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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 September 28, 2003
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
-------- ---------
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
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 October 29, 2003, was 14,388,080.
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RIVIANA FOODS INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 28, 2003
INDEX
Page
----
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets at September 28, 2003 and June 29, 2003.............................1
Consolidated Statements of Income for the Three Months
Ended September 28, 2003 and September 29, 2002..............................................2
Consolidated Statements of Cash Flows for the Three Months Ended
September 28, 2003 and September 29, 2002....................................................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......................................12
Item 4 - Controls and Procedures........................................................................13
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders............................................14
Item 6 - Exhibits and Reports on Form 8-K...............................................................14
SIGNATURE........................................................................................................15
Exhibit Index....................................................................................................16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RIVIANA FOODS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SEPTEMBER 28, 2003 JUNE 29, 2003
(UNAUDITED) (AUDITED)
------------------ -------------
ASSETS
CURRENT ASSETS:
Cash .............................................................................. $ 5,711 $ 9,937
Cash equivalents .................................................................. 9,261 12,649
--------- ---------
Total cash and cash equivalents ................................................. 14,972 22,586
Marketable securities ............................................................. 234 219
Accounts receivable, less allowance for doubtful accounts of $1,343 and $1,268 .... 50,153 42,900
Inventories ....................................................................... 58,816 54,800
Prepaid expenses .................................................................. 7,671 5,710
--------- ---------
Total current assets ...................................................... 131,846 126,215
PROPERTY, PLANT AND EQUIPMENT:
Land .............................................................................. 3,811 3,813
Buildings ......................................................................... 39,880 39,921
Machinery and equipment ........................................................... 139,370 137,916
--------- ---------
Property, plant and equipment, gross .......................................... 183,061 181,650
Less accumulated depreciation ..................................................... (75,598) (73,626)
--------- ---------
Property, plant and equipment, net ............................................ 107,463 108,024
INVESTMENTS IN UNCONSOLIDATED AFFILIATES ............................................ 13,531 12,797
GOODWILL ............................................................................ 9,585 9,585
OTHER ASSETS......................................................................... 20,807 17,329
--------- ---------
Total assets .......................................................... $ 283,232 $ 273,950
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt ................................................................... $ 23,000 $ 22,000
Current maturities of long-term debt .............................................. 763 694
Accounts payable .................................................................. 28,153 21,887
Accrued liabilities ............................................................... 16,744 18,567
Income taxes payable .............................................................. 3,709 3,945
--------- ---------
Total current liabilities ..................................................... 72,369 67,093
LONG-TERM DEBT, net of current maturities ........................................... 1,690 1,553
DUE TO AFFILIATES ................................................................... 778 740
DEFERRED INCOME TAXES ............................................................... 14,001 12,512
OTHER NONCURRENT LIABILITIES ........................................................ 4,551 4,498
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS .................................................................. 6,585 6,504
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 ................................................................... 7,339 7,339
Retained earnings ................................................................. 205,466 203,308
Accumulated other comprehensive loss .............................................. (16,927) (16,380)
Treasury stock, at cost, 1,524 and 1,552 shares ................................... (28,503) (29,100)
--------- ---------
Total stockholders' equity ................................................ 183,258 181,050
--------- ---------
Total liabilities and stockholders' equity ................................ $ 283,232 $ 273,950
========= =========
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
----------------------------------------
SEPTEMBER 28, 2003 SEPTEMBER 29, 2002
------------------ ------------------
NET SALES $ 104,406 $ 95,214
COST OF SALES ....................................... 78,370 68,395
------------------ ------------------
Gross profit .................................... 26,036 26,819
------------------ ------------------
COSTS AND EXPENSES:
Advertising, selling and warehousing .............. 12,220 12,029
Administrative and general ........................ 5,931 6,022
------------------ ------------------
Total costs and expenses ........................ 18,151 18,051
------------------ ------------------
Income from operations .......................... 7,885 8,768
OTHER INCOME (EXPENSE):
Interest income ................................... 390 415
Interest expense .................................. (226) (134)
Equity in earnings of unconsolidated affiliates ... 694 470
Other (expense), net .............................. (576) (475)
------------------ ------------------
Total other income .............................. 282 276
------------------ ------------------
Income before income taxes and
minority interests ........................... 8,167 9,044
INCOME TAX EXPENSE .................................. 2,198 2,585
MINORITY INTERESTS IN EARNINGS OF
CONSOLIDATED SUBSIDIARIES ....................... 110 141
------------------ ------------------
NET INCOME
$ 5,859 $ 6,318
================== ==================
Earnings per share:
Basic ....................................... $ 0.41 $ 0.45
Diluted ..................................... 0.40 0.44
Weighted average common shares outstanding:
Basic ....................................... 14,337 14,184
Diluted ..................................... 14,761 14,420
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)
THREE MONTHS ENDED
-----------------------------------------------
SEPTEMBER 28, 2003 SEPTEMBER 29, 2002
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 5,859 $ 6,318
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization ....................... 2,357 1,938
Deferred income taxes ............................... 1,482 1,540
Loss (Gain) on disposition of assets ................ 76 (6)
Equity in earnings of unconsolidated affiliates ..... (694) (470)
Change in assets and liabilities:
Accounts receivable, net ...................... (7,466) (4,744)
Inventories ................................... (4,177) (6,324)
Prepaid expenses .............................. (1,975) (1,143)
Other assets .................................. (3,508) (5,266)
Accounts payable and accrued liabilities....... 3,348 7,426
Income taxes payable .......................... (210) 293
Other noncurrent liabilities .................. 67 44
Minority interests ............................ 110 (158)
------------------ ------------------
Net cash used in operating activities ...... (4,731) (552)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ................ (2,270) (2,632)
Proceeds from disposals of property, plant and equipment... 201 9
Increase in due to affiliates ............................. 102 47
------------------ ------------------
Net cash used in investing activities....... (1,967) (2,576)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt ............................... 1,000
Additions to long-term debt ............................... 552 270
Repayments of long-term debt .............................. (292) (126)
Dividends paid ............................................ (2,432) (2,338)
Sales of common stock ..................................... 480 412
Collection of employee discount on stock .................. 31
------------------ ------------------
Net cash used in financing activities ...... (692) (1,751)
------------------ ------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS .......................................... (224) (203)
------------------ ------------------
DECREASE IN CASH AND CASH EQUIVALENTS ......................... (7,614) (5,082)
CASH AND CASH EQUIVALENTS, beginning of period ................ 22,586 21,500
------------------ ------------------
CASH AND CASH EQUIVALENTS, end of period ...................... $ 14,972 $ 16,418
================== ==================
CASH PAID DURING THE PERIOD FOR:
Interest .................................................. $ 241 $ 123
Income taxes .............................................. 1,443 819
The accompanying notes are an integral part of these consolidated
financial statements.
3
RIVIANA FOODS INC. AND NONSUBSIDIARIES
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 29, 2003, 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 29, 2003.
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
2004 are 52-week periods. Both three-month periods ended September 28, 2003 and
September 29, 2002 covered 13 weeks of operation.
2. Earnings per Share and Stock-Based Compensation
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
------------------
September 28, 2003 September 29, 2002
------------------ ------------------
Basic 14,337 14,184
Effect of dilutive
stock options 424 236
------ ------
Diluted 14,761 14,420
====== ======
Anti-dilutive stock
stock options
excluded in the
above calculation 114 210
====== ======
4
The Company has elected to follow the intrinsic value method
in accounting for its employee stock options in accordance with APB 25,
"Accounting for Stock Issued to Employees". Accordingly, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Had expense been determined based on the Black-Scholes option
pricing model at the grant date for awards in 2004 and 2003 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:
Three Months Ended
------------------
September 28, 2003 September 29, 2002
------------------ ------------------
Net income:
As reported $ 5,859 $6,318
Pro-forma stock-based
compensation expense,
net of tax (304) (254)
------- -------
Pro forma net income $ 5,555 $ 6,064
======= =======
Earnings per share -- basic
As reported $ 0.41 $ 0.45
Pro forma 0.39 0.43
Earnings per share -- diluted
As reported $ 0.40 $ 0.44
Pro forma 0.38 0.42
3. Inventories
Inventories were composed of the following:
September 28, 2003 June 29, 2003
------------------ -------------
Raw materials $13,382 $ 9,098
Work in process 98 64
Finished goods 37,584 37,933
Packaging supplies 7,752 7,705
------- -------
Total $58,816 $54,800
======= =======
5
4. Comprehensive Income
The components of comprehensive income were as follows:
Three Months Ended
------------------
September 28, 2003 September 29, 2002
------------------ ------------------
Other comprehensive income: $ 5,859 $ 6,318
Unrealized gains on marketable
securities, net of tax:
Unrealized gains 10 1
Foreign currency translation
adjustment (557) (48)
------------------ -----------------
Total comprehensive income $ 5,312 $ 6,271
================== =================
5. Segment Information
Three Months Ended
-------------------
September 28, 2003 September 29, 2002
------------------ ------------------
Net sales:
Domestic $ 66,711 $ 60,223
Europe 14,439 13,272
Central America 23,256 21,719
----------------- ------------------
Total consolidated $ 104,406 $ 95,214
================= ==================
Three Months Ended
------------------
September 28, 2003 September 29, 2002
------------------ ------------------
Income:
Operating income
Domestic $ 7,620 $ 9,447
Europe 549 233
Central America 2,421 2,114
------------------ ------------------
Total operating income 10,590 11,794
General corporate expense (2,705) (3,026)
------------------ ------------------
Income from operations 7,885 8,768
Interest expense (226) (134)
Equity in earnings of
unconsolidated affiliates 694 470
Other income (expense), net (186) (60)
------------------ ------------------
Income before income taxes
and minority interests $ 8,167 $ 9,044
================== ==================
6
6. Trademark License Agreement
In August 2003, the Company's joint venture partner, Ebro
Puleva, S.A. (Ebro) finalized an agreement to acquire the trademarks Reis Fit(R)
and Ris-Fix(R) in certain European countries. The Company's unconsolidated
affiliate, Boost Nutrition C.V. (Boost), which began using the trademarks for
rice products in April 2003, anticipates it will enter into a trademark license
agreement and put option contract expiring in 2018 with Ebro. The agreement
would commit Boost to pay Ebro (euro)1,400 ($1,600) annually, adjusted for local
inflation, until 2018 for the right to use the two trademarks. At any time prior
to 2018, Ebro would have the right to require Boost to purchase the trademarks
for an amount equal to the gross remaining payments on the license agreement,
adjusted for local inflation.
4
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.
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 periods ended September
28, 2003 and September 29, 2002 covered 13 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.
CRITICAL 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 ended September 28, 2003
with comparative results for the previous year.
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.
8
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
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.
9
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 SEPTEMBER 28, 2003 AND SEPTEMBER 29, 2002
For the three months ended September 28, 2003 sales increased $9.2
million or 9.7% to $104.4 million from $95.2 million for the previous fiscal
year. Higher unit volumes increased sales by $4.7 million while the combined
effect of price and sales mix increased sales by $5.2 million. Unfavorable
currency translation decreased sales $0.7 million. In the domestic rice business
sales of $65.7 million increased $6.4 million or 10.7% from the prior year sales
of $59.3 million. Unit volumes increased 11.3% and added $2.9 million to sales.
A combination of higher prices and sales mix increased sales by $3.5 million.
