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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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO _____________
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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
(ADDRESS OF PRINCIPAL EXECUTIVE 77019-2141
OFFICES) (ZIP CODE)
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 September 8, 1997 the aggregate market value of the Registrant's
voting stock held by non-affiliates of the Registrant was approximately
$133,352,000.
The number of shares of Common Stock of the Registrant, par value $1.00 per
share, outstanding at September 8, 1997 was 15,750,500.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement for the 1997 Annual
Meeting of Stockholders to be held October 22, 1997 (the "Proxy Statement")
are incorporated by reference into Part III, Items 10, 11, 12 and 13.
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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 primarily 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 1997, the Company's domestic operations accounted
for approximately 60% and 69% of net sales and operating income before general
corporate expenses, respectively, and international operations accounted for
approximately 40% and 31% 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 rice operations consist 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 bulk 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 44% of the Company's
total net sales during fiscal 1997.
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 6% from fiscal 1993 to 1997.
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 enjoyed particularly strong growth, increasing
at a compound annual rate of 8% from fiscal 1993 to 1997. The Company believes
its strong growth in the instant and specialty categories stems in part from a
shift in consumer preferences toward more healthful, flavorful, easy-to-prepare
food products.
The Company markets its branded products under a number of nationally
recognized brand names including:
Mahatma(Registered Trademark) -- the volume leader of packaged long
grain rice sold in the retail grocery trade.
Success(Registered Trademark) -- the leading brand of instant
boil-in-bag rice and the second leading brand of instant rice in the
U.S.
Carolina(Registered Trademark) -- the second leading brand of
packaged long grain rice in the northeastern U.S.
WaterMaid(Registered Trademark) -- the leading brand of medium
grain rice in the southeastern U.S.
River(Registered Trademark) -- the second leading brand of packaged
medium grain rice in the northeastern U.S.
Riviana also markets a variety of easy-to-prepare, flavored rice mixes
under the Mahatma(Registered Trademark), Carolina(Registered Trademark) and
Success(Registered Trademark) brand names, including Mahatma(Registered
Trademark) brand Yellow Rice, Red Beans & Rice and Black Beans & Rice,
Carolina(Registered Trademark) brand Pilaf, and Success(Registered Trademark)
brand Brown & Wild Rice, Broccoli & Cheese Rice and Red Beans & 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 supermarket
chains in the United States.
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 bulk rice products to Puerto
Rico and a number of foreign countries. The Company's Puerto Rican brands, El
Mago(Registered Trademark), Sello Rojo(Registered Trademark) and
Mahatma(Registered Trademark), 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(Registered Trademark)
soda crackers and saltines, Bokitas(Registered Trademark) oil sprayed crackers,
Familia(Registered Trademark) assortments of sweet biscuits, and
Chiky(Registered Trademark), which is a chocolate-enrobed sweet biscuit. Its
newest products are Mantequilla (butter) cookies and Juveniles(Registered
Trademark) flavored creme-filled sandwich cookies. Many of these products are
market leaders in Central America. Pozuelo's sales, expressed in dollars, have
grown at a compound annual rate of 8.4% 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
juices and nectars, fruit drinks, tomato products (sauces, ketchup and paste),
canned vegetables and refried beans under the Kern's(Registered Trademark),
Ducal(Registered Trademark) and Fun-C(Registered Trademark) brands. Kern's
products are sold principally in Central America with its largest markets being
Guatemala, Costa Rica and El Salvador. Its newest product is a line of light
nectar drinks under the Koolfrut(Registered Trademark) label. 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 6.2% for the past five fiscal
years.
The Company's subsidiaries in Central America accounted for approximately
16% of net sales and 25% of operating income before general corporate expenses
in fiscal 1997.
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(Registered Trademark), which is
the leading brand of consumer packaged rice in Belgium. Boost's Boss(Registered
Trademark) 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 packaged rice, and canned fruits,
vegetables, meats and fish 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. The products distributed by S&B are all
produced by other manufacturers and generate a lower gross profit margin than
other Riviana operations.
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The Company's European operations accounted for approximately 24% of net
sales and 6% of operating income before general corporate expenses in fiscal
1997.
Financial segment information by geographic area for the most recent three
fiscal years is set forth in Item 8, Note 12, "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", 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 as follows: United
Kingdom -- pound sterling, Belgium -- Belgian franc, Costa Rica -- colon, and
Guatemala -- quetzal.
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 1997.
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 the Company's 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
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 10% 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 1997, of the milled rice purchased by the Company, 60% was purchased 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
3
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.
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
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 rice 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, 1997, the Company employed approximately 2,751 employees,
22% 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 216
employees. In Memphis, Tennessee, the Company is a party to a collective
bargaining agreement with Teamsters Local Union No. 1196 covering 104 employees.
In Guatemala, Kern is a party to a collective bargaining agreement with a local
union covering 276 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
- --------------------------- ---------------------------------- --------------
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
Edison, New Jersey(1)...... Warehouse 94,500
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 29, 1997, 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 10, "Capital stock", and Note 13, "Selected quarterly financial data
(unaudited)."
On August 21, 1997, the Board of Directors declared a quarterly cash
dividend of $.10 per common share payable October 13, 1997 to stockholders of
record on September 10, 1997.
