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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 29, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-25294
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RIVIANA FOODS INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0177572
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2777 ALLEN PARKWAY
HOUSTON, TX 77019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(713) 529-3251
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
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The number of shares of Common Stock of the Registrant, par value $1.00
per share, outstanding at January 27, 2003, was 14,283,266.
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RIVIANA FOODS INC.
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 29, 2002
INDEX
Page
----
Part I -- Financial Information
Item 1 -- Financial Statements
Consolidated Balance Sheets at December 29, 2002 and June 30, 2002..............................1
Consolidated Statements of Income for the Three Months and Six Months
Ended December 29, 2002 and December 30, 2001................................................2
Consolidated Statements of Cash Flows for the Six Months Ended
December 29, 2002 and December 30, 2001......................................................3
Notes to Consolidated Financial Statements......................................................4
Item 2 -- Management's Discussion and Analysis of Financial Condition and Results
of Operations.............................................................................8
Item 3 -- Quantitative and Qualitative Disclosure about Market Risk.....................................14
Item 4 -- Controls and Procedures.......................................................................15
Part II -- Other Information
Item 4 -- Submission of Matters to a Vote of Security Holders...........................................16
Item 6 -- Exhibits and Reports on Form 8-K..............................................................16
Signature........................................................................................................17
Exhibit Index....................................................................................................20
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RIVIANA FOODS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 29, 2002 JUNE 30, 2002
----------------- -----------------
(UNAUDITED) (AUDITED)
ASSETS
CURRENT ASSETS:
Cash .............................................................................. $ 8,821 $ 11,569
Cash equivalents .................................................................. 8,916 9,931
Marketable securities ............................................................. 66 65
Accounts receivable, less allowance for doubtful accounts of $1,399 and $1,245 .... 42,830 35,748
Inventories ....................................................................... 53,966 48,133
Prepaid expenses .................................................................. 4,989 3,212
----------------- -----------------
Total current assets ...................................................... 119,588 108,658
PROPERTY, PLANT AND EQUIPMENT:
Land .............................................................................. 3,631 3,576
Buildings ......................................................................... 33,927 33,831
Machinery and equipment ........................................................... 125,782 120,790
----------------- -----------------
Property, plant and equipment, gross .......................................... 163,340 158,197
Less accumulated depreciation ..................................................... (69,922) (66,051)
----------------- -----------------
Property, plant and equipment, net ............................................ 93,418 92,146
INVESTMENTS IN UNCONSOLIDATED AFFILIATES ............................................ 12,481 11,345
OTHER ASSETS ........................................................................ 14,985 10,565
----------------- -----------------
Total assets .......................................................... $ 240,472 $ 222,714
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt ................................................................... $ 129
Current maturities of long-term debt .............................................. 511 $ 859
Accounts payable .................................................................. 22,389 19,598
Accrued liabilities ............................................................... 18,709 18,204
Income taxes payable .............................................................. 5,753 4,582
----------------- -----------------
Total current liabilities ..................................................... 47,491 43,243
LONG-TERM DEBT, net of current maturities ........................................... 1,963 1,537
DUE TO AFFILIATES ................................................................... 986 507
DEFERRED INCOME TAXES ............................................................... 9,085 8,095
OTHER NONCURRENT LIABILITIES ........................................................ 4,039 3,814
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS .................................................................. 6,343 6,488
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 ................................................................... 7,092 7,044
Retained earnings ................................................................. 194,534 184,997
Accumulated other comprehensive loss .............................................. (16,570) (16,452)
Treasury stock, at cost, 1,614 and 1,712 shares ................................... (30,374) (32,442)
----------------- -----------------
Total stockholders' equity ................................................ 170,565 159,030
----------------- -----------------
Total liabilities and stockholders' equity ................................ $ 240,472 $ 222,714
================= =================
The accompanying notes are an integral part of
these consolidated financial statements.
