Company has elected to continue to
follow the intrinsic value method in accounting for its employee stock options
in accordance with APB 25, "Accounting for Stock Issued to Employees".
Accordingly, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. The effect of adopting this statement did
not have a material impact on the Company's results of operations or financial
position. See Note 12, "Stock option plans".

Effective December 30, 2002, the Company adopted EITF Issue No. 02-16,
"Accounting by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor". This issue addresses the accounting for cash
consideration given to a reseller of a vendor's products from a vendor. This
issue indicates that cash consideration received by a customer from a vendor is
presumed to be a reduction in the price of the vendor's products or services and
should, therefore, be characterized as a reduction of cost of sales when
recognized in the customer's income statement. The EITF indicated that such
presumption is overcome when the consideration is either (a) a reimbursement of
costs incurred by the customer to sell the vendor's products, in which case the
cash consideration should be characterized as a reduction of that cost when
recognized in the customer's income statement, or (b) a payment for assets or
services delivered to the vendor, in which case the cash consideration should be
characterized as revenue when recognized in the customer's income statement. The
EITF also reached a consensus that a rebate or refund of a specified amount of
cash consideration that is payable only if the customer completed a specified
cumulative level of purchases or remains a customer for a specified time period
should be recognized as a reduction of the cost of sales based on a systematic
and rational allocation of the cash consideration offered to each of the
underlying transactions that results in progress by the customer toward earning
the rebate or refund, provided the amounts are reasonably estimable. The effect
of adopting this issue did not have a material impact on the Company's results
of operations or financial position.

Effective February 1, 2003, the Company adopted FIN No. 46, "Consolidation
of Variable Interest Entities -- an Interpretation of ARB No. 51." This
interpretation addresses consolidation by business enterprises of entities in
which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. Variable interest entities are required to be consolidated by
their primary beneficiaries if they do not effectively disperse risks among
parties involved. The primary beneficiary of a variable interest entity is the
party that absorbs a majority of the entity's expected losses or receives a
majority of its expected residual returns. The consolidation requirements of
this interpretation apply immediately to variable interest entities created
after January 31, 2003 and apply to existing entities in the first fiscal year
or interim period beginning after June 15, 2003. Certain new disclosure
requirements apply to all financial statements issued after January 31, 2003.
The adoption of this interpretation did not have a material impact on the
Company's results of operations or financial position.

Effective June 1, 2003, the Company adopted SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity." This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and

26

RIVIANA FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

equity. SFAS No. 150 requires certain financial instruments that embody
obligations of the issuer and have characteristics of both liabilities and
equity to be classified as liabilities. Many of these instruments previously
were classified as equity or temporary equity and as such, SFAS No. 150
represents a significant change in practice in the accounting for a number of
mandatorily redeemable equity instruments and certain equity derivatives that
frequently are used in connection with share repurchase programs. SFAS No. 150
is effective for all financial instruments created or modified after May 31,
2003, and to other instruments at the beginning of the first interim period
beginning after June 15, 2003. The effect of adopting this statement did not
have a material impact on the Company's results of operations or financial
position.

ACCOUNTING ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the 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 AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

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.

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:

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 29 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.
27

RIVIANA FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

GOODWILL AND OTHER INTANGIBLES

As described above, the Company adopted SFAS No. 142 on July 1, 2002. In
accordance with SFAS No. 142, goodwill and indefinite life intangible assets are
no longer amortized but subject to annual impairment tests. The required
impairment tests were performed and did not result in an impairment charge.
Prior to 2003, these assets were amortized on the straight-line method. Other
intangible assets with finite lives, such as non-compete agreements, continue to
be amortized over their useful lives, ranging from 3 to 5 years.

OTHER NONCURRENT LIABILITIES

Other noncurrent liabilities are composed primarily of certain
postretirement benefits and staff termination indemnities.

REVENUE RECOGNITION

Sales are recognized at the time risk of ownership passes to the customer.
Generally this occurs when products are shipped to customers. On sales where
risk of ownership transfers upon delivery to customers, sales are recorded when
delivery occurs.

SALES INCENTIVES

Certain sales incentives such as coupons, rebates and free products which
are offered to either the retail trade or the consumer are recorded as a
reduction in sales revenue in accordance with recent accounting pronouncements
at the later of either the date the related revenue is recorded or the date at
which the sales incentive is offered.

CASH DISCOUNTS

An estimate of cash discounts offered to customers for early payment of
sales invoices is recorded in the same period the related sales are recorded.

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:

In the calculation of the effect of dilutive stock options, 1, 418 and 463
anti-dilutive stock option shares have been excluded for 2003, 2002 and 2001.

28

RIVIANA FOODS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STOCK-BASED COMPENSATION

Stock-based compensation plans, are accounted for under the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations using the intrinsic value method.
Accordingly, no expense has been recognized for stock option grants. Had expense
been determined based on the Black-Scholes option pricing model at the grant
date for awards in 2003, 2002 and 2001 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: