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

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 27, 1999

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO _______________

COMMISSION FILE NUMBER 0-25294

RIVIANA FOODS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 76-0177572
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
2777 ALLEN PARKWAY
HOUSTON, TX 77019-2141
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 529-3251

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None.

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

COMMON STOCK, PAR VALUE $1.00 PER SHARE
(TITLE OF CLASS)

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

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

As of September 2, 1999 the aggregate market value of the Registrant's
voting stock held by non-affiliates of the Registrant was approximately
$125,171,000.

The number of shares of Common Stock of the Registrant, par value $1.00 per
share, outstanding at August 31, 1999 was 14,608,594.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's definitive Proxy Statement for the 1999 Annual
Meeting of Stockholders to be held October 20, 1999 (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 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 1999, the Company's domestic operations accounted for
approximately 62% and 69% of net sales and operating income before general
corporate expenses, respectively, and international operations accounted for
approximately 38% and 31% of net sales and operating income before general
corporate expenses, respectively.

Riviana's domestic operations consist primarily of sales of retail branded
and private-label rice products, sales of rice products to retail food service
chains, sales of rice and rice by-products to major food processors and other
industrial users and exports of branded and value-added rice products to Puerto
Rico and a number of international markets. Sales of retail branded and
private-label rice products represent the most significant component of the
Company's domestic operations, accounting for approximately 45% of the Company's
total net sales during fiscal 1999.

By volume, Riviana is the largest seller of retail branded and
private-label rice products in the United States, offering a variety of products
in each of the retail rice industry's four categories: dried rice (milled white
and parboiled rice), instant rice (rice that cooks in 10 minutes or less),
prepared rice (specialty mixes) and brown rice.

The Company's domestic sales by hundredweight ("cwt") of retail rice
products have grown at a compound annual rate of 5% from fiscal 1995 to 1999.
The Company believes its consistent growth has resulted from its longstanding
national presence and reputation for quality, and its ability to develop and
market easy-to-prepare, value-added instant and specialty mix products. Sales of
instant and specialty mixes have increased at a compound annual rate of 3% from
fiscal 1995 to 1999.

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

MAHATMA(R) -- the best selling brand in the U.S. for ten years.

SUCCESS(R) -- the leading brand of instant boil-in-bag rice and
the second leading brand of instant rice in the U.S.

CAROLINA(R) -- one of the top leading brands of packaged long
grain rice in the northeastern and mid-Atlantic U.S.

WATERMAID(R) -- the leading brand of medium grain rice in the
south and southeastern U.S.

RIVERT(R) -- the top-selling brand of packaged medium grain rice in
several northeastern and mid-Atlantic U.S. markets.

Riviana also markets a variety of easy-to-prepare, flavored rice mixes
under the MahatmaT, CarolinaT and SuccessT brand names, including MahatmaT brand
Yellow Rice, Red Beans & Rice, Spanish Rice, Black Beans & Rice, Spicy Yellow
Rice, Nacho Cheese Rice and Beef Rice, CarolinaT brand Yellow Rice, Black Beans
& Rice, Pilaf Rice, Chicken Rice and Spanish Rice, and SuccessT brand Brown &
Wild Rice, Broccoli & Cheese Rice, Red Beans & Rice and Grilled Chicken &
Broccoli Rice.

In addition to its branded products, the Company supplies a full range of
private-label rice products -- dried rice, instant rice, rice mixes and brown
rice -- to numerous food retailers, including 19 of the top 20 supermarket
chains in the United States. In July 1998, the Company also began marketing and
distributing retail rice products in the United States and the Bahamas for
Riceland Foods, Inc., with whom it also participates in rice flour milling and
co-generation projects.

1

The Company supplies parboiled and instant rice in bulk to a number of the
nation's major food processors for use as an ingredient in other food products.
The Company also markets a range of food service products, principally instant
rice, parboiled rice, and rice mixes, to several of the top restaurant chains
and food service companies in the United States, and sells bulk rice and rice
by-products to industrial users.

Riviana exports brand name and value-added rice products to Puerto Rico and
a number of foreign countries. The Company's Puerto Rican brands, El MagoT,
Sello RojoT and MahatmaT, 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.

In Central America, the Company operates as one of the largest
manufacturers of cookies and crackers and processors of fruits and vegetables
through Pozuelo, S.A. ("Pozuelo") in Costa Rica and Alimentos Kern de
Guatemala, S.A. ("Kern"). In cookies and crackers, Costa Rica is the largest
market, followed by Guatemala and El Salvador. The Company has committed
significant resources to the manufacturing of cookies and crackers in the past
five years to modernize its facilities and convert them into a modern, efficient
baking operation. The principal brands are Riviana PozueloT soda crackers and
saltines, BokitasT oil sprayed crackers, FamiliaT assortments of sweet biscuits,
and ChikyT, which is a chocolate-enrobed sweet biscuit. In processed fruits and
vegetables, the Company produces a wide variety of products, including fruit
nectars and juices, fruit drinks, tomato products (sauces, ketchup and paste),
canned vegetables and refried beans under the Kern'sT, DucalT, Fun-CT and
KoolfrutT brands. These products are sold principally in Central America with
the largest markets being Guatemala, Costa Rica and El Salvador. Exports,
including refried beans exported to the United States, represent a growing part
of the Central American business. Many of the Company's brand name products are
market leaders in Central America in their respective categories.

Sales in Central America, expressed in dollars, have grown at a compound
rate of 4% from fiscal 1995 to 1999. The Central American segment accounted for
approximately 18% of net sales and 24% of operating income before general
corporate expenses in fiscal 1999.

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, BostoT,
which is the leading brand of consumer packaged rice in Belgium. Boost's BossT
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 each party has certain
rights to buy the other's interest or require the other to buy its interest. N&C
also owns a one-third interest in Herto N.V., a major European rice cake
manufacturer.

Stevens & Brotherton Ltd. ("S&B"), the Company's United Kingdom
subsidiary, is a distribution company that distributes a variety of brand name
and private-label products including rice, and canned fruits, vegetables, meats
to retail, wholesale, food service and industrial customers in the United
Kingdom. S&B also sells branded dried fruits and nuts from Sun-Diamond Growers
of California and Welch's Concord grape juice. The products distributed by S&B
are all produced by other manufacturers and generate a lower gross profit margin
than other Riviana operations.

The Company's European operations accounted for approximately 20% of net
sales and 7% of operating income before general corporate expenses in fiscal
1999.

Financial segment information by geographic area for the most recent three
fiscal years is set forth in Item 8, Note 12, "Segment information."

2

The Company is exposed to certain political, economic and other risks
inherent in doing business abroad, including exposure to currency exchange rate
fluctuations, currency exchange restrictions, potentially unfavorable changes in
tax or other laws, partial or total expropriation, and the risks of war,
terrorism and other civil disturbances. Additional information related to this
matter is set forth in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations". The Company's strategies for
minimizing the effect of currency rate fluctuations are to borrow in local
currencies, denominate accounts receivable in local currencies and hedge certain
short-term foreign product procurement commitments with specific currency
exchange contracts. Currency rate fluctuations have not materially impacted the
historical results of operations. The functional currencies of the Company's
foreign subsidiaries are the local currency of each subsidiary.

The Company has a large customer base that includes retail supermarket
chains, wholesalers, industrial ingredient users, restaurant chains, breweries
and other food processors. No customer, domestic or international, accounted for
more than 5% of the Company's consolidated revenues in fiscal 1999.

In the United States, the Company supports its branded business primarily
with regional media advertising and trade and consumer promotions, including
significant coupon and product tie-in programs. These programs are coordinated
by Company marketing and sales departments through nine regional managers and a
national network of food brokers.

The Company's sales of retail rice products are executed on a purchase
order basis although the Company does have a limited number of contracts under
which it supplies rice products to industrial and international customers on a
defined term basis. 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 1999, 90% of the Company's milled rice purchases were from three
suppliers. The Company believes adequate alternative sources of supply are
readily available.

The Company's competitive position depends largely on continued consumer
brand loyalty and its ability to introduce and gain customer acceptance for new
products. The Company competes with three major industry leaders and with
several regional competitors on the basis of price, quality, brand name
recognition, availability of products, and product innovation.

The Company is the industry leader in sales of branded rice measured by
volume. Mars, Inc., through its subsidiary Uncle Ben's, Inc., is the largest
seller of branded rice in the industry measured in dollars. Kraft General Foods
Inc., a subsidiary of Philip Morris Companies, Inc., produces the leading brand
of instant rice (Minute), and The Quaker Oats Company produces the leading brand
of rice mixes (Rice-A-Roni).

The Company's Central American subsidiaries have local competitors, some of
which are affiliated with multinational companies. New competition has come from
an influx of international brands imported from the United States, Mexico and
South America attributable largely to declining import duties in Central
America.

In Belgium, Boost competes with branded products from Master Foods (a
subsidiary of Mars, Inc.) as well as branded products packaged by other European
millers and processors. In the United Kingdom, S&B competes with European rice
millers, including mills in the United Kingdom, from which it also purchases
rice, for its share of the rice market. In the private-label market for products
other than rice, S&B competes with importers representing world-wide
manufacturing operations that process fruits, vegetables and other food
products.

3

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
different crops other than rice as market conditions warrant. The changes
introduced by the 1996 Farm Bill may have a significant impact on the supply and
price level of rice grown in the United States.

The Company is subject to various federal, state and local environmental
laws and regulations concerning air quality, water quality, and the generation,
use and disposal of materials relating to plant operations and to the processing
of rice. The Company procures and maintains the necessary environmental permits
and licenses in order to operate its facilities and considers itself to be in
compliance in all material respects with those environmental laws and
regulations currently applicable to its business and operations. Such compliance
has not materially affected the Company's business, financial condition or
results of operations.

The manufacture and marketing of the Company's products are subject to
regulation in the United States by federal regulatory agencies, including the
Environmental Protection Agency, the Occupational Safety and Health
Administration, the Food and Drug Administration ("FDA"), and by various state
and local authorities. The FDA also regulates the labeling of the Company's
products. The Company's operations outside the United States are subject to
similar regulation in a number of countries. Compliance with existing
requirements of such governmental bodies has not materially affected the
Company's capital expenditures, earnings or competitive position.

The Company's brands are protected by numerous trademark registrations in
the United States and foreign jurisdictions. The Company believes that its
registered trademarks have significant value, and are adequate to protect the
brand names significant to its business.

As of August 27, 1999, the Company employed approximately 2,767 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 235
employees. In Memphis, Tennessee, the Company is a party to a collective
bargaining agreement with Teamsters Local Union No. 1196 covering 98 employees.
In Guatemala, Kern is a party to a collective bargaining agreement with a local
union covering 281 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 70,500
Jonesboro, Arkansas(1)................................ Operations, gasification, storage for 6,000
rice hulls
Stuttgart, Arkansas(1)................................ Operations, gasification, storage for 36,705
rice hulls
Edison, New Jersey(1)................................. Warehouse 99,902
Orpington, England(1)................................. Trading office 11,100
Bristol, England(2)................................... Distribution 210,000
San Jose, Costa Rica.................................. Production, packaging, warehouse 257,000
Guatemala City, Guatemala............................. Production, packaging, warehouse 267,000

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

(1) Leased facility.

(2) Contracted space and services.

In addition to the properties listed in the table, the Company owns six
drying and storage facilities strategically located in the rice growing region
of the southeastern United States, and leases warehouse facilities in Houston
and Memphis.

ITEM 3. LEGAL PROCEEDINGS.

The Company is from time to time subject to claims and suits arising in the
ordinary course of business. The Company is not currently a party to any
proceeding which, in management's opinion, would have a material adverse effect
on the Company's financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

During the fourth quarter of the fiscal year ended June 27, 1999, no matter
was submitted to a vote of the stockholders.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Information relating to the Company's common stock is set forth in Item 8
in Note 10, "Capital stock", and in Note 13, "Selected quarterly financial
data (unaudited)."

On August 19, 1999, the Board of Directors declared a quarterly cash
dividend of $0.125 per common share payable October 12, 1999 to stockholders of
record on September 7, 1999.

The Company has a continuing stock repurchase program. The program
authorizes the repurchase of up to 2,000,000 shares of the Company's common
stock from time to time. As of August 31, 1999 the Company had repurchased
1,400,500 shares. The Company expects to finance any future repurchases from
working capital, unused short-term credit lines and cash flow from operations.

5

ITEM 6. SELECTED FINANCIAL DATA.

The following table represents selected consolidated financial data for the
Company and its subsidiaries for each of the five fiscal years 1995 through
1999. All amounts are in thousands except per share data.

1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------

INCOME STATEMENT DATA:
Net sales....................... $ 462,761 $ 454,012 $ 460,183 $ 440,492 $ 427,229
Net income...................... 24,255 22,590 20,025 18,342 14,931
Earnings per share:
Basic...................... 1.62 1.44 1.27 1.16 0.96
Diluted.................... 1.60 1.42 1.26 1.15 0.96
BALANCE SHEET DATA (AT END OF YEAR):
Total assets.................... $ 200,204 $ 205,328 $ 191,889 $ 182,504 $ 175,683
Short-term debt and Current
maturities of long-term
debt.......................... 1,973 2,705 6,874 13,031 13,276
Long-term debt, net of current
maturities.................... 1,390 1,861 2,619 3,644 2,372
Total debt...................... 3,363 4,566 9,493 16,675 15,648
Stockholders' equity............ 130,377 137,744 127,076 116,506 106,795
Dividends paid per share........ 0.47 0.42 0.38 0.3466 0.2499

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the related notes.

GENERAL

The Company operates on a 52/53-week fiscal year ending on the Sunday
closest to June 30th. This period is utilized because it closely coincides with
the rice crop year in the southern United States and rice is the largest
component of the Company's business.

The Company 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
attempt to minimize the effects of currency risk by borrowing externally in the
local currency and by hedging their purchases made in foreign currencies when
that option is available. As a matter of policy, the Company does not engage in
currency speculation. Changes in exchange rates historically have not materially
impacted the Company's net sales, costs or business practices and management
expects this to continue.

Inflationary conditions in the United States and Europe have been moderate
and have not had a material impact on the Company's results of operations or
financial position for the three years ended June 27, 1999. Despite higher
inflationary rates in Central America, inflation has not had a material impact
on the results of operations or financial position of the Company's units
located in that region because the Company has generally been able to pass on
cost increases to its customers.

The Company includes in domestic operations all export sales originating
from the United States and sales in Puerto Rico.

6

FISCAL 1999 COMPARED TO FISCAL 1998

For the fiscal year ended June 27, 1999, sales increased $8.8 million or
1.9% to $462.8 million from $454.0 million for the previous fiscal year.
Domestic sales increased by $9.1 million or 3.2% to $288.1 million while sales
from international operations decreased by $0.3 million to $174.7 million.
Increased volumes added $21.7 million to sales and the combined effect of price
and sales mix decreased sales by $3.8 million. Unfavorable currency translation
reduced sales a further $9.1 million. In the domestic rice business sales of
$284.7 million increased $8.6 million or 3.1% from the prior year sales of
$276.1 million. In the retail sector, sales increased by $4.2 million or 2.0% to
$208.1 million in fiscal 1999 from $203.9 million in the prior year primarily
due to increased volumes in regular rice products. Within the retail sector,
sales of regular rice increased by $4.6 million or 4.6% due primarily to a unit
volume increase of 6.3% that added $6.4 million to sales while the product mix
decreased sales by $1.8 million. Sales of value-added products decreased by $1.2
million or 1.3% due primarily to competitive market conditions in the prepared
rice mix category. Sales of brown rice increased over the prior year by $0.7
million due to a 5.9% increase in unit volumes. In the non-retail sector, sales
increased $4.4 million or 6.1%. Sales increased $0.7 million or 8.8% in the
foodservice sector with increased volumes adding $1.5 million and a change in
the product mix reducing sales by $0.8 million. The industrial sector recorded a
19.2% increase in unit volumes and a $2.1 million or 18.5% increase in sales. In
the lower margin export/commodity sector, sales increased by $2.2 million or
4.5%. Increased volumes added $3.6 million in sales and a combination of price
and product mix decreased sales $1.4 million. Lower selling prices for rice
byproducts reduced sales by $1.1 million while higher volumes increased sales by
$0.4 million. Sales from the Company's energy cogeneration joint venture
increased by $0.5 million due to higher volumes of $0.4 million and higher
prices of $0.1 million. Sales in Central America increased $4.9 million or 6.4%
to $81.2 million compared to $76.3 million in the prior year. Higher volumes
were recorded in both fruit nectar and juice products and cookie and cracker
product lines. In total, higher volumes increased sales by $7.5 million. Higher
prices increased sales by $5.9 million and unfavorable currency translation
reduced sales by $8.5 million. In Europe, sales declined by $5.2 million or 5.2%
to $93.5 million from $98.7 million last year. Lower unit volumes decreased
sales by $0.9 million as the Company continued to eliminate sales of certain
lower margin products. A combination of price and product mix reduced sales by
$3.7 million and unfavorable currency translation decreased sales by $0.6
million.

Gross profit increased by $5.3 million or 4.1% to $134.4 million from
$129.1 million a year ago and increased as a percentage of sales to 29.0% from
28.4% due to higher percentage margins in the domestic rice and European
segments of the business. In the domestic rice business gross profit increased
$4.2 million or 4.4% to $98.2 million from $94.0 million in the same period last
year. Gross profit increased primarily as a result of the increased sales
volumes and lower rice costs. In the domestic rice business, gross profit as a
percentage of sales increased to 34.5% from 34.1%. The domestic energy
cogeneration operations increased gross profit to $0.1 million from a break-even
position in the prior year. The improved gross profit contribution resulted from
increased sales. Gross profit in Central America improved by $1.3 million or
5.5% to $26.0 million, but declined as a percentage of sales to 32.0% from 32.3%
in the prior year. The increase in gross profit was directly related to the
sales increase and the decline as a percentage of sales was due to a larger
portion of sales being made in export markets which carry a lower margin. In
Europe gross profit decreased by $0.3 million or 3.1% to $10.1 million and
increased as a percentage of sales to 10.8% from 10.6% last year. The decrease
in gross profit was due to lower sales volumes and the increase in gross profit
as a percentage of sales was due to the product mix.

Operating income increased $1.5 million or 5.0% to $32.4 million from $30.9
million in the same period last year. As a percentage of sales, operating income
increased to 7.0% from 6.8% in the prior period. The increase in operating
income was principally due to improved results in the domestic rice business.
Operating income in the domestic rice business increased by $2.4 million or 9.1%
to $28.7 million. The increase in operating profit resulted from the $4.2
million improvement in gross profit as discussed above offset by $1.7 million in
higher advertising, selling and warehousing expenses which were primarily higher
promotional spending in the prepared rice mix category due to competitive market
conditions. In Central America, operating income declined $0.3 million or 2.9%
to $10.2 million. Increased

7

advertising, selling and warehousing expenses of $1.3 million offset the
increase in gross profit of $1.3 million and administrative expenses were $0.3
million higher. The increase in these expenses was related to expanded regional
distribution. Operating income in Europe declined $0.3 million or 9.6% to $3.0
million. This decline was directly related to the decrease in gross profit.

Other income of $2.8 million increased by $0.8 million from the prior year.
Net interest income of $0.3 million for the current period declined $0.1 million
from the prior period. Equity in the earnings of unconsolidated affiliates of
$1.1 million was $0.2 million lower than the same period last year due
principally to a reduction in sales to Russia by the Company's Belgian
affiliate. Other miscellaneous income increased by $1.0 million primarily due to
the settlement of litigation.

Income tax expense of $10.6 million reflected an increase of $0.6 million
from the same period last year and the effective rate decreased slightly to
30.1% from 30.2%. This decrease in the rate reflected higher energy tax credits
related to the Company's cogeneration joint venture.

Net income for the current year increased $1.7 million or 7.4% to $24.3
million from $22.6 million in the prior fiscal year. Diluted earnings per share
were $1.60, up from $1.42 in the prior period.

FISCAL 1998 COMPARED TO FISCAL 1997

For the fiscal year ended June 28, 1998, sales declined $6.2 million or
1.3% to $454.0 million from $460.2 million for the previous fiscal year. In the
prior year, the Company entered into a joint venture with a major rice milling
company in Arkansas, which began operations in the fourth quarter of the prior
year. The joint venture is involved in the cogeneration of steam and electricity
using rice hulls as fuel. This unit added $2.2 million to sales in fiscal 1998
reflecting a full year's operation compared to only one quarter in the prior
year. Excluding the effect of the cogeneration business, sales for the period
ended June 28, 1998 declined by $8.4 million or 1.8% to $451.1 million from
$459.5 in fiscal 1997. Increased volumes added $2.5 million to sales while a
combination of price and product mix reduced sales by $7.6 million and
unfavorable currency translation reduced sales a further $3.3 million. In the
domestic rice business sales of $276.1 million decreased $0.2 million or 0.1%
from the prior year sales of $276.3 million. Despite competitive market
conditions and declining total-market category sales, the Company's retail
sector sales increased by $1.3 million to $203.9 million in fiscal 1998 from
$202.6 million in the prior year. Within the retail sector, sales of regular
rice increased by $1.5 million or 1.5% due primarily to a unit volume increase
of 4.5% that added $2.8 million to sales while the product mix decreased sales
by $1.3 million. Sales of value-added products decreased by $0.4 million or 0.4%
despite a 1.0% increase in unit volume sales due primarily to competitive market
conditions. Sales of brown rice increased over the prior year by $0.2 million
due to a 3.5% increase in unit volumes. In the non-retail sector, sales
decreased $1.5 million or 2.0%. Sales increased $2.0 million or 33.5% in the
foodservice sector with increased volumes adding $3.7 million and a change in
the product mix reducing sales by $1.7 million. The industrial sector recorded a
22.7% increase in unit volumes and a $1.5 million or 15.6% increase in sales. In
the lower margin export/commodity sector, sales declined by $5.0 million or
8.7%. Lower volumes reduced sales by $3.0 million and a combination of price and
product mix decreased sales a further $2.0 million. Sales in Central America
increased $1.5 million or 1.9% to $76.3 million compared to $74.8 million in the
prior year. Higher volumes were recorded in both fruit nectar and juice products
and cookie and cracker product lines. In total, higher volumes increased sales
by $2.6 million. Higher prices, particularly in the cookie and cracker product
lines, increased sales by $4.1 million and unfavorable currency translation
reduced sales by $5.3 million. In Europe, sales declined by $9.7 million or 8.9%
to $98.7 million from $108.4 million in the prior year. Lower unit volumes
decreased sales by $6.0 million as the Company continued to eliminate sales of
certain lower margin products. A combination of price and product mix reduced
sales by $5.6 million and favorable currency translation increased sales by $2.0
million.

Gross profit increased by $3.7 million or 3.0% to $129.0 million from
$125.3 million a year ago and increased as a percentage of sales to 28.4% from
27.2% due to higher percentage margins in all segments of the business. In the
domestic rice business gross profit increased $0.6 million or 0.7% to $94.0
million from $93.4 million in the same period in the prior year. Gross profit
increased primarily as a result of the product

8

mix of sales and reduced rice costs. In the domestic rice business, gross profit
as a percentage of sales increased to 34.1% from 33.8%. The domestic energy
cogeneration operations essentially broke even at the gross profit level. As
anticipated, initial operating costs in the start-up phase were high. Gross
profit in Central America improved by $2.3 million or 10.7% to $24.6 million,
and also improved as a percentage of sales to 32.3% from 29.7% in the prior
year. Gross profit on the sale of cookie and cracker products increased over the
prior year due mostly to improved operating efficiencies. Margins in the
Company's fruit nectar and juice products were up reflecting improvements in
operating efficiencies and increased volumes. In Europe gross profit increased
by $0.8 million or 8.7% to $10.4 million and increased as a percentage of sales
to 10.6% from 8.9% in the prior year. The increase in gross profit was due to
improved margins on the ethnic rice business and the elimination of lower margin
products.

Operating income increased $0.8 million or 2.7% to $30.9 million from $30.1
million in the same period last year. As a percentage of sales, operating income
increased to 6.8% from 6.5% in the prior period. The increase in operating
income was principally due to improved results in Europe and Central America and
$0.2 million lower general corporate expenses. The improvement in European
operations of $0.9 million was related to the improved gross profit as discussed
previously. Operating income in the domestic rice business decreased by $0.8
million or 3.0% to $26.3 million. Competitive market conditions required
additional advertising and promotional spending of $1.0 million which more than
offset the $0.6 million improvement in gross profit. In Central America,
operating income increased by $0.6 million or 6.4% to $10.5 million. The
increase in gross profit of $2.3 million was partially offset by increased
selling and administrative expenses of $1.7 million related to expanded
distribution and new product introductory costs.

Other income of $2.1 million increased by $2.2 million from the prior year
when the category reflected a net expense of $0.1 million. Net interest income
of $0.4 million for the current period improved by $1.8 million from the prior
period's net interest expense of $1.4 million. Improved cash flow and declining
international interest rates were the main factors affecting this item. Equity
in the earnings of unconsolidated affiliates of $1.4 million was $0.6 million
higher than the same period in fiscal 1997. In the prior year, a provision of
$0.8 million was made to cover the expected loss on the disposition of an
unconsolidated affiliate. Also, gain on the sale of marketable securities was
$0.1 million lower than the prior year.

Income tax expense of $10.0 million reflected an increase of $0.4 million
from the same period in the prior year and the effective rate decreased to 30.2%
from 31.9%. This decrease in the rate reflected energy tax credits related to
the Company's cogeneration joint venture and Central American investment tax
credits.

The Company periodically reviews estimated useful lives of property, plant
and equipment. Based on the most recent review, the Company determined that
actual lives for certain machinery and equipment were generally longer than the
useful lives for depreciation purposes. Therefore the Company extended the
estimated useful lives of those assets from 10 to 15 years, effective June 30,
1997. This change in estimate reduced depreciation expense for the fiscal year
ended June 28, 1998 by $1.7 million and increased net income by $1.1 million,
and diluted earnings per share by $0.07.

Net income for the current year increased $2.6 million or 12.8% to $22.6
million from $20.0 million in the prior fiscal year. Diluted earnings per share
were $1.42, up from $1.26 in the prior period.

LIQUIDITY AND CAPITAL RESOURCES

The financial condition of the Company remained strong during fiscal 1999.
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 27, 1999
exceeded total debt by $11.3 million. The ratio of debt to total capitalization
(total debt plus stockholders' equity) decreased to

9

2.5% at the end of fiscal 1999 from 3.2% the previous year. The current ratio
decreased to 2.0 in fiscal 1999 from 2.4 at the end of the prior year.

Consistent with historical results, operations provided a strong, positive
cash flow in fiscal 1999, which resulted in net cash provided by operations of
$30.8 million. This represented a decrease of $2.0 million from the prior year.
Net income increased by $1.7 million or 7.4% to $24.3 million and non-cash
depreciation and amortization charges increased by $1.2 million. Based on the
Consolidated Statements of Cash Flows which eliminate the effect of fluctuations
in foreign currency translation rates, working capital requirements were reduced
and cash of $4.5 million was provided compared to the prior year when working
capital requirements also decreased and provided cash of $5.7 million. The
largest change was in accounts receivable. In fiscal 1999, excluding the effect
of exchange rate changes, accounts receivable increased by $3.1 million whereas
in the prior year accounts receivable decreased by $1.7 million. Inventories in
the current year decreased $1.0 million while in the prior year inventories
increased $1.9 million. Accounts payable and accrued liabilities increased by
$6.1 million in the current year compared to an increase of $4.6 million in the
previous period due primarily to the timing of transactions. For the three year
period ended June 27, 1999, net cash provided by operations has exceeded capital
expenditures by $48.3 million.

Cash used in investing activities remained at the same $8.2 million level
as last year. Purchases of property, plant and equipment totaled $9.5 million,
which was $2.0 million less than the same period last year. Cash outflows
related to amounts due to affiliates were $0.7 million compared to cash inflows
of $1.2 million in the prior year.

Cash used in financing activities totaled $27.6 million for the current
year which was an increase of $13.4 million over the prior year. During the
current period the Company repurchased 1.0 million shares of its common stock
paying $20.3 million. In the prior year the Company repurchased 0.2 million
shares at a cost of $3.9 million. In the current period, $0.7 million was used
to repay net borrowings compared to $4.4 million used to repay net borrowings in
the previous year. Dividend payments during the current year were $7.1 million,
up $0.5 million from $6.6 million paid last year. Dividends paid per share of
common stock increased 11.9% to $0.47 in fiscal 1999.

The board of directors of the Company has authorized the open-market
repurchase, from time to time, of up to 2.0 million shares of the Company's
common stock. The repurchased stock will be used for general corporate purposes
including issuance of stock under employee stock option plans. During 1999 the
Company spent $20.3 million to repurchase 1.0 million shares at an average price
of $19.92 per share. Through the end of fiscal 1999, the Company has repurchased
a total of 1.4 million shares and 126 thousand shares have been reissued upon
exercise of employee stock options.

The Company has a $30.0 million domestic, short-term, unsecured revolving
credit facility with one bank. Under the terms of this facility, the Company has
the option of borrowing at the bank's prime rate or at the Eurodollar rate plus
3/8%. At June 27, 1999, the Company had no loans and $1.6 million in letters of
credit outstanding under this credit facility. This facility will expire in
fiscal 2000 and the Company expects to renew the facility for another one-year
period. The agreement contains limited financial covenants and the Company is
currently in compliance with all of these covenants.

The Company's international operations are financed internally or through
borrowings in local currency without the benefit of parent Company guarantees.
The Company's foreign subsidiaries have a total of $15.0 million in short-term
credit lines from local sources and at June 27, 1999 the subsidiaries have
borrowed a total of $1.0 million.

The Company holds a portfolio of marketable securities with a market value
of $3.4 million at June 27, 1999, 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.

10

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company utilizes derivative financial instruments as hedges to manage a
portion of its exposure to fluctuations in rice costs, packaging material costs
and exchange rates related to inventory purchases denominated in foreign
currencies. These instruments qualify for hedge accounting treatment and,
accordingly, gains and losses on these instruments are deferred and included in
the basis of the inventory hedged. The Company utilizes rough rice futures
contracts, packaging material swap contracts and forward currency exchange
contracts to hedge specific purchase commitments. The contracts have varying
maturities with none exceeding twelve months and are settled at maturity, based
on prices agreed to at the inception of the contracts. At June 27, 1999, the
Company had outstanding futures contracts to purchase $8.1 million of rough
rice, swap contracts relating to the purchase of $1.4 million of packaging
material and had established bank lines available to purchase forward currency
exchange contracts in the amount of $41.7 million of which $10.4 million was
outstanding. Gains and losses deferred in these instruments at June 27, 1999,
were $0.2 million and $1.7 million, respectively. As a matter of policy, the
Company does not engage in speculative activity and does not hedge to protect
the translated results of foreign operations or other economic exposures for
which speculative accounting treatment of the hedging instrument would be
required.

The information below presents the Company's rough rice futures positions
outstanding as of June 27, 1999. All other derivative financial instruments are
not material as of June 27, 1999.

EXPECTED MATURITY
FISCAL 2000
-----------------

Futures contracts (long positions):
Contract volumes (cwt).......... 1,020,000
Weighted average contract price
(per cwt)..................... $ 7.99
Contract amount................. $ 8,147,772
Weighted average fair value (per
cwt).......................... $ 6.45
Fair value...................... $ 6,581,400

IMPACT OF THE YEAR 2000 ISSUE

The Company is currently working to resolve the potential impact of the
year 2000 on the processing of date-sensitive data by the Company's computerized
information systems. The year 2000 is critical to these systems as many computer
programs are written using two digits rather than four to define the applicable
year. As a result, any of the Company's computer applications that have
date-sensitive programs may recognize a date using "00"as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculation
causing disruptions including but not limited to a temporary inability to
process transactions, issue invoices, communicate with customers and financial
institutions and update internal accounting systems. If not corrected, such
disruptions could have a significant impact on the Company's operations.

The Company has initiated a Company-wide program to prepare the Company's
computer systems and applications for the year 2000. Based on present
information, the Company believes that it will be able to achieve year 2000
compliance through modification of some existing programs and the replacement of
other programs with new programs that are already year 2000 compliant. The
Company will utilize both internal and external resources to reprogram, or
replace, and test software for year 2000 compliance. The Company plans to
complete the year 2000 conversion project by September 30, 1999. The total
project costs are presently estimated not to exceed $1.0 million and will be
expensed as incurred, unless new software is purchased in which case costs will
be capitalized.

The Company is taking steps to resolve year 2000 compliance issues that may
be created by customers, suppliers and financial institutions with whom the
Company does business. However, there can be no guarantee that the systems of
other entities will be converted timely. A failure to convert by another entity
could have a significant adverse effect on the Company.

11

The costs of the year 2000 conversion project and the date on which the
Company plans to complete the project are based on management's best estimates,
which were derived using numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. There can be no guarantee that these estimates will be achieved
and actual results could vary significantly from current estimates.

The Company does not have a written contingency plan to address the issues
that could arise should the Company or any of its suppliers or customers not be
prepared to accommodate year 2000 issues timely. The Company believes that in an
emergency it could revert to the use of manual systems that do not rely on
computers and could perform the minimum functions required to maintain the flow
of goods and provide information reporting to maintain satisfactory control of
the business. Should the Company have to utilize manual systems, it is uncertain
that it could maintain the same level of operations and this could have a
material adverse impact on the business. The Company intends to maintain
constant surveillance on this situation and will develop such contingency plans
as are required by the changing environment.

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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

Consolidated Financial Statements:
Consolidated Balance Sheets as
of June 27, 1999, and June 28,
1998........................... 13
Consolidated Statements of
Income for the fiscal years
ended June 27, 1999,
June 28, 1998, and June 29,
1997........................... 14
Consolidated Statements of
Capital Accounts and Retained
Earnings for the fiscal years
ended June 27, 1999, June 28,
1998, and June 29, 1997........ 15
Consolidated Statements of
Comprehensive Income and
Accumulated Other
Comprehensive Income for the
fiscal years ended June 27,
1999,
June 28, 1998, and June 29,
1997........................... 15
Consolidated Statements of Cash
Flows for the fiscal years
ended June 27, 1999,
June 28, 1998, and June 29,
1997........................... 16
Notes to Consolidated Financial
Statements..................... 17
Report of Independent Public
Accountants.................... 31

12

RIVIANA FOODS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

JUNE 27, 1999 JUNE 28, 1998
-------------- --------------

ASSETS
CURRENT ASSETS:
Cash............................ $ 5,605 $ 7,609
Cash equivalents................ 5,729 9,588
Marketable securities........... 3,366 4,328
Accounts receivable, less
allowance for doubtful accounts
of
$1,386 and $1,265............. 42,079 40,514
Inventories..................... 46,570 49,566
Prepaid expenses................ 2,247 2,008
-------------- --------------
Total current assets....... 105,596 113,613
PROPERTY, PLANT AND EQUIPMENT:
Land............................ 3,504 3,530
Buildings....................... 26,853 25,271
Machinery and equipment......... 91,557 87,668
-------------- --------------
Property, plant and
equipment, gross....... 121,914 116,469
Less accumulated depreciation... (44,579) (41,241)
-------------- --------------
Property, plant and
equipment, net......... 77,335 75,228
INVESTMENTS IN UNCONSOLIDATED
AFFILIATES......................... 9,958 10,130
OTHER ASSETS......................... 7,315 6,357
-------------- --------------
Total assets............... $200,204 $205,328
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt................. $ 970 $ 1,280
Current maturities of long-term
debt............................ 1,003 1,425
Accounts payable................ 24,893 23,988
Accrued liabilities............. 18,870 14,894
Income taxes payable............ 6,938 6,255
-------------- --------------
Total current
liabilities.................. 52,674 47,842
LONG-TERM DEBT, net of current
maturities........................... 1,390 1,861
DUE TO AFFILIATES.................... 506 1,347
DEFERRED INCOME TAXES................ 5,809 6,805
OTHER NONCURRENT LIABILITIES......... 2,964 3,246
COMMITMENTS AND CONTINGENCIES........
MINORITY INTERESTS................... 6,484 6,483
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................. 6,519 6,455
Retained earnings............... 142,424 125,503
Accumulated other comprehensive
income......................... (9,606) (4,964)
Treasury stock, at cost, 1,237
and 254 shares................. (24,843) (5,133)
-------------- --------------
Total stockholders'
equity....................... 130,377 137,744
-------------- --------------
Total liabilities and
stockholders' equity......... $200,204 $205,328
============== ==============

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 27, 1999 JUNE 28, 1998 JUNE 29, 1997
------------- ------------- -------------

NET SALES............................ $ 462,761 $ 454,012 $ 460,183
COST OF SALES........................ 328,395 324,919 334,837
------------- ------------- -------------
Gross profit.................... 134,366 129,093 125,346
------------- ------------- -------------
COSTS AND EXPENSES:
Advertising, selling and
warehousing................... 81,184 78,199 75,879
Administrative and general...... 20,772 20,026 19,413
------------- ------------- -------------
Total costs and expenses... 101,956 98,225 95,292
------------- ------------- -------------
Income from operations..... 32,410 30,868 30,054
OTHER INCOME (EXPENSE):
Gain on sale of marketable
securities.................... 1,613 1,584 1,676
Interest income................. 1,388 1,061 587
Interest expense................ (1,039) (619) (2,002)
Equity in earnings of
unconsolidated affiliates..... 1,142 1,363 796
Other expense, net.............. (291) (1,324) (1,189)
------------- ------------- -------------
Total other income
(expense)............... 2,813 2,065 (132)
------------- ------------- -------------
Income before income taxes
and minority
interests............... 35,223 32,933 29,922
INCOME TAX EXPENSE................... 10,592 9,956 9,559
MINORITY INTERESTS IN EARNINGS OF
CONSOLIDATED SUBSIDIARIES.......... 376 387 338
------------- ------------- -------------
NET INCOME...................... $ 24,255 $ 22,590 $ 20,025
============= ============= =============
Earnings per share:
Basic........................... $ 1.62 $ 1.44 $ 1.27
Diluted......................... 1.60 1.42 1.26
Weighted average common shares
outstanding:
Basic........................... 14,987 15,727 15,814
Diluted......................... 15,187 15,936 15,919

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, June 30, 1996............... 15,883 $15,883 $6,067 $ 96,036 (16 ) $ (208) $ 117,778
Net income....................... 20,025 20,025
Sales of common stock............ (47) 23 323 276
Dividends declared ($.39 per
share)......................... (6,163) (6,163)
Repurchases of common stock...... (137 ) (2,202) (2,202)
Collection of employee discount
on stock....................... 117 117
Tax credit for disqualifying
dispositions of stock.......... 31 31
--------- ------- -------- --------- ------- -------- ---------
BALANCE, June 29, 1997............... 15,883 15,883 6,215 109,851 (130 ) (2,087) 129,862
Net income....................... 22,590 22,590
Sales of common stock............ (181) 55 861 680
Dividends declared ($.43 per
share)......................... (6,757) (6,757)
Repurchases of common stock...... (179 ) (3,907) (3,907)
Collection of employee discount
on stock....................... 120 120
Tax credit for disqualifying
dispositions of stock.......... 120 120
--------- ------- -------- --------- ------- -------- ---------
BALANCE, June 28, 1998............... 15,883 15,883 6,455 125,503 (254 ) (5,133) 142,708
Net income....................... 24,255 24,255
Sales of common stock............ (90) 37 601 511
Dividends declared ($.485 per
share)......................... (7,244) (7,244)
Repurchases of common stock...... (1,020 ) (20,311) (20,311)
Collection of employee discount
on stock....................... 13 13
Tax credit for disqualifying
dispositions of stock.......... 51 51
--------- ------- -------- --------- ------- -------- ---------
BALANCE, June 27, 1999............... 15,883 $15,883 $6,519 $ 142,424 (1,237 ) $(24,843) $ 139,983
========= ======= ======== ========= ======= ======== =========

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
AND ACCUMULATED OTHER COMPREHENSIVE INCOME
(IN THOUSANDS)

UNREALIZED CUMULATIVE
GAINS FOREIGN ACCUMULATED
ON MARKETABLE CURRENCY OTHER
SECURITIES, TRANSLATION COMPREHENSIVE COMPREHENSIVE
NET OF TAXES ADJUSTMENT INCOME INCOME
------------- ----------- ------------- -------------

BALANCE, June 30, 1996............... $ 2,364 $ (3,636) $(1,272)
Net income....................... $20,025
Marketable securities, net of
taxes:
Realized (gains)............ (1,161) (1,161) (1,161)
Unrealized gains............ 1,070 1,070 1,070
Effect of balance sheet
translations................... (1,423) (1,423) (1,423)
-------------
COMPREHENSIVE INCOME................. $18,511
=============
------------- ----------- -------------
BALANCE, June 29, 1997............... 2,273 (5,059) (2,786)
Net income....................... $22,590
Marketable securities, net of
taxes:
Realized (gains)............ (1,029) (1,029) (1,029)
Unrealized gains............ 1,150 1,150 1,150
Effect of balance sheet
translations................... (2,299) (2,299) (2,299)
-------------
COMPREHENSIVE INCOME................. $20,412
=============
------------- ----------- -------------
BALANCE, June 28, 1998............... 2,394 (7,358) (4,964)
Net income....................... $24,255
Marketable securities, net of
taxes:
Realized (gains)............ (1,058) (1,058) (1,058)
Unrealized gains............ 529 529 529
Effect of balance sheet
translations................... (4,113) (4,113) (4,113)
-------------
COMPREHENSIVE INCOME................. $19,613
=============
------------- ----------- -------------
BALANCE, June 27, 1999............... $ 1,865 $ (11,471) ($9,606)
============= =========== =============

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 27, 1999 JUNE 28, 1998 JUNE 29, 1997
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income...................... $ 24,255 $ 22,590 $ 20,025
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization............ 5,714 4,506 5,228
Deferred income taxes...... (706) 876 (413)
Gain on disposition of
assets.................. (1,564) (1,567) (1,566)
Equity in earnings of
unconsolidated
affiliates.............. (1,142) (1,363) (796)
Change in assets and
liabilities:
Accounts receivable,
net................ (3,097) 1,750 (187)
Inventories........... 961 (1,920) 5,193
Prepaid expenses...... (340) 217 (177)
Other assets.......... (260) 1,560 (18)
Accounts payable and
accrued
liabilities........ 6,096 4,649 (1,224)
Income taxes
payable............ 867 967 1,448
Other noncurrent
liabilities........ (121) 341 67
Minority interests.... 90 142 242
------------- ------------- -------------
Net cash
provided by
operating
activities.... 30,753 32,748 27,822
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment..................... (9,471) (11,498) (22,031)
Proceeds from disposals of
property, plant and
equipment..................... 114 157 63
Investment by joint venture
partner....................... 75 4,759
Proceeds from sale of marketable
securities.................... 1,762 1,727 5,503
Increase (decrease) in due to
affiliates.................... (673) 1,208 (707)
Increase in marketable
securities.................... (10) (95)
Other........................... 40 166 52
------------- ------------- -------------
Net cash used in
investing
activities.... (8,228) (8,175) (12,456)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term debt..... (138) (3,574) (5,903)
Additions to long-term debt..... 1,443 888 763
Repayments of long-term debt.... (1,973) (1,759) (2,440)
Dividends paid.................. (7,135) (6,613) (6,017)
Repurchases of common stock..... (20,311) (3,907) (2,202)
Sales of common stock........... 511 680 276
Collection of employee discount
on stock...................... 13 120 117
------------- ------------- -------------
Net cash used in
financing
activities.... (27,590) (14,165) (15,406)
------------- ------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS.......... (798) (251) (310)
------------- ------------- -------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................ (5,863) 10,157 (350)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 17,197 7,040 7,390
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 11,334 $ 17,197 $ 7,040
============= ============= =============

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

16

RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 27, 1999, JUNE 28, 1998 AND JUNE 29, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(1) ORGANIZATION AND NATURE OF BUSINESS:

Riviana Foods Inc. (Riviana) and subsidiaries (collectively, Company) are
primarily engaged in the processing, marketing and distributing of rice and
other food products. The Company has rice operations in the United States and in
Belgium through unconsolidated affiliates, Boost Distribution C.V. (Boost) and
Herto N.V. (Herto), food operations in Guatemala and Costa Rica, Alimentos Kern
de Guatemala, S.A. (Kern) and Pozuelo, S.A. (Pozuelo), and a food distribution
operation in the United Kingdom, Stevens & Brotherton Ltd. (S&B).

In the United States, the Company processes, markets and distributes branded and
private-label rice products to the retail grocery trade and food service
industry, rice and rice by-products to industrial customers and branded products
to Puerto Rico and international markets. Riviana's primary domestic brand names
are Success(R), Mahatma(R), Carolina(R), River(R), Watermaid(R), Sello Rojo(R)
and El Mago(R). Also, the Company is a partner in joint ventures with another
rice company in rice flour processing and co-generation of power from the
gasification of rice hulls.

Through unconsolidated affiliates Boost and Herto, the Company processes
and sells packaged rice products under the BostoT brand within Belgium,
private-label packaged rice products to major retailers in the European Union
and both bulk and branded rice products to Eastern Europe and other export
markets.

In Central America, Kern produces and markets a wide range of processed fruits
and vegetables under the Kern's(R), Ducal(R), Koolfrut(R) and Fun-C(R) brands.
Pozuelo produces and markets cookies and crackers under the Riviana PozueloT
brand. Both Kern's and Pozuelo's products are sold primarily in Central America
with some products under the Ducal(R) and Riviana Pozuelo(R) brands exported to
certain United States markets.

S&B distributes rice under the Phoenix(R) brand and private labels as well
as dried fruits, processed meats and other food products to retail, wholesale,
food service and industrial customers in the United Kingdom.

(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 27, 1999 JUNE 28, 1998
- ------------------------------------- ------------- -------------
Current assets....................... $32,820 $29,428
Noncurrent assets.................... 14,313 14,735
------------- -------------
Total assets............... $47,133 $44,163
============= =============
Current liabilities.................. $18,995 $14,700
Noncurrent liabilities............... 6,680 7,827
Common equity:
Riviana......................... 9,958 10,130
Other........................... 11,500 11,506
------------- -------------
Total liabilities and
equity.................. $47,133 $44,163
============= =============

INCOME STATEMENT DATA 1999 1998 1997
- ------------------------------------- --------- --------- ----------
Net sales............................ $ 95,579 $ 91,901 $ 118,511
Gross profit......................... 13,625 16,265 16,150
Income before income taxes........... 3,281 3,458 4,301
Net income........................... 2,654 2,390 3,037
Equity in earnings of unconsolidated
affiliates......................... 1,142 1,363 796

CHANGES IN ACCOUNTING PRINCIPLES

Effective July 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and SFAS No.
123, "Accounting for Stock-Based Compensation". As allowed by SFAS No. 123,
the Company elected to continue to account for stock option grants in accordance
with Accounting Principles Board (APB) Opinion No. 25, and, accordingly, will
recognize no expense for stock options granted, as all option plans require that
the option exercise price be equal to the fair value of the common stock at the
date of grant. See Note 11 for the pro forma impact of adoption of SFAS No. 123.
Effective January 1, 1997, the Company adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities". Effective December 28, 1997, the Company adopted SFAS No. 128,
"Earnings per Share", which revises the manner in which earnings per share is
calculated. All per share amounts included herein have been restated
accordingly. The effect of adopting these statements had no material impact on
the Company's results of operations or financial position.

Effective June 29, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which requires that net income, as reported, be adjusted
by changes in unrealized gains on marketable securities, net of taxes, and
cumulative foreign currency translation adjustment. See the accompanying
Consolidated Statements of Comprehensive Income and Accumulated Comprehensive
Income.

RECENTLY ISSUED ACCOUNTING STANDARDS

In March 1998 and April 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use", and SOP 98-5,
"Reporting on the Costs of Start-Up Activities". The Company will adopt these
pronouncements in the first quarter of 2000 and does not expect adoption to have
a material impact on the Company's results of operations or financial position.

SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued in June 1998 and amended in June 1999 by SFAS No. 137,
"Accounting for Derivative Instruments and

18

RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133". The Company will adopt these pronouncements in the first quarter of 2001
and does not expect adoption to have a material impact on the Company's results
of operations or financial position.

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 27, 1999 JUNE 28, 1998
-------------- --------------
Raw materials........................ $ 8,994 $ 9,390
Work in process...................... 29 23
Finished goods....................... 31,785 34,007
Packaging supplies................... 5,762 6,146
-------------- --------------
Total...................... $ 46,570 $ 49,566
============== ==============

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.

19

RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

EARNINGS PER SHARE

Basic and diluted earnings per share are computed by dividing net income by
the respective number of weighted average common shares outstanding. The
reconciliation of weighted average common shares outstanding used in computing
basic and diluted earnings per share is as follows:

1999 1998 1997
--------- --------- ---------
Basic................................ 14,987 15,727 15,814
Effect of dilutive stock options..... 200 209 105
--------- --------- ---------
Diluted.............................. 15,187 15,936 15,919
========= ========= =========

In the calculation of the effect of dilutive stock options, 8, 1 and 16
anti-dilutive stock option shares have been excluded for 1999, 1998 and 1997.

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 accumulated other comprehensive income in
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 other than derivative financial
instruments consist primarily of cash, cash equivalents, trade receivables,
trade payables and debt instruments. The Company periodically reviews these
instruments for 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 fluctuations in rice costs, packaging material costs
and exchange rates related to inventory purchases denominated in foreign
currencies. These instruments qualify for hedge accounting treatment and,
accordingly, gains and losses on these instruments are deferred and included in
the basis of the inventory hedged. The Company utilizes rough rice futures
contracts, packaging material swap contracts and forward currency exchange
contracts to hedge specific purchase 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 27, 1999, the
Company had outstanding futures contracts to purchase $8,148 of rough rice, swap
contracts relating to the purchase of $1,365 of packaging materials and had
established bank lines available to purchase forward exchange contracts in the
amount of $41,661, of which $10,369 was outstanding. Gains and losses deferred
in outstanding instruments at June 27, 1999, were $220 and $1,712. As a matter
of policy, the Company does not engage in speculative activity and does not
hedge to protect the translated results of foreign operations or other economic
exposures for which speculative accounting treatment of the hedging instrument
would be required.

20

RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 27, 1999 JUNE 28, 1998
-------------- --------------
Aggregate fair value................. $3,366 $4,328
Cost basis........................... 496 645
-------------- --------------
Unrealized net gain before
taxes........................... 2,870 3,683
Income taxes......................... 1,005 1,289
-------------- --------------
Unrealized gain, net of taxes... $1,865 $2,394
============== ==============
Unrealized gains..................... $2,879 $3,699
Unrealized losses.................... (9) (16)
-------------- --------------
Unrealized net gain before
taxes........................... $2,870 $3,683
============== ==============

1999 1998 1997
--------- --------- ---------
Proceeds from sales of marketable
securities......................... $ 1,762 $ 1,727 $ 5,503
Realized gross gains................. 1,628 1,584 1,681
Realized gross losses................ (5)

(4) ACCRUED LIABILITIES:

Accrued liabilities consisted of the following:

JUNE 27, 1999 JUNE 28, 1998
------------- -------------
Payroll, commissions and bonuses..... $ 9,984 $ 8,111
Coupon redemption and advertising.... 1,875 1,557
Taxes, other than income taxes....... 2,222 2,364
Other................................ 4,789 2,862
------------- -------------
Total........................... $18,870 $14,894
============= =============

(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 27, 1999, and June 28,
1998, was 16.2% and 12.0%. A portion of the short-term debt at June 27, 1999,
and June 28, 1998, is secured by certain assets of the foreign subsidiaries. The
Company has unused lines of credit totaling about $42,025 at June 27, 1999, net
of borrowings and $1,600 in letters of credit.

21

RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Long-term debt consisted of the following:

JUNE 27, 1999 JUNE 28, 1998
------------- -------------
Total long-term debt................. $ 2,393 $ 3,286
Less current maturities.............. 1,003 1,425
------------- -------------
Long-term debt, net of current
maturities.................... $ 1,390 $ 1,861
============= =============

Total long-term debt at June 27, 1999, matures as follows:

2000................................. $ 1,003
2001................................. 334
2002................................. 211
2003................................. 211
2004................................. 211
Thereafter........................... 423
---------
Total........................... $ 2,393
=========

Total interest paid was $1,036, $930 and $2,025 for 1999, 1998 and 1997.

(6) INCOME TAXES:

The provision for income taxes consisted of the following:

1999 1998 1997
--------- --------- ---------
Federal.............................. $ 7,365 $ 5,351 $ 6,432
State................................ 575 517 556
Foreign.............................. 3,648 3,167 3,035
--------- --------- ---------
Total current provision......... 11,588 9,035 10,023
--------- --------- ---------
Federal.............................. (998) 953 (443)
Foreign.............................. 2 (32) (21)
--------- --------- ---------
Total deferred provision
(benefit)..................... (996) 921 (464)
--------- --------- ---------
Income tax expense.............. $ 10,592 $ 9,956 $ 9,559
========= ========= =========
Total income taxes paid.............. $ 10,999 $ 8,444 $ 8,396
========= ========= =========

22

RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The difference between the statutory United States federal income tax rate
and the Company's global effective tax rate as reflected in the consolidated
statements of income was as follows:

1999 1998 1997
-------------------- -------------------- --------------------
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............................... $ 12,328 35.0% $ 11,527 35.0% $ 10,473 35.0%
Resolution of issues at less than
estimate previously provided....... (753) (2.3)
Foreign earnings subject to tax rates
that are different than the U.S.
federal statutory rate............. (1,602) (4.5) (1,122) (3.4) (923) (3.1)
State taxes, net of federal
benefit............................ 374 1.1 336 1.0 362 1.2
Taxes on dividends received from
foreign subsidiaries............... 516 1.4 210 0.6 211 0.7
Other................................ (1,024) (2.9) (242) (0.7) (564) (1.9)
--------- ------- --------- ------- --------- -------
Income tax expense/effective
rate.......................... $ 10,592 30.1% $ 9,956 30.2% $ 9,559 31.9%
========= ======= ========= ======= ========= =======

The components of deferred taxes were as follows:

JUNE 27, 1999 JUNE 28, 1998
------------- -------------
Staff termination indemnities........ $ 37 $ 204
Accrued employee benefits............ 1,618 983
State taxes.......................... 554 833
Accrued liabilities.................. 1,318 1,282
Allowance for doubtful accounts...... 241 255
Other................................ 2 2
------------- -------------
Total deferred tax assets....... 3,770 3,559
------------- -------------
Property, plant and equipment and
other.............................. 7,857 7,907
Inventories.......................... 717 1,168
Marketable securities................ 1,005 1,289
------------- -------------
Total deferred tax
liabilities................... 9,579 10,364
------------- -------------
Net deferred tax
liabilities............. $ 5,809 $ 6,805
============= =============

Income before income taxes and minority interests of foreign subsidiaries
was $14,093, $14,030 and $10,959 for 1999, 1998 and 1997.

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 $41,216,
$36,323 and $32,967 as of June 27, 1999, June 28, 1998, and June 29, 1997.

23

RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(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 sets forth summarized information regarding the Company's
defined benefit retirement plan:

1999 1998
--------- ---------
Change in projected benefit
obligations:
Benefit obligations at the
beginning of year............. $ 21,317 $ 17,717
Service cost.................... 2,303 2,079
Interest cost................... 1,365 1,156
Actuarial (gain) loss........... (508) 1,404
Plan disbursements.............. (1,558) (1,039)
--------- ---------
Benefit obligations at the end
of year....................... $ 22,919 $ 21,317
========= =========

Change in plan assets:
Fair value of plan assets at
beginning of year............. $ 21,288 $ 17,453
Actual return on plan assets.... 4,489 3,601
Company contributions........... 1,273
Plan disbursements.............. (1,559) (1,039)
--------- ---------
Fair value of plan assets at end
of year....................... $ 24,218 $ 21,288
========= =========
Funded status:
Funded status at end of year.... $ 1,299 $ (29)
Unrecognized net gain from
experience
different from that assumed... (3,767) (736)
Unrecognized prior service
costs......................... 657 529
--------- ---------
Net liability recognized........ $ (1,811) $ (236)
========= =========
Amounts recognized in balance sheet:
Accrued liabilities............. $ (1,811) $ (236)
========= =========
Weighted average assumptions:
Discount rate................... 7.25% 6.75%
Long-term rate of compensation
increase...................... 4.5 4.5
Long-term rate of return on plan
assets........................ 9.0 9.0

Components of net periodic pension costs:

1999 1998 1997
--------- --------- ---------
Service cost......................... $ 2,303 $ 2,079 $ 1,844
Interest cost........................ 1,364 1,156 1,061
Expected return on plan assets....... (1,877) (1,537) (1,339)
Amortization of transition/prior
service costs...................... (127) (127) (129)
Amortization of actuarial loss
(gain)............................. (88) (22) 113
--------- --------- ---------
Net periodic pension costs........... $ 1,575 $ 1,549 $ 1,550
========= ========= =========

24

RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Riviana provides death and additional retirement benefits to certain key
employees. These plans are funded through Company-owned life insurance. The net
cash surrender value of the insurance policies is recorded as a noncurrent asset
in the accompanying consolidated balance sheets. The actuarially computed
present value of the retirement benefits is recorded as an other noncurrent
liability in the accompanying consolidated balance sheets. As of June 27, 1999,
and June 28, 1998, the Company had recorded net cash surrender value of $2,267
and $1,990 and present value of retirement benefits of $1,895 and $1,700. The
Company recorded expense of $155, $187 and $204 related to these plans for 1999,
1998 and 1997.

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 $603, $548 and
$547 during 1999, 1998 and 1997.

(8) RELATED PARTY TRANSACTIONS:

The Company paid $974, $935 and $1,318 for 1999, 1998 and 1997, 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 $2,072 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 or financial position. Management of the Company
believes that the foregoing transactions were on terms no less favorable to the
Company than could normally be obtained from unaffiliated parties.

(9) COMMITMENTS AND CONTINGENCIES:

LEASE COMMITMENTS

At June 27, 1999, future minimum lease payments and sublease rentals under
long-term operating lease obligations amounted to:

GROSS SUBLEASE
LEASE RENTAL NET LEASE
PAYMENTS INCOME PAYMENTS
--------- --------- ----------
2000................................. $ 2,987 $ 204 $2,783
2001................................. 1,881 183 1,698
2002................................. 1,519 184 1,335
2003................................. 1,219 186 1,033
2004................................. 1,042 120 922
Thereafter........................... 2,017 72 1,945
--------- --------- ----------
Total...................... $10,665 $ 949 $9,716
========= ========= ==========

Rent expense net of rental income was $3,410, $3,311 and $2,777 for 1999,
1998 and 1997.

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 27, 1999, the Company had a $6,746 investment in Boost which
represents a 49% ownership interest. The Boost stockholder agreement provides,
effective in 1997, that either stockholder has

25

RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 27, 1999, the Company had outstanding 1,956 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 $2,038. 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. A
majority of the shares discounted were sold as an inducement for predecessor
management to continue employment and to participate in the initial
capitalization of the Company in 1986. The discount is recorded in the
accompanying consolidated financial statements as a reduction of stockholders'
equity. Under a contractual agreement with the stockholders, the discount must
be repaid when the shares are sold.

The Company's common stock trades on The Nasdaq Stock Market (trading
symbol RVFD).

PREFERRED STOCK

At June 27, 1999, 5,000 shares of $1.00 per share par value preferred stock
are authorized. No shares of preferred stock have been issued.

(11) STOCK OPTION PLANS:

On December 28, 1994, and October 22, 1997, the Company's stockholders
adopted incentive stock option plans (1994 Plan and 1997 Plan). On October 11,
1995, the Company's stockholders adopted a non-employee directors stock option
plan (1995 NEDSOP) which was retroactively effective May 17, 1995. Collectively,
these are the "Plans".

Under the 1994 Plan and 1997 Plan, a total of 795 and 1,000 shares of
common stock have been reserved for issuance pursuant to options that may be
granted by a committee of the Board of Directors to eligible employees of the
Company or Boost, including officers. Options granted allow the holders of the
options to purchase shares of common stock at the fair market value on the date
of the grant for a period of ten years. No options will become exercisable
sooner than one year after the date of the grant.

The 1995 NEDSOP, as amended, permits the issuance of options to purchase up
to 250 shares of common stock to directors who are not employees of the Company
and who beneficially own less than 2% of the outstanding common stock of the
Company. Such directors receive options to purchase 2 shares annually on May 17.
Options granted allow holders of the options to purchase shares of common stock
at the fair market value on the date of the grant for a period of ten years. No
options will become exercisable sooner than one year after the date of the
grant.

26

RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Plans' activity is summarized below:

1999 1998 1997
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------

Options outstanding, beginning
of year............................ 721 $15.00 558 $13.74 403 $12.21
Granted.............................. 260 20.92 246 17.42 209 16.40
Exercised............................ (37) 13.91 (54) 12.53 (23) 12.00
Canceled............................. (6) 17.27 (29) 15.92 (31) 13.13
------ ------ ------
End of year:
Options outstanding................ 938 16.67 721 15.00 558 13.74
====== ====== ======
Options exercisable................ 314 13.82 192 13.04 129 12.23
====== ====== ======
Options outstanding
price range..................... $12.00-$22.41 $12.00-$22.41 $12.00-$18.50

All options outstanding at June 27, 1999, have a weighted average remaining
contractual life of 7.5 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 expense has been recognized for stock option grants.
Had expense been determined based on the Black-Scholes option pricing model
value at the grant date for awards in 1999, 1998 and 1997 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:

1999 1998 1997
--------- --------- ---------
Net income:
As reported..................... $ 24,255 $ 22,590 $ 20,025
Pro forma....................... 23,272 21,931 19,664
Earnings per share -- basic:
As reported..................... $ 1.62 $ 1.44 $ 1.27
Pro forma....................... 1.55 1.39 1.24
Earnings per share -- diluted:
As reported..................... $ 1.60 $ 1.42 $ 1.26
Pro forma....................... 1.54 1.38 1.24

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
1999, 1998 and 1997. The weighted average value and the assumptions used were as
follows:

1999 1998 1997
--------- --------- ---------
Weighted average value per share..... $ 8.37 $ 7.32 $ 6.92
Option term until exercised
(years)............................ 7 7 7
Risk-free interest rate.............. 5.4% 6.3% 6.5%
Expected dividend yield.............. 2.3% 2.4% 2.5%
Volatility........................... 0.36 0.37 0.37

27

RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(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 classifies its business into three reportable segments:
Domestic (includes the United States and Puerto Rico), Europe (includes the
United Kingdom and Belgium) and Central America (includes Guatemala and Costa
Rica). The Company's operations have been aggregated into these reportable
segments based on similar economic characteristics and operations which are
similar in nature as to product and production process, type of customer and
distribution method.

The Company's export sales, other than those intercompany sales reported
below as sales between geographic areas, are not significant. Sales between
geographic areas consist of sales of raw materials and finished food products
which are sold at adjusted market prices. The Company does not derive more than
10% of its revenue from any single customer. Corporate assets consist primarily
of cash, cash equivalents, marketable securities, investments in unconsolidated
affiliates and other assets.

28

RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's geographic area data are as follows:

1999 1998 1997
---------- ---------- ----------
Sales to unaffiliated customers:
Domestic......................... $ 288,073 $ 279,054 $ 277,019
Europe........................... 93,542 98,690 108,315
Central America.................. 81,146 76,268 74,849
---------- ---------- ----------
Total consolidated.......... $ 462,761 $ 454,012 $ 460,183
========== ========== ==========
Sales between geographic areas:
Domestic......................... $ 850 $ 872 $ 1,552
Central America.................. 14,737 11,253 9,384
Eliminations..................... (15,587) (12,125) (10,936)
---------- ---------- ----------
Total consolidated.......... $ 0 $ 0 $ 0
========== ========== ==========
Income:
Operating income:
Domestic......................... $ 28,735 $ 26,254 $ 27,140
Europe........................... 3,002 3,319 2,455
Central America.................. 10,192 10,493 9,865
---------- ---------- ----------
Total operating income...... 41,929 40,066 39,460
General corporate expenses....... (9,519) (9,198) (9,406)
---------- ---------- ----------
Income from operations........... 32,410 30,868 30,054
Interest expense................... (1,039) (619) (2,002)
Equity in earnings of
unconsolidated affiliates.......... 1,142 1,363 796
Other income, net.................. 2,710 1,321 1,074
---------- ---------- ----------
Income before income taxes and
minority interests............ $ 35,223 $ 32,933 $ 29,922
========== ========== ==========
Identifiable assets at end of year:
Domestic......................... $ 117,460 $ 116,393 $ 112,017
Europe........................... 30,336 31,461 31,131
Central America.................. 41,244 37,813 36,687
---------- ---------- ----------
Total identifiable assets... 189,040 185,667 179,835
Corporate assets................. 11,164 19,661 12,054
---------- ---------- ----------
Total assets................ $ 200,204 $ 205,328 $ 191,889
========== ========== ==========
Long lived assets:
Domestic......................... $ 71,423 $ 67,726 $ 63,844
Europe........................... 9,207 8,962 9,970
Central America.................. 13,978 15,027 12,388
---------- ---------- ----------
Total consolidated.......... $ 94,608 $ 91,715 $ 86,202
========== ========== ==========
Depreciation and amortization:
Domestic......................... $ 3,724 $ 2,763 $ 3,217
Europe........................... 178 134 157
Central America.................. 1,437 1,171 1,339
Corporate........................ 375 438 515
---------- ---------- ----------
Total consolidated.......... $ 5,714 $ 4,506 $ 5,228
========== ========== ==========
Capital expenditures:
Domestic......................... $ 6,489 $ 5,983 $ 18,252
Europe........................... 631 128 70
Central America.................. 2,182 5,061 3,531
Corporate........................ 169 326 178
---------- ---------- ----------
Total consolidated.......... $ 9,471 $ 11,498 $ 22,031
========== ========== ==========
Investment in unconsolidated
affiliates:
Europe........................... $ 7,883 $ 7,957 $ 8,923
Corporate........................ 2,075 2,173 1,892
---------- ---------- ----------
Total consolidated.......... $ 9,958 $ 10,130 $ 10,815
========== ========== ==========

29

RIVIANA FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(13) UNAUDITED QUARTERLY FINANCIAL DATA:

QUARTERS ENDED
------------------------------------------------
SEPTEMBER DECEMBER MARCH JUNE YEAR
---------- --------- ---------- ---------- ----------

1999
Net sales....................... $ 107,322 $ 122,484 $ 118,487 $ 114,468 $ 462,761
Gross profit.................... 27,889 37,813 34,885 33,779 134,366
Income before income taxes and
minority interests............ 6,460 10,161 9,054 9,548 35,223
Net income...................... 4,401 7,029 6,318 6,507 24,255
Per share:
Earnings:
Basic................... .28 .47 .43 .44 1.62
Diluted................. .28 .47 .42 .44 1.60
Cash dividends paid........ .11 .11 .125 .125 .47
Market price:
High.................... 23.625 25.750 24.750 23.875 25.750
Low..................... 19.375 18.750 17.625 18.000 17.625
1998
Net sales....................... $ 108,014 $ 121,472 $ 114,068 $ 110,458 $ 454,012
Gross profit.................... 27,358 37,011 32,461 32,263 129,093
Income before income taxes and
minority interests............ 6,144 9,272 8,221 9,296 32,933
Net income...................... 3,924 6,408 5,868 6,390 22,590
Per share:
Earnings:
Basic................... .25 .41 .37 .41 1.44
Diluted................. .25 .40 .37 .40 1.42
Cash dividends paid........ .10 .10 .11 .11 .42
Market price:
High.................... 21.000 21.000 22.500 25.000 25.000
Low..................... 17.250 18.750 19.750 21.500 17.250

Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not equal
the annual earnings per share.

30

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Riviana Foods Inc.:

We have audited the accompanying consolidated balance sheets of Riviana
Foods Inc. (a Delaware corporation) and subsidiaries as of June 27, 1999, and
June 28, 1998, and the related consolidated statements of income, capital
accounts and retained earnings, consolidated statements of comprehensive income
and accumulated other comprehensive income and cash flows for each of the three
fiscal years in the period ended June 27, 1999. 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 27, 1999, and June 28, 1998, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended June 27, 1999, in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
August 10, 1999

31

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

There is nothing to be reported under this item.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Information relating to the Directors of the Company is set forth under the
captions "General" and "The Company recommends Voting "FOR" the nominees"
in the Proxy Statement and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

Information relating to executive compensation is set forth under the
captions "Compensation Tables" and "Retirement Plan" in the Proxy Statement
and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Information relating to the ownership of equity securities of the Company
by certain beneficial owners and management is set forth under the caption
"Common Stock Outstanding and Principal Holders Thereof" in the Proxy
Statement and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Information relating to certain relationships with a beneficial stockholder
and certain related transactions is set forth under the captions "Compensation
and Stock Option Committee Interlock and Insider Participation" and "Certain
Transactions" in the Proxy Statement and is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) (1) Consolidated Financial Statements: - See Index to Consolidated
Financial Statements on page 12.

(2) Consolidated Financial Statement Schedules - None.

(3) Exhibits required to be filed by Item 601 of Regulation S-K are listed
below and are filed as a part hereof. Documents not designated as being
incorporated herein by reference are filed herewith. The paragraph
numbers correspond to the exhibit numbers designated in Item 601 of
Regulation S-K.

3(i) The Company's Restated Certificate of Incorporation dated
December 28, 1994, is incorporated herein by reference to
Exhibit 3.01 to the Company's Registration Statement on Form
S-1, NO. 33- 87838 under the Securities Act of 1933, as
amended (the "Registration Statement")

3(ii) The Company's By-laws, as amended effective May 17, 1995, is
incorporated herein by reference to Exhibit 3(ii) to the
Company's Annual Report on Form 10-K for the fiscal year ended
July 2, 1995

* 10(i) Consulting Agreement between Riviana Foods Inc. and Frank A.
Godchaux III dated January 1, 1996, is incorporated herein by
reference to Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996

* 10(ii) Consulting Agreement between Riviana Foods Inc. and Charles R.
Godchaux dated July 1, 1994, is incorporated herein by
reference to Exhibit 10.02 to the Registration Statement

* 10(iii) Benefit Restoration Plan is incorporated herein by reference
to Exhibit 10.03 to the Registration Statement

* 10(iv) Management Security Agreement between the Registrant and
Joseph A. Hafner, Jr. dated July 17, 1989, is incorporated
herein by reference to Exhibit 10.04 to the Registration
Statement

10(v) Shareholders Agreement between Sun-Land Products of California
and Stevens & Brotherton Ltd. dated March 24, 1994, is
incorporated herein by reference to Exhibit 10.05 to the
Registration Statement

10(vi) Shareholder Agreement among N&C Boost N.V., Arrocerias Herba,
S.A. and Ricegrowers' Co- Operative Limited dated January 29,
1992, is incorporated herein by reference to Exhibit 10.06 to
the Registration Statement

10(vii) Stock Purchase Agreement by and among N&C Boost N.V.,
Riceherba International Inc. and Ricegrowers' Co-Operative
Limited dated as of January 29, 1992, is incorporated herein
by reference to Exhibit 10.07 to the Registration Statement

10(viii) Shareholder Agreement among N&C Boost N.V., 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(xvi) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996

*10(xvii) Amendment of Amendment and Restatement of Executive Officer's
Stock Purchase Agreement dated December 15, 1994, between
Riviana Foods Inc. and W. David Hanks dated November 8, 1996

*10(xviii) Amendment of Amendment and Restatement of Executive Officer's
Stock Purchase Agreement dated December 15, 1994, between
Riviana Foods Inc. and Jack M. Nolingberg dated November 8,
1996

*10(xviv) Amended and Restated 1997 Stock Option Plan dated September 1,
1997, is incorporated herein by reference to Exhibit 10(xviv)
to the Company's Annual Report on Form 10-K for the fiscal
year ended June 28, 1998

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

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 20, 1999.

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 20, 1999.

SIGNATURE CAPACITY
--------- --------

/S/ JOSEPH A. HAFNER, JR. Chief Executive Officer, President and
JOSEPH A. HAFNER, JR. Director (Principal Executive Officer)

/S/ W. DAVID HANKS Executive Vice President and Director
W. DAVID HANKS

/S/ E. WAYNE RAY, JR. Vice President, Chief Financial Officer,
E. WAYNE RAY, JR. Treasurer and Director (Principal
Financial and Accounting Officer)

*Frank A. Godchaux III Chairman of the Board

*Charles R. Godchaux Vice Chairman of the Board

*Theresa G. Payne Director

*W. Elton Kennedy Director

*E. James Lowrey Director

*Patrick W. Rose Director

*Thomas B. Walker, Jr. Director

*Mary Godchaux Wieck Director

*By /S/ ELIZABETH B. WOODARD
ELIZABETH B. WOODARD
(AS ATTORNEY-IN-FACT FOR EACH OF
THE PERSONS INDICATED)