1
RIVIANA FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------- -------------------------------------
DECEMBER 29, 2002 DECEMBER 30, 2001 DECEMBER 29, 2002 DECEMBER 30, 2001
----------------- ----------------- ----------------- -----------------
NET SALES ....................................... $ 98,229 $ 98,675 $ 193,443 $ 191,828
COST OF SALES ................................... 69,809 69,625 138,204 137,897
----------------- ----------------- ----------------- -----------------
Gross profit ................................ 28,420 29,050 55,239 53,931
----------------- ----------------- ----------------- -----------------
COSTS AND EXPENSES:
Advertising, selling and warehousing .......... 13,281 13,906 25,310 26,908
Administrative and general .................... 5,967 5,441 11,989 10,825
----------------- ----------------- ----------------- -----------------
Total costs and expenses .................... 19,248 19,347 37,299 37,733
----------------- ----------------- ----------------- -----------------
Income from operations ...................... 9,172 9,703 17,940 16,198
OTHER INCOME (EXPENSE):
Interest income ............................... 380 237 795 504
Interest expense .............................. (146) (128) (280) (288)
Equity in earnings of unconsolidated
affiliates ................................. 607 739 1,077 1,203
Other (expense), net .......................... (233) (592) (708) (981)
----------------- ----------------- ----------------- -----------------
Total other income .......................... 608 256 884 438
----------------- ----------------- ----------------- -----------------
Income before income taxes and
minority interests ....................... 9,780 9,959 18,824 16,636
INCOME TAX EXPENSE .............................. 1,223 2,061 3,808 4,044
MINORITY INTERESTS IN EARNINGS OF
CONSOLIDATED SUBSIDIARIES ................... 70 (4) 211 82
----------------- ----------------- ----------------- -----------------
NET INCOME .................................. $ 8,487 $ 7,902 $ 14,805 $ 12,510
================= ================= ================= =================
Earnings per share:
Basic ................................... $ 0.60 $ 0.56 $ 1.04 $ 0.89
Diluted ................................. 0.58 0.56 1.02 0.88
Weighted average common shares outstanding:
Basic .................................. 14,235 14,050 14,209 14,047
Diluted ................................ 14,583 14,160 14,546 14,145
The accompanying notes are an integral part of
these consolidated financial statements.
2
RIVIANA FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
----------------------------------------
DECEMBER 29, 2002 DECEMBER 30, 2001
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................. $ 14,805 $ 12,510
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ......................................... 4,088 3,672
Deferred income taxes ................................................. 992 (301)
Gain on disposition of assets ......................................... (7) (28)
Equity in earnings of unconsolidated affiliates ....................... (1,077) (1,203)
Change in assets and liabilities, excluding effects of acquisition:
Accounts receivable, net ......................................... (6,771) 1,163
Inventories ...................................................... (5,581) (3,849)
Prepaid expenses ................................................. (1,720) (320)
Other assets ..................................................... (4,441) 566
Accounts payable and accrued liabilities ......................... 2,920 (1,413)
Income taxes payable ............................................. 1,177 227
Other noncurrent liabilities ..................................... 215 53
Minority interests ............................................... (87) (263)
----------------- -----------------
Net cash provided by operating activities ..................... 4,513 10,814
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ................................. (5,576) (3,929)
Proceeds from disposals of property, plant and equipment ................... 51 48
Increase in due to affiliates .............................................. 435 267
----------------- -----------------
Net cash used in investing activities ......................... (5,090) (3,614)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt ..................................... 129 (4,000)
Additions to long-term debt ................................................ 760 1,088
Repayments of long-term debt ............................................... (563) (829)
Dividends paid ............................................................. (4,679) (4,494)
Sales of common stock ...................................................... 1,565 127
Collection of employee discount on stock ................................... 48 45
----------------- -----------------
Net cash used in financing activities ......................... (2,740) (8,063)
----------------- -----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS ........................................................... (446) (229)
----------------- -----------------
DECREASE IN CASH AND CASH EQUIVALENTS .......................................... (3,763) (1,092)
CASH AND CASH EQUIVALENTS, beginning of period ................................. 21,500 14,990
----------------- -----------------
CASH AND CASH EQUIVALENTS, end of period ....................................... $ 17,737 $ 13,898
================= =================
CASH PAID DURING THE PERIOD FOR:
Interest ................................................................... $ 280 $ 248
Income taxes ............................................................... 2,175 4,393
The accompanying notes are an integral part of
these consolidated financial statements.
3
RIVIANA FOODS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, Except Per Share Amounts)
(Unaudited)
1. Basis for Preparation of the Consolidated Financial Statements
The consolidated financial statements have been prepared by
Riviana Foods Inc. and subsidiaries ("the Company"), without audit, with the
exception of the June 30, 2002 consolidated balance sheet. The financial
statements include consolidated balance sheets, consolidated statements of
income and consolidated statements of cash flows. Certain amounts in the prior
year have been reclassified to conform to the current year presentation. In the
opinion of management, all adjustments, which consist of normal recurring
adjustments, necessary to present fairly the financial position, results of
operations and cash flows for all periods presented have been made.
The financial statements should be read in conjunction with
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended June 30, 2002.
The Company's fiscal year is based on the 52/53-week period
ending on the Sunday closest to June 30th of each year. Both fiscal 2003 and
2002 are 52-week periods.