The Company has a continuing stock repurchase program which it announced on
August 21, 1995. The program authorizes the repurchase of up to 500,000 shares
of the Company's common stock from time to time. The Company has repurchased
168,800 shares as of September 8, 1997. 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 1993 through
1997. All amounts are in thousands except per share data.
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
INCOME STATEMENT DATA:
Net sales.......................... $ 460,183 $ 440,492 $ 427,229 $ 419,143 $ 378,730
Income before extraordinary item... 20,025 18,342 14,931 17,480 13,176
Net income......................... 20,025 18,342 14,931 16,443 13,176
Earnings per share:
Income before extraordinary
item....................... 1.27 1.16 0.96 1.14 0.86
Net income.................... 1.27 1.16 0.96 1.07 0.86
BALANCE SHEET DATA (AT END OF YEAR):
Total assets....................... $ 191,889 $ 182,504 $ 175,683 $ 175,635 $ 162,886
Short-term debt and Current
maturities of long-term debt..... 6,874 13,031 13,276 31,597 19,023
Long-term debt, net of current
maturities....................... 2,619 3,644 2,372 2,432 25,592
Total debt......................... 9,493 16,675 15,648 34,029 44,615
Stockholders' equity............... 127,076 116,506 106,795 90,654 74,449
Dividends paid per share........... 0.3800 0.3466 0.2499 0.2000 0.1830
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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 29, 1997 the Company had established
bank lines available to purchase forward exchange contracts in the amount of
$41.6 million, of which $14.7 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 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
6
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 29, 1997. Despite higher inflationary
rates in Central America, inflation has not had a material impact on the results
of operations 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 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
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, nectars and fruit 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
7
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.
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%.
FISCAL 1996 COMPARED TO FISCAL 1995
Sales in fiscal 1996 totaled $440.5 million, an increase of $13.3 million
or 3.1% from fiscal 1995 sales, which were $427.2 million. Domestic sales
increased 5.4% or $12.9 million to $254.4 million from $241.5 million in the
prior year. A unit volume increase of 3.2% added $7.6 million to sales and a
combination of product mix and higher prices added an additional $5.3 million.
Sales increases were recorded in all sectors of the domestic rice business with
the exception of the foodservice sector where strong competition limited growth
and volumes were essentially flat. The retail sector accounted for 74.4% of
total domestic sales which was up from 73.7% in the prior year. Within this
sector, sales of value-added instant rice and prepared rice mixes increased unit
volumes by 8.6% and sales by $8.7 million or 10.6%. Of the $8.7 million increase
in sales for these value-added products, increased volumes accounted for $7.1
million of the increase and sales mix contributed an additional $1.6 million.
Sales to industrial customers increased $0.7 million or 5.4% on a 6.4% increase
in unit volumes. Sales in the export/commodity area increased $2.9 million or
6.9% to $45.8 million. In Central America, sales increased $1.1 million or 1.6%
to $69.7 million
8
from $68.6 million in the previous year. Volume gains added $1.4 million and
higher prices added an additional $7.6 million while unfavorable currency
translation reduced sales by $7.9 million. A difficult economic environment in
Guatemala as well as strong competition from lower cost goods smuggled in from
Mexico and local competitors combined to reduce sales of the Company's fruit
nectar and juice products. Unit case volumes were down 3.5% and dollar sales
were down 7.1%. Strong gains were recorded by the cookie and cracker business in
Central America. Unit volumes increased 7.9% and dollar volume increased by
11.1%. New products were responsible for the majority of the sales increase. In
Europe, sales declined by $0.8 million to $116.4 million in fiscal 1996 from
$117.2 million in the prior year. Increased volumes, principally in dried fruit
and packaged meat products, added $2.4 million to sales while a change in
product mix reduced sales by $0.3 million and unfavorable currency translation
reduced sales an additional $2.9 million.
Gross profit increased $0.8 million or 0.6% to $123.6 million in fiscal
1996 from $122.8 million in the previous year. As a percentage of sales, gross
profit declined slightly to 28.1% from 28.8% in the prior year. In the domestic
rice business gross profit increased by $1.9 million to $96.0 million from $94.1
million in the prior year. The increase in gross profit was directly related to
the increase in sales volume. As a percentage of sales, gross profit in the
domestic business declined to 37.8% from 39.0%. The decline in gross profit as a
percentage of sales was due to increased rice costs. However, as noted below,
market conditions allowed for a reduction in promotional spending which more
than recovered the reduction in the gross profit percentage. The gross profit
for the Central American business decreased by $0.8 million to $18.8 million and
also declined as a percentage of sales to 27.0% from 28.5% in fiscal 1995. The
reduced margin for this segment was a result of the competitive market for fruit
nectar and juice products. In Europe, gross margin declined by $0.4 million as a
result of increased costs associated with certain canned tomato products.
Advertising, selling and warehousing expenses of $78.4 million were $2.7
million or 3.3% less than the $81.1 million recorded in fiscal 1995. As a
percentage of sales this expense was 17.8% in fiscal 1996 versus 19.0% in the
prior year. In the domestic business, these expenses were $3.4 million less than
the prior year and were 25.3% of sales compared to 28.0% in fiscal 1995. The
reduced expenses were primarily in marketing and promotional spending. In fiscal
1996 rice costs were escalating over the prior year's costs which reduced the
need for competitive promotional spending. In Central America, selling and
promotional spending increased by $0.9 million. The increase was about evenly
divided between the cookie and cracker product lines where the increased
spending was related to the volume increase and the fruit nectar and juice
business where the increased spending was to counter competitive market
conditions.
Administrative and general expenses decreased by $0.1 million to $19.3
million in fiscal 1996. These expenses declined as a result of improved cost
control and lower legal expenses. As a percentage of sales, this expense
category declined to 4.4% from 4.5% in fiscal 1995.
Income from operations increased $3.5 million or 15.7% to $25.8 million
from $22.3 million in the previous year. Domestic operating income increased
$5.7 million or 47.7% to $17.4 million. This increase resulted from the gross
profit increase and the reduction in advertising, selling and warehousing costs.
In Central America, income from operations declined by $1.8 million to $6.7
million from $8.5 million in fiscal 1995. This decline in operating income is
directly attributable to the significant operating difficulties encountered by
the fruit nectar and juice business as discussed above. Gross profit was reduced
because of lower volumes and additional funds were committed to promotional
campaigns to counter the competitive pressure. Operating income in Europe
declined by $0.4 million to $1.6 million. This decline was directly related to
the lower gross profit.
Other income increased by $0.8 million to $0.6 million from an expense of
$0.2 million in fiscal 1995. Gains from the sale of marketable securities
increased $0.2 million to $1.0 million in fiscal 1996. Interest expense
decreased by $0.3 million. Interest expense was lower for the domestic
operations by $0.4 million and for the European operations by $0.2 million due
to lower working capital requirements. In Central America, interest expense was
higher than last year by $0.3 million. The increase in expense was related to
9
the unexpected decline in fruit nectar and juice sales and the resulting higher
level of working capital. Equity in the earnings of affiliates increased by $0.2
million to $1.8 million in the prior year.
While income tax expense increased $0.8 million to $7.8 million from $7.0
million last year, as a percentage of income before income taxes, taxes
decreased to 29.4% from 31.4% last year. The lower rate is the result of two
unusual events in Central America. In Costa Rica, the Company received a
favorable court opinion regarding previously applied for tax credits that
reduced tax expense. Offsetting this favorable event, the government in
Guatemala passed an extraordinary tax in the final quarter of the year, which
increased tax expense. Excluding these unusual items, the effective tax rate
would have been 31.2%
LIQUIDITY AND CAPITAL RESOURCES
The financial condition of the Company remained strong during fiscal 1997.
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 29, 1997
exceeded total debt by $2.0 million. The ratio of debt to total capitalization
(total debt plus stockholders' equity) decreased to 7.0% at the end of fiscal
1997 from 12.5% the previous year. The current ratio increased to 2.3 in fiscal
1997 from 2.2 at the end of the prior year.
Consistent with historical results, operations provided a strong, positive
cash flow in fiscal 1997, which resulted in net cash provided by operations of
$27.8 million. This represented an increase of $15.1 million from the prior
year. Net income increased by $1.7 million or 9.2% to $20.0 million and non-cash
depreciation and amortization charges increased by $0.9 million. Based on the
Consolidated Statement of Cash Flows which eliminates the effect of fluctuations
in foreign currency translation rates, working capital requirements were reduced
and cash of $5.1 million was provided compared to the prior year when working
capital requirements increased and used $11.5 million. The largest change was in
inventory levels. In fiscal 1997, inventories decreased by $5.2 million whereas
in the prior year inventories increased by $4.2 million. In fiscal 1996, other
assets were reduced by $3.5 million due principally to a dividend received from
a joint venture, which was not repeated in fiscal 1997. For the three year
period ended June 29, 1997, net cash provided by operations has exceeded capital
expenditures by $21.0 million. The capital spending program in fiscal 1997 was
focused on expanding capacity and cost reduction projects in the domestic rice
business and also included a $10.9 million investment in an energy cogeneration
joint venture project with a major rice milling company in Arkansas. The
Company's net investment in this cogeneration project was $6.0 million after
deducting $4.9 million contributed by the other joint venture partner.
Dividends paid per share of common stock increased 9.6% to $0.38 in fiscal
1997.
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
1997 the Company spent $2.2 million to repurchase 136.8 thousand shares at an
average price of $16.10 per share. Through the end of fiscal 1997, the Company
has repurchased a total of 164.8 thousand shares and 35.1 thousand shares have
been reissued upon exercise of employee stock options.
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 the bank's prime rate or
at the Eurodollar rate plus 3/8%. At June 29, 1997, the Company had $2.0 million
in loans and $1.7 million in letters of credit outstanding under these credit
facilities. One of these facilities will expire in fiscal 1998 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.
10
The Company's international operations are financed internally or through
borrowings in local currency without the benefit of parent Company guarantees,
with the exception of the Company's United Kingdom operations, for which the
Company provides a guarantee for a 5/84.0 million revolving short-term credit
facility. This facility expires in February 1998 and at June 29, 1997 no loans
were outstanding under this facility. The Company's foreign subsidiaries have a
total of $17.0 million in short-term credit lines from local sources and at June
29, 1997, the subsidiaries have borrowed a total of $3.0 million.
The Company holds a portfolio of marketable securities with a market value
of $4.4 million at June 29, 1997, 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.
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.
11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Consolidated Financial Statements:
Report of Independent Public Accountants ............................. 12
Consolidated Balance Sheets as of June 29, 1997, and June 30, 1996 ... 13
Consolidated Statements of Income for the fiscal years ended
June 29, 1997, June 30, 1996, and July 2, 1995 ..................... 14
Consolidated Statements of Capital Accounts and Retained Earnings
for the fiscal years ended June 29, 1997, June 30, 1996, and
July 2, 1995 ....................................................... 15
Consolidated Statements of Other Equity Accounts for the fiscal
years ended June 29, 1997, June 30, 1996, and July 2, 1995 ......... 15
Consolidated Statements of Cash Flows for the fiscal years ended
June 29, 1997, June 30, 1996, and July 2, 1995 ..................... 16
Notes to Consolidated Financial Statements ........................... 17
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 29, 1997, and
June 30, 1996, 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 29, 1997. 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 29, 1997, and June 30, 1996, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended June 29, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 12, 1997
12
RIVIANA FOODS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JUNE 29, 1997 JUNE 30, 1996
------------- -------------
ASSETS
CURRENT ASSETS:
Cash............................... $ 4,562 $ 7,086
Cash equivalents................... 2,478 304
Marketable securities.............. 4,405 8,244
Accounts receivable, less allowance
for doubtful accounts of $529 and
$419.............................. 43,493 42,109
Inventories........................ 48,454 52,884
Prepaid expenses................... 2,295 1,987
------------- -------------
Total current assets.......... 105,687 112,614
PROPERTY, PLANT AND EQUIPMENT:
Land............................... 3,550 3,466
Buildings.......................... 21,848 20,334
Machinery and equipment............ 81,830 62,468
------------- -------------
Property, plant and
equipment -- gross.............. 107,228 86,268
Less -- Accumulated depreciation... (38,065) (33,921)
------------- -------------
Property, plant and
equipment -- net................ 69,163 52,347
DUE FROM AFFILIATES..................... 55
INVESTMENTS IN UNCONSOLIDATED
AFFILIATES............................ 11,471 12,176
OTHER ASSETS............................ 5,568 5,312
------------- -------------
Total assets.................. $ 191,889 $ 182,504
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt.................... $ 5,011 $ 10,770
Current maturities of long-term
debt.............................. 1,863 2,261
Accounts payable................... 20,629 22,204
Accrued liabilities................ 13,940 12,418
Income taxes payable............... 5,382 3,968
------------- -------------
Total current liabilities..... 46,825 51,621
LONG-TERM DEBT, net of current
maturities............................ 2,619 3,644
DUE TO AFFILIATES....................... 135
DEFERRED INCOME TAXES................... 5,884 6,348
OTHER NONCURRENT LIABILITIES............ 2,995 2,970
COMMITMENTS AND CONTINGENCIES...........
MINORITY INTERESTS...................... 6,355 1,415
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.................... 6,215 6,067
Retained earnings.................. 109,851 96,036
Unrealized gains on marketable
securities, net of taxes.......... 2,273 2,364
Cumulative foreign currency
translation adjustment............ (5,059) (3,636)
Treasury stock, at cost, 130 and 16
shares............................ (2,087) (208)
------------- -------------
Total stockholders' equity.... 127,076 116,506
------------- -------------
Total liabilities and
stockholders' equity...... $ 191,889 $ 182,504
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
13
RIVIANA FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED
----------------------------------------------
JUNE 29, 1997 JUNE 30, 1996 JULY 2, 1995
------------- ------------- ------------
NET SALES............................... $ 460,183 $ 440,492 $427,229
COST OF SALES........................... 334,837 316,913 304,381
------------- ------------- ------------
Gross profit....................... 125,346 123,579 122,848
------------- ------------- ------------
COSTS AND EXPENSES:
Advertising, selling and
warehousing...................... 75,879 78,445 81,102
Administrative and general......... 19,413 19,311 19,429
------------- ------------- ------------
Total costs and expenses...... 95,292 97,756 100,531
------------- ------------- ------------
Income from operations........ 30,054 25,823 22,317
OTHER INCOME (EXPENSE):
Gain on sale of marketable
securities....................... 1,676 977 753
Interest income.................... 587 465 403
Interest expense................... (2,002) (2,814) (3,089)
Equity in earnings of
unconsolidated affiliates........ 796 1,819 1,665
Other income (expense)............. (1,189) 176 99
------------- ------------- ------------
Total other income
(expense).................. (132) 623 (169)
------------- ------------- ------------
Income before income taxes and
minority interests......... 29,922 26,446 22,148
INCOME TAX EXPENSE...................... 9,559 7,770 6,963
MINORITY INTERESTS IN EARNINGS OF
CONSOLIDATED SUBSIDIARIES............. 338 334 254
------------- ------------- ------------
Net income......................... $ 20,025 $ 18,342 $ 14,931
============= ============= ============
Earnings per share................. $ 1.27 $ 1.16 $ 0.96
============= ============= ============
Weighted average common shares
outstanding...................... 15,814 15,873 15,534
============= ============= ============
The accompanying notes are an integral part of these consolidated financial
statements.
14
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 3, 1994.... 15,378 $15,378 $1,021 $ 73,565 $ 89,964
Net income........... 14,931 14,931
Sales of common
stock, net of
initial public
offering expenses
of $1,040.......... 511 511 4,103 4,614
Dividends declared
($.3333 per
share)............. (5,167) (5,167)
Repurchase of common
stock.............. (6) (6) (5) (15) (26)
Collection of
employee discount
on stock........... 941 941
------ ------- ------- -------- ---------
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
====== ======= ======= ======== ====== ======= =========
CONSOLIDATED STATEMENTS OF OTHER EQUITY ACCOUNTS
(IN THOUSANDS)
UNREALIZED CUMULATIVE
GAINS ON FOREIGN
MARKETABLE CURRENCY
SECURITIES, TRANSLATION
NET OF TAXES ADJUSTMENT
------------ -----------
BALANCE, July 3, 1994................... $2,125 $(1,435)
Marketable securities, net of taxes:
Realized (gains)............... (490)
Unrealized gains............... 405
Effect of balance sheet
translations....................... 933
------------ -----------
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)
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
15
RIVIANA FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED
--------------------------------------------
JUNE 29, 1997 JUNE 30, 1996 JULY 2, 1995
------------- ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 20,025 $ 18,342 $ 14,931
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and
amortization............... 5,228 4,328 5,190
Deferred income taxes......... (413) 551 (357)
Gain on disposition of
assets..................... (1,566) (1,068) (911)
Equity in earnings of
unconsolidated
affiliates................. (796) (1,819) (1,665)
Change in assets and
liabilities:
Accounts receivable,
net................... (187) (3,012) 1,391
Inventories.............. 5,193 (4,167) 2,185
Prepaid expenses......... (177) (415) (439)
Other assets............. (18) 3,452 827
Accounts payable and
accrued liabilities... (1,224) (3,898) 4,059
Income taxes payable..... 1,448 (33) (2,827)
Other noncurrent
liabilities........... 67 172 263
Minority interests....... 242 249 166
------------- ------------- ------------
Net cash provided
by operating
activities....... 27,822 12,682 22,813
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment........................ (22,031) (11,041) (9,275)
Proceeds from disposals of
property, plant and equipment.... 63 432 243
Investment by joint venture
partner.......................... 4,759 749
Proceeds from sale of marketable
securities....................... 5,503 3,594 1,056
Due from (to) affiliates........... (707) 593 (1,489)
Increase in marketable
securities....................... (95) (335) (228)
Other.............................. 52 14 59
------------- ------------- ------------
Net cash used in
investing
activities....... (12,456) (5,994) (9,634)
------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term debt........ (5,903) (560) (18,266)
Additions to long-term debt........ 763 5,835 2,238
Repayments of long-term debt....... (2,440) (3,753) (2,368)
Dividends paid..................... (6,017) (5,504) (3,844)
Repurchases of common stock........ (2,202) (359) (26)
Sales of common stock, net of
initial public offering expenses
in 1995.......................... 276 146 4,614
Collection of employee discount on
stock............................ 117 941
------------- ------------- ------------
Net cash used in
financing
activities....... (15,406) (4,195) (16,711)
------------- ------------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS.................. (310) (245) (18)
------------- ------------- ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... (350) 2,248 (3,550)
CASH AND CASH EQUIVALENTS, beginning of
period................................ 7,390 5,142 8,692
------------- ------------- ------------
CASH AND CASH EQUIVALENTS, end of
period................................ $ 7,040 $ 7,390 $ 5,142
============= ============= ============
The accompanying notes are an integral part of these consolidated financial
statements.
16
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1997, JUNE 30, 1996, AND JULY 2, 1995
(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(Registered Trademark), Mahatma(Registered Trademark),
Carolina(Registered Trademark), River(Registered Trademark),
Watermaid(Registered Trademark), Sello Rojo(Registered Trademark) and El
Mago(Registered Trademark).
Through unconsolidated affiliates Boost and Herto, the Company processes
and sells packaged rice products under the Bosto(Registered Trademark) 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(Registered Trademark), Ducal(Registered
Trademark), Koolfrut(Registered Trademark) and Fun-C(Registered Trademark)
brands. Pozuelo produces and markets cookies and crackers under the
Pozuelo(Registered Trademark) brand. Both Kern's and Pozuelo's products are sold
primarily in Central America with some products under the Ducal(Registered
Trademark) and Pozuelo(Registered Trademark) brands exported to certain United
States markets.
S&B distributes rice under the Phoenix brand and private labels as well as
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.
17
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 29, 1997 JUNE 30, 1996
- ---------------------------------------- ------------- -------------
Current assets.......................... $28,809 $33,685
Noncurrent assets....................... 15,866 16,965
------------- -------------
Total assets....................... $44,675 $50,650
============= =============
Current liabilities..................... $12,981 $21,728
Noncurrent liabilities.................. 8,365 4,807
Common equity:
Riviana............................... 10,986 11,400
Other................................. 12,343 12,715
------------- -------------
Total liabilities and equity....... $44,675 $50,650
============= =============
INCOME STATEMENT DATA 1997 1996 1995
- ---------------------------------------- ---------- ---------- ----------
Net sales............................... $ 122,734 $ 129,620 $ 112,488
Gross profit............................ 16,496 16,467 16,405
Income before income taxes.............. 4,311 5,845 4,742
Net income.............................. 3,042 3,846 3,444
Equity in earnings of unconsolidated
affiliates............................ 796 1,819 1,665
CHANGES IN ACCOUNTING PRINCIPLES
Effective July 3, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". Effective July 1, 1996, the Company adopted 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". The effect
of adopting these statements had no material impact on the results of
operations. The initial effect of adopting SFAS No. 115 was recorded as an
increase in stockholders' equity of $2,125, net of taxes.
RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS No. 128, "Earnings per Share", was issued in February 1997. The
Company will adopt SFAS No. 128 in the second quarter of 1998. When adopted,
SFAS No. 128 requires the retroactive restatement of all earnings per share
reported. Had the Company adopted the statement in the current year, earnings
per share would have been as follows:
1997 1996 1995
--------- --------- -----
Basic................................... $ 1.27 $ 1.16 $ .96
Diluted................................. 1.26 1.15 .96
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 29, 1997, 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.
18
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 29, 1997 JUNE 30, 1996
------------- -------------
Raw materials........................... $ 8,555 $10,697
Work in process......................... 31 34
Finished goods.......................... 33,130 34,959
Packaging supplies...................... 6,738 7,194
------------- -------------
Total.............................. $48,454 $52,884
============= =============
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.
ADVERTISING
The costs of advertising, promotion and marketing programs are charged to
operations in the period incurred.
19
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 29, 1997, the Company had established
bank lines available to purchase forward exchange contracts in the amount of
$41,645, of which $14,724 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.
(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 29, 1997 JUNE 30, 1996
------------- -------------
Aggregate fair value.................... $ 4,405 $ 8,244
Cost basis.............................. 908 4,608
------------- -------------
Unrealized net gain before taxes... 3,497 3,636
Income taxes............................ 1,224 1,272
------------- -------------
Unrealized gain, net of taxes...... $ 2,273 $ 2,364
============= =============
Unrealized gains........................ $ 3,503 $ 3,696
Unrealized losses....................... (6) (60)
------------- -------------
Unrealized net gain before taxes... $ 3,497 $ 3,636
============= =============
20
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997 1996 1995
--------- --------- ---------
Proceeds from sales of marketable
securities............................ $ 5,503 $ 3,594 $ 1,056
Realized gross gains.................... 1,681 992 753
Realized gross losses................... (5) (15)
(4) ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
JUNE 29, 1997 JUNE 30, 1996
------------- -------------
Payroll, commissions and bonuses........ $ 7,508 $ 5,936
Coupon redemption and advertising....... 2,185 2,386
Taxes, other than income taxes.......... 1,132 1,425
Other................................... 3,115 2,671
------------- -------------
Total......................... $13,940 $12,418
============= =============
(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 29, 1997, and June 30,
1996, was 14.5% and 9.4%. A portion of the short-term debt at June 29, 1997, and
June 30, 1996, is secured by certain assets of the foreign subsidiaries. The
Company has unused lines of credit totaling about $55,205 at June 29, 1997, net
of borrowings and $1,740 in letters of credit.
Long-term debt consisted of the following:
JUNE 29, 1997 JUNE 30, 1996
------------- -------------
Total long-term debt.................... $ 4,482 $ 5,905
Less -- Current maturities.............. 1,863 2,261
------------- -------------
Long-term debt, net of current
maturities....................... $ 2,619 $ 3,644
============= =============
Total long-term debt at June 29, 1997, matures as follows:
1998.................................... $ 1,863
1999.................................... 1,124
2000.................................... 803
2001.................................... 211
2002.................................... 160
Thereafter.............................. 321
---------
Total......................... $ 4,482
=========
Total interest paid was $2,025, $2,862 and $3,063 for 1997, 1996 and 1995.
21
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES:
The provision for income taxes consisted of the following:
1997 1996 1995
--------- --------- ---------
Federal................................. $ 6,432 $ 2,140 $ 4,506
State................................... 556 523 532
Foreign................................. 3,035 1,805 2,322
--------- --------- ---------
Total current provision............ 10,023 4,468 7,360
--------- --------- ---------
Federal................................. (443) 3,316 (396)
Foreign................................. (21) (14) (1)
--------- --------- ---------
Total deferred provision
(benefit)........................ (464) 3,302 (397)
--------- --------- ---------
Income tax expense................. $ 9,559 $ 7,770 $ 6,963
========= ========= =========
Total income taxes paid................. $ 8,396 $ 7,807 $ 10,356
========= ========= =========
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:
1997 1996 1995
-------------------- -------------------- --------------------
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.............. $ 10,473 35.0% $ 9,256 35.0% $ 7,752 35.0%
Resolution of issues at less
than estimate previously
provided.................... (2,032) (7.7)
Foreign earnings subject to
tax rates that are different
than the U.S. federal
statutory rate.............. (923) (3.1) (443) (1.7) (1,082) (4.9)
State taxes, net of federal
benefit..................... 362 1.2 340 1.3 346 1.6
Taxes on dividends received
from foreign subsidiaries... 211 0.7 495 1.9 318 1.4
Other......................... (564) (1.9) 154 .6 (371) (1.7)
---------- ------- ---------- ------- ---------- -------
Income tax
expense / effective
rate................... $ 9,559 31.9% $ 7,770 29.4% $ 6,963 31.4%
========== ======= ========== ======= ========== =======
22
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred taxes were as follows:
JUNE 29, 1997 JUNE 30, 1996
------------- -------------
Staff termination indemnities........... $ 328 $ 705
Accrued employee benefits............... 948 691
State taxes............................. 823 770
Accrued liabilities..................... 1,214 1,361
Allowance for doubtful accounts......... 160 129
Other................................... 33 54
------------- -------------
Total deferred tax assets.......... 3,506 3,710
------------- -------------
Property, plant and equipment and
other................................. 6,626 6,696
Inventory............................... 1,540 2,041
Marketable securities................... 1,224 1,321
------------- -------------
Total deferred tax liabilities..... 9,390 10,058
------------- -------------
Net deferred tax
liabilities................ $ 5,884 $ 6,348
============= =============
Income before income taxes, minority interest and extraordinary item of
foreign subsidiaries was $10,959, $6,878 and $9,384 for 1997, 1996 and 1995.
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 $32,967,
$30,274 and $27,843 as of June 29, 1997, June 30, 1996, and July 2, 1995.
(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.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets:
JUNE 29, 1997 JUNE 30, 1996
------------- -------------
Actuarial present value of benefit
obligations:
Accumulated benefit obligation,
including vested benefits of
$12,799 and $11,040................ $14,901 $12,802
============= =============
Projected benefit obligation for
service rendered through fiscal
year end........................... $17,717 $15,010
Plan assets at fair value, primarily
listed stocks, short-term cash
investments, and government
securities............................ 17,453 14,401
------------- -------------
Plan assets below projected benefit
obligation............................ (264) (609)
Unrecognized net asset at June 29, 1987,
net of amortization, arising from the
initial application of SFAS No. 87
being recognized over nine years...... (3)
Unrecognized net (gain) loss from
experience different from that
assumed............................... (97) 728
Unrecognized prior service costs........ 400 275
------------- -------------
Prepaid pension cost included
in accrued liabilities..... $ 39 $ 391
============= =============
23
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension costs included the following components:
1997 1996 1995
--------- --------- ---------
Service cost-benefits earned during the
year.................................. $ 1,719 $ 1,588 $ 1,408
Interest cost on projected benefit
obligation............................ 1,185 1,005 858
Actual return on plan assets............ (3,254) (2,421) (1,822)
Net amortization and deferral........... 1,900 1,428 1,111
--------- --------- ---------
Net pension cost................... $ 1,550 $ 1,600 $ 1,555
========= ========= =========
Significant assumptions:
Weighted average discount rate..... 7.25% 7.0% 7.5%
Rate of increase in compensation
levels........................... 4.5 5.0 5.0
Long-term rate of return on plan
assets........................... 9.0 9.0 8.0
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 $547, $403 and
$476 during 1997, 1996 and 1995.
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 consolidated balance sheets. The Company recorded expense of
$204, $175 and $149 related to these plans for 1997, 1996 and 1995.
(8) RELATED PARTY TRANSACTIONS:
The Company paid $1,318, $2,234 and $1,144 for 1997, 1996 and 1995, 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 $2,143 promissory note
payable by the Partnership. The Company has also executed transactions with
other companies owned by certain directors which were not material to the
Company's results of operations. 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 29, 1997, future minimum lease payments and sublease rentals under
long-term operating lease obligations amounted to:
GROSS SUBLEASE
LEASE RENTAL NET LEASE
PAYMENTS INCOME PAYMENTS
-------- -------- ---------
1998.................................... $ 2,954 $ 519 $ 2,435
1999.................................... 2,568 442 2,126
2000.................................... 1,898 297 1,601
2001.................................... 1,184 110 1,074
2002.................................... 1,019 111 908
Thereafter.............................. 3,684 84 3,600
-------- -------- ---------
Total.............................. $ 13,307 $1,563 $11,744
======== ======== =========
Rent expense net of rental income was $2,777, $3,252 and $3,250 for 1997,
1996 and 1995.
24
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 29, 1997, the Company had an $8,216 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 29, 1997, the Company has outstanding 2,068 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 $2,171. 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.
There were no sales of common stock at a discount in 1997 or 1996. In 1995,
5 shares of common stock were sold for the formula based estimate of fair value
of $33 less a discount of $16.
On December 28, 1994, the stockholders of the Company approved a
twelve-for-one split of common stock and an increase in par value from $.01 per
share before the split to $1.00 per share after the split. Accordingly, all
common share references in the financial statements have been restated to
reflect the split, unless otherwise indicated.
The Company's common stock trades on The Nasdaq Stock Market (trading
symbol RVFD).
PREFERRED STOCK
At June 29, 1997, 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, the Company's stockholders adopted an incentive stock
option plan (1994 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, a total of 795 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.
25
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Plans' activity is summarized below:
1997 1996 1995
----------------------- ----------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------------- ------ -------------- ------ ---------------
Options outstanding, beginning of
year.................................. 403 $12.21 418 $12.08
Granted................................. 209 16.40 8 18.50 420 $12.08
Exercised............................... (23) 12.00 (12) 12.00
Canceled................................ (31) 13.13 (11) 12.00 (2) 12.00
------ ------ ------
End of year:
Options outstanding................ 558 13.74 403 12.21 418 12.08
====== ====== ======
Options exercisable................ 129 12.23 70 12.12
====== ======
Options outstanding price range.... $12.00-$18.50 $12.00-$18.50 $12.00-$13.625
All options outstanding at June 29, 1997, have a weighted average remaining
contractual life in years of 8.3 years.
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 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:
1997 1996
--------- ---------
Net income:
As reported........................ $ 20,025 $ 18,342
Pro forma.......................... 19,469 18,338
Earnings per share:
As reported........................ $1.27 $1.16
Pro forma.......................... 1.23 1.16
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 1997 and 1996. The weighted average value and the assumptions used were as
follows:
1997 1996
----- ---------
Weighted average value per share........ $6.92 $ 7.92
Option term until exercised (years)..... 7 7
Risk-free interest rate................. 6.5% 6.7%
Expected dividend yield................. 2.5% 2.6%
Volatility.............................. 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
26
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The Company's geographic area data are as follows:
1997 1996 1995
---------- ---------- ----------
Sales to unaffiliated customers:
Domestic.............................. $ 277,019 $ 254,403 $ 241,461
Europe................................ 108,315 116,384 117,180
Central America....................... 74,849 69,705 68,588
---------- ---------- ----------
Total consolidated............ $ 460,183 $ 440,492 $ 427,229
========== ========== ==========
Sales between geographic areas:
Domestic.............................. $ 1,552 $ 1,717 $ 2,209
Central America....................... 9,384 11,041 9,636
Eliminations.......................... (10,936) (12,758) (11,845)
---------- ---------- ----------
Total consolidated............ $ 0 $ 0 $ 0
========== ========== ==========
Income:
Operating income:
Domestic........................... $ 27,140 $ 26,509 $ 20,832
Europe............................. 2,455 1,639 2,013
Central America.................... 9,865 6,746 8,496
---------- ---------- ----------
Total operating income........ 39,460 34,894 31,341
Equity in earnings of unconsolidated
affiliates......................... 796 1,819 1,665
General corporate expenses............ (9,406) (9,071) (9,024)
Interest expense...................... (2,002) (2,814) (3,089)
Other income (expense), net........... 1,074 1,618 1,255
---------- ---------- ----------
Income before income taxes,
minority interest and
extraordinary item............... $ 29,922 $ 26,446 $ 22,148
========== ========== ==========
Identifiable assets at end of year:
Domestic.............................. $ 112,017 $ 96,381 $ 85,642
Europe................................ 31,131 39,619 40,441
Central America....................... 36,687 31,108 32,891
---------- ---------- ----------
Total identifiable assets..... 179,835 167,108 158,974
Corporate assets...................... 12,054 15,396 16,709
---------- ---------- ----------
Total assets.................. $ 191,889 $ 182,504 $ 175,683
========== ========== ==========
27
RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
QUARTERS ENDED
----------------------------------------------
SEPTEMBER DECEMBER MARCH JUNE YEAR
--------- -------- ---------- ---------- ----------
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............... .20 .37 .33 .37 1.27
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
1996
Net sales................ $ 101,856 $112,923 $ 114,650 $ 111,063 $ 440,492
Gross profit............. 27,996 33,888 30,842 30,853 123,579
Income before income
taxes and minority
interest............... 4,639 8,215 6,639 6,953 26,446
Net income............... 3,015 5,345 4,752 5,230 18,342
Per share:
Earnings............... .19 .34 .30 .33 1.16
Cash dividends paid.... .0833 .0833 .0900 .0900 .3466
Market price:
High............. 14.125 14.000 15.000 19.000 19.000
Low.............. 11.625 12.250 12.750 14.375 11.625
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.
28
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 Interlocks 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:
Report of Independent Public Accountants
Consolidated Balance Sheets as of June 29, 1997 and June 30, 1996
Consolidated Statements of Income for the fiscal years ended June 29,
1997, June 30, 1996, and July 2, 1995
Consolidated Statements of Capital Accounts and Retained Earnings for
the fiscal years ended June 29, 1997, June 30, 1996, and July 2, 1995
Consolidated Statements of Other Equity Accounts for the fiscal years
ended June 29, 1997, June 30, 1996, and July 2, 1995
Consolidated Statements of Cash Flows for the fiscal years ended June
29, 1997, June 30, 1996, and July 2, 1995
Notes to Consolidated Financial Statements
(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
From 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
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' CoOperative 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., Arrocerias
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 10.1 to the Company's Annual Report on From 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.
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) None
- ----------------------
* A management contract, compensatory plan or arrangement
29
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 25, 1997.
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 25, 1997.
SIGNATURE CAPACITY
- --------------------------- ---------------------------------------------------
/s/ JOSEPH A. HAFNER, JR. Chief Executive Officer, President and Director
JOSEPH A. HAFNER, JR. (Principal Executive Officer)
/s/ W. DAVID HANKS Executive Vice President and Director
W. DAVID HANKS
/s/ E. WAYNE RAY, JR. Vice President, Chief Financial Officer, Treasurer
E. WAYNE RAY, JR. 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
*MARY G. WIECK Director
*W. ELTON KENNEDY Director
*E. JAMES LOWREY Director
*PATRICK W. ROSE Director
*THOMAS B. WALKER, JR. Director
*By /s/ ELIZABETH B. WOODARD
ELIZABETH B. WOODARD
(AS ATTORNEY-IN-FACT FOR EACH OF THE
PERSONS INDICATED)
30