2. 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:
Three Months Ended Six Months Ended
-------------------------------------- --------------------------------------
December 29, 2002 December 30, 2001 December 29, 2002 December 30, 2001
----------------- ----------------- ----------------- -----------------
Basic 14,235 14,050 14,209 14,047
Stock options 348 110 337 98
----------------- ----------------- ----------------- -----------------
Diluted 14,583 14,160 14,546 14,145
================= ================= ================= =================
Anti-dilutive stock
option shares
excluded in the
above calculation 0 437 157 614
================= ================= ================= =================
4
3. Inventories
Inventories were composed of the following:
December 29, 2002 June 30, 2002
----------------- -------------
Raw materials $11,780 $8,301
Work in process 68 75
Finished goods 34,479 33,600
Packaging supplies 7,639 6,157
----------------- -------------
Total $53,966 $48,133
================= =============
4. Comprehensive Income
Three Months Ended Six Months Ended
-------------------------------------- --------------------------------------
December 29, 2002 December 30, 2001 December 29, 2002 December 30, 2001
----------------- ----------------- ----------------- -----------------
Net income $8,487 $7,902 $14,805 $12,510
Other comprehensive income:
Unrealized gains on
marketable securities,
net of tax:
Unrealized gains 1 1
Unrealized (losses) on
derivative financial
instruments (182) (214)
Foreign currency translation
adjustment (71) (570) (119) (626)
----------------- ----------------- ----------------- -----------------
Total comprehensive income $8,416 $7,150 $14,687 $11,671
================= ================= ================= =================
5. Segment Information
Three Months Ended Six Months Ended
-------------------------------------- --------------------------------------
December 29, 2002 December 30, 2001 December 29, 2002 December 30, 2001
----------------- ----------------- ----------------- -----------------
Net sales:
Domestic $61,178 $64,810 $121,401 $125,336
Europe 14,016 12,195 27,288 24,407
Central America 23,035 21,670 44,754 42,085
----------------- ----------------- ----------------- -----------------
Total consolidated $98,229 $98,675 $193,443 $191,828
================= ================= ================= =================
5
Three Months Ended Six Months Ended
-------------------------------------- --------------------------------------
December 29, 2002 December 30, 2001 December 29, 2002 December 30, 2001
----------------- ----------------- ----------------- -----------------
Income:
Operating income
Domestic $8,888 $8,960 $18,335 $15,516
Europe 304 330 537 638
Central America 2,764 3,037 4,878 5,234
----------------- ----------------- ----------------- -----------------
Total operating income 11,956 12,327 23,750 21,388
General corporate expenses (2,784) (2,624) (5,810) (5,190)
----------------- ----------------- ----------------- -----------------
Income from operations 9,172 9,703 17,940 16,198
Interest expense (146) (128) (280) (288)
Equity in earnings of
unconsolidated affiliates 607 739 1,077 1,203
Other income, net 147 (355) 87 (477)
----------------- ----------------- ----------------- -----------------
Income before income
taxes and minority interests $9,780 $9,959 $18,824 $16,636
================= ================= ================= =================
6. Changes in Accounting Principles
Effective July 1, 2002, the Company adopted the Statement of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and SFAS
No. 142, "Goodwill and Other Intangible Assets". In addition to requiring the
use of the purchase method for all business combinations, SFAS No. 141 requires
intangible assets that meet certain criteria to be recognized as assets apart
from goodwill. SFAS No. 142 addresses accounting and reporting standards for
acquired goodwill and other intangible assets, and generally requires that
goodwill and indefinite life intangible assets no longer be amortized but be
tested for impairment annually. Finite life intangible assets will continue to
be amortized over their useful lives. As of July 1, 2002, the Company completed
the required impairment tests of goodwill and other intangible assets with
indefinite lives and, based on the results of the tests, determined no
impairment to the carrying values of these assets was needed. In accordance with
SFAS No. 142, prior period amounts were not restated. For the six months ended
December 30, 2001, amortization net of taxes of indefinite life intangibles was
$23. Had the prior period been restated, the effect of adopting this statement
would have had no material effect on the Company's results of operations or
financial position. The net carrying value of indefinite life intangibles as of
December 29, 2002 was $1,604.
Effective July 1, 2002, the Company adopted SFAS No. 143,
"Accounting for Asset Retirement Obligations". SFAS No. 143 addresses accounting
and reporting for legal obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The effect of
adopting this statement had no material impact on the Company's results of
operations or financial position.
Effective July 1, 2002, the Company adopted SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". This
pronouncement establishes the methods of accounting for the impairment or
disposal of long-lived assets by sale or otherwise. The effect of adopting this
statement had no material impact on the Company's results of operations or
financial position.
6
7. Recently Issued Accounting Standards
SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities", was issued in June 2002. This statement broadens the
presentation of discontinued operations to include more disposal transactions
and restructurings planned and controlled by management that materially change
the scope of the business or the manner in which that business is conducted.
This statement is effective for business exit or disposal activities initiated
after December 31, 2002 and will be adopted by the Company in the third quarter
of 2003. The Company does not expect adoption of this statement to have a
material impact on the Company's results of operations or financial position.
SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure", was issued in December 2002. This
statement amends SFAS No. 123, "Accounting for Stock-Based Compensation", to
provide alternative methods of transition to Statement 123's fair value method
of accounting for stock-based compensation. The Company has elected to follow
the intrinsic value method in accounting for its employee stock options.
Accordingly, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
7
ITEM 2. 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.
RESOLUTION OF TAX MATTER
The results of operations for the quarter ended December 29, 2002
included $1.4 million, or $0.10 per diluted share, net of minority interest of
$0.1 million, reduction in tax expense due to the favorable resolution of a
foreign tax matter. For the quarter ended December 30, 2001, the results of
operations included $0.8 million, or $0.06 per diluted share, net of minority
interest of $0.1 million, related to reduction in tax expense due to the
favorable resolution of a foreign tax matter. The current year reduction in tax
involved investment tax credits related to the capital investments made by the
Company in Fiscal 1998 and the prior year reduction was related similarly to
capital investments made by the Company in Fiscal 1997. The Company did not
record the benefit attributable to these credits while their availability was
uncertain; however, the matter has now been resolved in favor of the Company.
GENERAL
The Company operates on a 52/53-week fiscal year ending on the Sunday
closest to June 30th. This period is utilized because it closely coincides with
the rice crop year in the southern United States and rice is the largest
component of the Company's business. Both three-month and six-month periods
ended December 29, 2002 and December 30, 2001 covered 13 weeks and 26 weeks of
operations.
The Company operates in various foreign countries and is therefore
subject to currency fluctuations. Changes in the value of the United States
dollar against these currencies will affect the Company's results of operations
and financial position. When the United States dollar strengthens compared to
other local 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. Despite higher inflationary rates in Central
America, inflation has not had a material impact on the results of operations or
financial position of the Company's units located in that region because the
Company has generally been able to pass on cost increases to its customers.
The Company includes in domestic operations all export sales
originating from the United States and sales in Puerto Rico.
ACCOUNTING POLICIES
The following accounting policies are integral to understanding the
financial statements contained herein reporting the operating results and
financial position of the Company for the three months and six months ended
December 29, 2002 with comparative results for the previous year.
8
ACCOUNTING ESTIMATES AND ASSUMPTIONS
Certain estimates and assumptions are used in preparing the financial
statements presented herein and affect the reported amounts and disclosures.
Estimates are used when accounting for certain consumer and trade promotions,
depreciation and amortization, employee benefits contingencies and asset
valuation allowances. For example, in determining the expense related to
consumer coupons, the Company estimates the percentage of coupons that will be
redeemed based on historical results for similar items. The Company is also
subject to risks and uncertainties that could cause actual results to be
different from estimated results such as changes in market conditions,
competition, foreign exchange rates, legislation, accounting rules and
litigation. Actual results could differ from those estimates. Those items are
discussed in more detail in the section entitled "Forward Looking Information
and Factors that May Affect Future Results."
REVENUE RECOGNITION
Sales are recognized at the time the risk of ownership passes to the
customer. Generally this occurs when products are shipped to trade customers. On
sales where the risk of ownership transfers upon delivery to the customer, sales
are recorded when delivery occurs.
SALES INCENTIVES
Certain sales incentives such as coupons, rebates and free products
which are offered to either the retail trade or the consumer are recorded as a
reduction in sales revenue in accordance with recent accounting pronouncements
at the later of either the date the related revenue is recorded or the date at
which the sales incentive is offered.
CASH DISCOUNTS
An estimate of cash discounts offered to customers for early payment of
sales invoices is recorded in the same period the related sales are recorded.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
In the normal course of business the Company extends credit to its
customers. The Company regularly reviews these accounts and makes a provision
for amounts that may become uncollectible. The Company regularly evaluates
accounts receivable and the allowance for doubtful accounts based on historical
loss experience, specific problem accounts and general economic conditions in
its geographic markets, and adjustments to the allowance are charged or credited
to income. Although the Company believes the allowance is adequate to provide
for potential uncollectible accounts there is a possibility that actual losses
will differ from the amount estimated.
CONTINGENCIES
The Company is subject to certain contingencies including but not
limited to legal issues, and claims covering product liability, environmental,
tax and employment matters. The Company records accruals for such contingencies
based on its assessment of the probability of occurrence and an estimate of the
potential liability. In arriving at the liability to be recorded, it considers
past history, where applicable, and the available facts surrounding each issue.
Reserves are provided if the Company thinks it likely that a taxing authority
may take a sustainable position on a matter contrary to the position taken by
the Company or one of its subsidiaries.
FORWARD-LOOKING INFORMATION AND FACTORS THAT MAY AFFECT FUTURE RESULTS
The Securities and Exchange Commission encourages the disclosure of
forward-looking information in order for investors to better understand the
Company and enable more informed investment decisions. From time-to-time the
Company does make oral and written statements that contain forward-looking
statements. The Company tries to identify such statements with the use of words
such as "estimate", "expect", "project", "intend", 'plan", "believe", and other
similar terms.
Factors that could cause actual results to differ materially are the
following:
o Changes in business, political and worldwide economic conditions
o Competitive market activity
9
o Change in product mix sold
o Trade buying patterns
o Litigation
o Interest rate and foreign currency exchange rate fluctuations
o Governmental laws and regulations including tax laws
o Change in generally accepted accounting policies
o Acts of God affecting manufacturing and distribution channels
o Acquisitions, divestitures and restructurings
The Company cannot guarantee that any forward-looking statement will be
realized, but makes every effort to be prudent in its plans and assumptions.
Should known or unknown risks materialize, or should underlying assumptions be
inaccurate, actual results may vary materially from those estimated or
projected.
The Company does not undertake to publicly update forward-looking
statements as a result of new information, future events or otherwise.
This discussion of factors that could affect future results is not meant to
be complete but instead is designed to highlight important factors that may
impact the Company's future results.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 29, 2002
COMPARED TO THREE MONTHS ENDED DECEMBER 30, 2001
For the three months ended December 29, 2002 sales decreased $0.5
million or 0.5% to $98.2 million from $98.7 million for the previous fiscal
year. Unit volumes had no material impact on sales while the combined effect of
price and sales mix decreased sales by $1.1 million. Favorable currency
translation increased sales $0.6 million. In the domestic rice business sales of
$60.0 million decreased $3.6 million or 5.7% from the prior year sales of $63.6
million. Competitive market conditions resulted in lower unit volumes and
reduced sales by $2.5 million. A combination of lower prices and sales mix
reduced sales a further $1.1 million. Total retail unit volumes decreased by
2.6% and non-retail unit volumes declined by 7.4% primarily due to competitive
market conditions. Sales by the Company's energy co-generation joint venture
were even with the prior year at $1.2 million. Sales in Central America
increased $1.3 million or 6.3% to $23.0 million compared to $21.7 million in the
prior year. Higher volumes were recorded in both fruit nectar and juice products
and cookie and cracker product lines. In total, the increase in volumes added
$1.3 million to sales. Price increases, primarily in cookie and cracker products
increased sales by $0.7 million and unfavorable currency translation reduced
sales by $0.7 million. In Europe, sales increased $1.8 million or 14.9% to $14.0
million from $12.2 million in the prior year. Higher unit volumes increased
sales by $1.2 million. A combination of price and product mix reduced sales by
$0.7 million and favorable currency translation increased sales by $1.3 million.
Gross profit declined $0.6 million or 2.1% to $28.4 million from $29.0
million a year earlier and decreased as a percentage of sales to 28.9% from
29.4%. In the domestic rice business, gross profit decreased $0.8 million or
4.2% to $19.9 million from $20.7 million in the same period in the prior year
but increased as a percentage of sales to 33.1% from 32.6%. Gross profit
declined primarily as a result of lower sales. The domestic energy co-generation
operations reported a loss at the gross profit level of $0.2 million versus a
loss of $0.3 million in the prior year. Gross profit in Central America was
about even with the prior year at $7.3 million but decreased as a percentage of
sales to 31.8% from 33.6% in the prior year. Competitive market conditions
primarily in the cookie and cracker product lines and an increase in sales to
export markets, where margins are lower, reduced the gross profit as a
percentage of sales. In Europe gross profit increased by $0.1 million or 9.8% to
$1.4 million, but decreased slightly as a percentage of sales to 10.5% from
11.0% in the prior year. The increase in gross profit was due to the increase in
sales.
10
Advertising, selling and warehousing expenses of $13.3 million
decreased $0.6 million from the corresponding quarter in the prior year. A
decrease of $0.9 million in the domestic rice business was offset by an increase
of $0.2 million in Central America and $0.1 million in Europe.
Administrative and general expenses increased by $0.5 million or 9.7%
to $5.9 million from $5.4 million in the prior period.
Operating income decreased $0.5 million or 5.5% to $9.2 million from
$9.7 million in the same period in the prior year. As a percentage of sales,
operating income decreased to 9.3% from 9.8% in the prior period. Operating
income in the domestic rice business decreased by $0.1 million or 1.4% to $9.1
million primarily due to the reduction in sales and related gross profit. In
Central America, operating income decreased $0.3 million or 9.0% to $2.8 million
due to higher advertising, selling and warehousing expenses of $0.2 million and
a $0.1 million increase in administrative expense. Operating income in Europe
was approximately even with the prior year at $0.3 million. The $0.1 million
increase in gross profit was offset by an equivalent increase in advertising,
selling and warehousing expense.
Other income of $0.6 million increased by $0.4 million from the prior
year. In the current period the Company recorded net interest income of $0.2
million as compared to net interest income of $0.1 million in the prior year.
Equity in the earnings of unconsolidated affiliates of $0.6 million was $0.1
million lower than the same period in the prior year due to lower earnings from
its affiliate, Boost Nutrition. Other miscellaneous expenses decreased by $0.4
million to $0.2 million primarily due to the settlement of a dispute regarding a
mineral lease in which the Company received a payment of $0.3 million.
Income tax expense of $1.2 million was $0.8 million lower than in the
same period in the prior year. The effective rate decreased to 12.5% from 20.7%
in the same period last year. The effective tax rate is less than the U.S.
statutory rate primarily as a result of foreign earnings which are subject to
tax rates that are lower than the U.S. statutory rate, the utilization of tax
credits and the resolution of a foreign tax matter in the second fiscal quarter
as discussed previously.
Net income for the quarter ending December 29, 2002 increased $0.6
million or 7.4% to $8.5 million from $7.9 million in the prior fiscal year.
Diluted earnings per share were $0.58, up from $0.56 in the same quarter last
year.
SIX MONTHS ENDED DECEMBER 29, 2002
COMPARED TO SIX MONTHS ENDED DECEMBER 30, 2001
For the six months ended December 29, 2002 sales increased $1.6 million
or 0.8% to $193.4 million from $191.8 million for the previous fiscal year.
Higher volumes increased sales $4.9 million and the combined effect of price and
sales mix decreased sales by $3.9 million. Favorable currency translation
increased sales by $0.6 million. In the domestic rice business sales of $119.3
million decreased $4.0 million or 3.2% from the prior year sales of $123.3
million. Flat or lower unit volumes were recorded across all sectors in the
domestic rice business with the exception of foodservice and brown rice which
increased by 34.3% and 11.1%, respectively. In total, lower unit volumes
accounted for $0.9 million of the total $4.0 million decrease in sales. Total
retail volumes declined by 0.8% and non-retail volumes increased by 0.6%. Sales
in the domestic rice business were also negatively affected $3.1 million due to
a combination of sales mix and pricing reflecting competitive market conditions.
The Company's energy co-generation joint venture sales were essentially flat
with the prior year at $2.0 million. Sales in Central America increased $2.7
million or 6.3% to $44.8 million compared to $42.1 million in the prior year.
Higher volumes were recorded in fruit nectar and juice products and cookie and
crackers. In total, higher volumes increased sales by $3.7 million. Higher
prices increased sales by $0.5 million and unfavorable currency translation
reduced sales by $1.5 million. In Europe, sales increased $2.9 million or 11.8%
to $27.3 million from $24.4 million in the prior year. Higher unit volumes
increased sales by $1.8 million. A
11
combination of price and product mix reduced sales by $1.0 million and favorable
currency translation increased sales by $2.1 million.
Gross profit increased by $1.3 million or 2.4% to $55.2 million from
$53.9 million a year earlier and increased as a percentage of sales to 28.6%
from 28.1%. In the domestic rice business, gross profit increased $0.9 million
or 2.4% to $38.6 million from $37.7 million in the same period in the prior
year. Gross profit increased primarily as a result of lower rice costs in the
first quarter of the current fiscal year. In the domestic rice business, gross
profit as a percentage of sales increased to 32.4% from 30.6% last year. The
domestic energy co-generation operations reported a loss at the gross profit
level of $0.1 million which was slightly less than the $0.2 million loss
reported in the prior year. Gross profit in Central America improved by $0.2
million or 1.4% to $13.9 million but decreased as a percentage of sales to 31.0%
from 32.5% in the prior year. The gross profit increase followed the increased
sales as noted previously. In Europe gross profit increased by $0.1 million or
5.1% to $2.8 million, and decreased as a percentage of sales to 10.4% from 11.1%
in the prior year primarily as a result of competitive market conditions.
Advertising, selling and warehousing expenses of $25.3 million
decreased $1.6 million from the corresponding period in the prior year. A
decrease of $2.2 million in the domestic rice business was offset by an increase
of $0.4 million in Central America and $0.2 million in Europe.
Administrative and general expenses increased by $1.2 million or 10.8%
to $12.0 million from $10.8 million in the prior period.
Operating income increased $1.7 million or 10.8% to $17.9 million from
$16.2 million in the same period in the prior year. As a percentage of sales,
operating income increased to 9.3% from 8.4% in the prior period. The increase
in operating income was principally due to increased operating profit in the
domestic rice business. Operating income in the domestic rice business increased
by $2.7 million or 17.4% to $18.4 million. The increase in operating profit
resulted primarily from the increased gross profit as discussed above and lower
advertising, selling and warehousing expenses. In Central America, operating
income decreased $0.4 million or 6.8% to $4.9 million. The increase in gross
profit was offset by an increase of $0.4 million in advertising, selling and
warehousing expenses and an increase in administrative expenses of $0.2 million.
These increased expenses were related to the competitive market conditions in
the region and increased distribution costs associated with market expansion
activities. Operating income in Europe was even with the prior year at $0.6
million. The increase in gross profit was offset by an equivalent increase in
advertising, selling and warehousing expenses.
Other income of $0.9 million increased by $0.5 million from the prior
year. Net interest income of $0.5 million increased $0.3 million over the prior
year's $0.2 million. Equity in the earnings of unconsolidated affiliates of $1.1
million was $0.1 million below the same period in the prior year due to reduced
earnings from its affiliates, Boost Nutrition C.V., its European rice joint
venture, and Rivland Partnership, its rice flour joint venture. Other
miscellaneous expenses decreased by $0.3 million to $0.7 million.
Income tax expense of $3.8 million reflected a decrease of $0.2 million
from the same period in the prior year notwithstanding an increase of $2.2
million in income before tax. The effective rate for the six months ended
December 29, 2002 declined to 20.2% from 24.3% in the same period in the prior
year. The effective tax rate is less than the U.S. statutory rate primarily as a
result of foreign earnings which are subject to tax rates that are lower than
the U.S. statutory rate, the utilization of tax credits and the resolution of a
foreign tax matter in the second fiscal quarter as discussed previously.
Net income for the six months ended December 29, 2002 increased $2.3
million or 18.4% to $14.8 million from $12.5 million in the prior fiscal year.
Diluted earnings per share were $1.02, up from $0.88 in the prior period.
12
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended December 29, 2002 cash of $4.5 million was
generated from operating activities. In the prior year, cash of $10.8 million
was provided by operating activities. The increase in net income and non-cash
charges for depreciation and amortization provided an additional $2.7 million as
compared to results for the prior year. Cash was provided by an increase in the
provision for deferred income taxes of $1.0 million while in the prior period
cash was used to reduce deferred taxes by $0.3 million. Cash was used to
increase working capital by $10.0 million while in the prior year $4.2 million
was used to increase working capital. Other assets increased by $4.4 million in
the current year as compared to a decrease of $0.6 million in the prior year.
The increase was primarily related to a cash contribution to the Company's
defined benefit pension plan.
Cash used in investing activities increased $1.5 million to $5.1
million as compared to cash used in investing activities in the prior year of
$3.6 million. Additions to property, plant and equipment in the current period
totaled $5.6 million, an increase of $1.7 million from the comparable period
last year. There was also an increase in amounts due to affiliates of $0.2
million.
Cash used in financing activities decreased by $5.3 million in the
period ended December 29, 2002 to $2.7 million. In the current year a net
increase in short and long-term debt of $0.3 million provided cash while in the
prior year the Company used $3.7 million to decrease net debt. Funds used for
dividend payments increased by $0.2 million in the current year. Cash provided
from sale of common stock through the exercise of employee stock options
increased to $1.6 million from $0.1 million in the same period last year.
On October 16, 2002 the Company's board of directors raised the
quarterly dividend on the Company's common stock to $0.17 per share from $0.165
per share, for an indicated annual rate of $0.68 per share.
As of December 29, 2002, the board of directors of the Company had
authorized the open-market repurchase, from time to time, of up to 3.0 million
shares of the Company's common stock. The repurchased stock will be used for
general corporate purposes including issuance of stock under employee stock
option plans. For the six months ended December 29, 2002, the Company did not
repurchase any shares. Through December 29, 2002, the Company has repurchased a
total of 2.0 million shares and 408 thousand shares have been reissued upon
exercise of employee stock options.
The Company is a co-guarantor of a term loan by a foreign bank made to
its unconsolidated affiliate, Herto N.V., a Belgian company engaged in the
manufacture and sale of rice cakes. The terms of the loan agreement provide for
a maximum credit available to Herto N.V. of (E)7.5 million (or $7.8 million)
reducing over the term with a final maturity in 2008. The Company has provided
the bank with an unconditional guarantee for an amount not to exceed 50% of the
maximum credit facility of (E)7.5 million. The Company has an indemnity
agreement from one of the other three shareholders of Herto N.V. which provides
that the Company would be reimbursed for 33 1/3% of any payment it was required
to make under the terms of the guarantee.
Also, the Company and Kennedy Rice Dryers, Inc., a corporation of which
Mr. Elton Kennedy, a director of the Company, is the principal stockholder and a
director and officer, each owns a 50% interest in South LaFourche Farm
Partnership. The Company and Mr. Kennedy are each contingently liable on a $2.0
million promissory note payable by the Partnership.
The Company has a $20.0 million domestic, short-term, unsecured
revolving credit facility with one bank. Under the terms of this facility, the
Company has the option of borrowing at the bank's prime rate or at the Libor
rate plus 0.625%. At December 29, 2002, the Company had no outstanding loans and
$1.9 million in letters of credit outstanding under this credit facility. This
facility will expire in fiscal 2003 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.
13
The Company holds a portfolio of marketable securities with a market
value of $0.1 million at December 29, 2002 which is available to provide
additional liquidity.
The Company's financial position remains strong and 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.
LEGAL MATTERS
Various actions and claims, which arose in the ordinary course of
business, are pending against the Company. In the opinion of management, the
ultimate liability, if any, which may result from these actions and claims will
not materially affect the financial position or future results of operations of
the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of December 29, 2002 there have been no material changes in the
Company's market risk exposure as described in Management's Discussion and
Analysis contained in the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 2002.
FOREIGN EXCHANGE RISK
A material amount of the Company's total sales and earnings are exposed
to changes in foreign exchange rates. The Company seeks to manage this risk in
part through operational means, including managing local currency revenues in
relation to local currency costs and local currency assets in relation to local
currency liabilities. The Company does not engage in any type of forward foreign
currency speculation to hedge its investment in foreign subsidiaries and
affiliates.
Forward foreign currency contracts are utilized by our European
operations to cover specific inventory purchases that are denominated in a
foreign currency.
INTEREST RATE RISK
The Company's U.S. dollar interest-bearing investments and loans are
subject to interest rate risk. The Company invests and borrows primarily on a
short-term or variable-rate basis and does not employ any techniques to hedge
this risk.
The Company's foreign subsidiaries and affiliates invest and borrow in
their functional currency on both a short-term and long-term basis and are
subject to interest rate risk on these assets and liabilities. The Company does
not employ any techniques to hedge this risk.
RISK RELATING TO ARTHUR ANDERSEN LLP'S LACK OF CONSENT
REPRESENTATIVES OF ARTHUR ANDERSEN LLP ARE NOT AVAILABLE TO CONSENT TO
THE INCLUSION OF THEIR REPORT ON THE FINANCIAL STATEMENTS OF RIVIANA FOODS INC.
IN THIS FORM 10-Q REPORT AND THE READER WILL NOT BE ABLE TO RECOVER AGAINST
ARTHUR ANDERSEN LLP UNDER SECTION 11 OF THE SECURITIES ACT OF 1933, AS AMENDED.
Arthur Andersen LLP were previously the independent accountants for
Riviana Foods Inc. until May 24, 2002. Representatives of Arthur Andersen LLP
are not available to provide the consent required for the inclusion of their
report on the financial statements of Riviana Foods Inc. incorporated in this
Form 10-Q report, and the Company has dispensed with the requirement to file
their consent in reliance upon rule 437a of the Securities Act of 1933, as
amended. Because Arthur Andersen LLP have not consented to the
14
inclusion of their report in this Form 10-Q report, the reader will not be able
to recover against Arthur Andersen LLP under Section 11 of the Securities Act of
1933, as amended for any untrue statements of a material fact contained in the
financial statements that are incorporated by reference or any omissions to
state a material fact required to be stated therein.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Within 90 days prior to the date of this report, the Company carried
out an evaluation under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to be
included in the Company's periodic SEC filings.
(b) Changes in internal controls
Not applicable.
15
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on October 16,
2002. The matters voted on were as follows:
(a) Proposal for the election of eleven directors for one year terms:
Nominee Votes For Votes Withheld
- ------- ----------- --------------
Frank A. Godchaux III 12,766,811 242,280
Charler R. Godchaux 12,766,611 242,480
Frank K. Godchaux 12,856,117 152,974
Joseph A. Hafner, Jr. 12,243,752 765,339
W. David Hanks 12,243,552 765,539
E. Wayne Ray, Jr 12,243,502 765,589
W. Elton Kennedy 12,768,211 240,880
E. James Lowrey 12,864,217 144,874
Theresa G. Payne 12,868,517 140,574
Patrick W. Rose 12,867,017 142,074
Thomas B. Walker, Jr. 12,865,117 143,974
(b) Proposal to approve and ratify the appointment of KPMG LLP as the
Company's independent public accountants for the fiscal year ending
June 29, 2003:
Votes for 12,998,580
Votes against 8,908
Abstain 1,603
(c) Proposal to approve and ratify the First Amendment of the 1997
Stock Option Plan:
Votes for 11,550,333
Votes against 452,412
Abstain 260,685
Non-Votes 745,661
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 10.20 Amendment to the 1997 Stock Option Plan dated
October 16, 2002.
15 Letters from KPMG LLP dated January 24, 2003,
regarding unaudited financial statements.
99.1 Certification of the Chief Executive Officer pursuant
to 18 U.S.C., Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
16
99.2 Certification of the Chief Financial Officer pursuant
to 18 U.S.C., Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
SIGNATURE
Pursuant to the requirements 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.
RIVIANA FOODS INC.
(Registrant)
January 31, 2003 /s/ Joseph A. Hafner, Jr.
---------------------------
Joseph A. Hafner, Jr.
Chief Executive Officer, President and
Director
(Principal Executive Officer)
January 31, 2003 /s/ E. Wayne Ray, Jr.
-----------------------
E. Wayne Ray, Jr.
Vice President, Chief Financial Officer,
Treasurer and Director
(Principal Financial and Accounting Officer)
17
CERTIFICATION
I, Joseph A. Hafner, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Riviana Foods Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 pays prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (of persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: January 31, 2003 /s/ Joseph A. Hafner, Jr.
-------------------------
Joseph A. Hafner, Jr.
Chief Executive Officer
18
CERTIFICATION
I, E. Wayne Ray, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Riviana Foods Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
d) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
e) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 pays prior to the filing date
of this quarterly report (the "Evaluation Date"); and
f) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (of persons performing the equivalent function):
c) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
d) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: January 31, 2003 /s/ E. Wayne Ray, Jr.
---------------------
E. Wayne Ray, Jr.
Vice President, Chief Financial
Officer and Treasurer
19
EXHIBIT INDEX
No. Description
- -- ---------------------------------------
10.20 Amendment to the 1997 Stock Option Plan dated October 16, 2002
15 Letters from KPMG LLP dated January 24, 2003, regarding unaudited
financial statements
99.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C., Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C., Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002