Total retail unit volumes decreased by 1.6% and non-retail unit volumes,
excluding by-products, increased by 33.9%. In the non-retail sector,
foodservice, industrial specialty and export/commodity volumes increased 6.0%,
34.3% and 58.2%, respectively. The volume increases reported by the industrial
specialty and export/commodity sectors were favorably impacted by the
acquisition of the ACH Food Companies, Inc. rice specialties business in
February 2003. Sales by the Company's energy co-generation joint venture
increased $0.1 million or 14.3% to $1.0 million. This increase was directly
related to the increase in natural gas prices. Sales in Central America
increased $1.5 million or 7.1% to $23.3 million compared to $21.8 million in the
prior year. Unit volume sales of fruit nectar and juice products increased by
9.1%. Unit volume sales of cookie and cracker products increased 4.2%. In total,
the increase in volumes added $1.8 million to sales. Price increases increased
sales by $1.1 million and unfavorable currency translation reduced sales by $1.4
million. In Europe, sales increased $1.2 million or 8.8% to $14.4 million from
$13.2 million in the prior year. Higher unit volumes increased sales by $0.1
million. A combination of price and product mix added $0.4 million to sales and
favorable currency translation increased sales by $0.7 million.
Gross profit decreased $0.8 million or 2.9% to $26.0 million from $26.8
million a year earlier and decreased as a percentage of sales to 24.9% from
28.2%. In the domestic rice business, gross profit decreased $1.7 million or
9.2% to $17.1 million from $18.8 million in the same period in the prior year
and decreased as a percentage of sales to 25.9% from 31.6%. Gross profit
declined primarily as a result of significantly higher rice costs and sales mix
reflecting lower sales in the value-added categories of quick cooking rice and
prepared rice mixes. While substantial volume gains were recorded in the
industrial specialty and export/commodity sectors, higher rice costs reduced the
gross profit and the export/commodity volumes return a lower gross profit. The
domestic energy co-generation operations reported gross profit of $0.1 million
which was even with the prior year. Gross profit in Central America increased
$0.5 million to $7.1 million and increased slightly as a percentage of sales to
30.7% from 30.2% in the prior year. The increase in gross profit was related to
the increase in sales. In Europe gross profit increased by $0.4 million or 26.3%
to $1.7 million, and increased as a percentage of sales to 12.1% from 10.4% in
the previous year. The increase in gross profit was due to the increase in
sales.
Advertising, selling and warehousing expenses increased $0.2 million to
$12.2 million. The increase in this expense was all recorded in Central America
and these expenses for domestic rice operations and Europe were even with the
prior year. The increase in Central America was related to efforts to increase
market penetration throughout the Central American region.
Administrative and general expenses of $5.9 million decreased by $0.1
million from the prior year and decreased as a percentage of sales to 5.7% from
6.3% last year. Administrative and general expenses increased in the domestic
rice business and Central America by $0.1 million and $0.1 million, respectively
and were even with the prior year in Europe. General corporate overhead
expenses, decreased by $0.3 million due mainly to reduced compensation expense.
10
Operating income decreased $0.9 million, or 10.0%, to $7.9 million from
$8.8 million in the prior year. As a percentage of sales, operating income
decreased to 7.6% from 9.2% in the same period last year. Operating income in
the domestic rice business decreased by $1.8 million, or 19.7%, to $7.5 million
as a direct result of the reduction in gross profit. In Central America,
operating income increased $0.3 million or 14.5% to $2.4 million due to higher
gross profit as discussed, previously offset partially by increased advertising,
selling and warehousing expenses and higher administrative expenses. Operating
income in Europe increased $0.3 million to $0.5 million and was also directly
related to the increase in gross profit.
Other income of $0.3 million was even with last year. In the current
period the Company recorded net interest income of $0.2 million which was $0.1
million lower than the prior year. Equity in the earnings of unconsolidated
affiliates of $0.7 million increased by $0.2 million from the previous year.
This increase was primarily due to higher earnings from the Company's joint
venture operations in Belgium and Germany as a result of the acquisition of the
Reis-Fit(R) and Ris-Fix(R) brands in August 2003. Other miscellaneous expenses
increased by $0.1 million to $0.6 million primarily due to lower commercial
drying income in the domestic rice business.
Income tax expense of $2.2 million decreased $0.4 million from the same
period in the prior year. The effective rate decreased to 26.9% from 28.6% 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 and the utilization of
energy tax credits related to the Company's co-generation joint venture.
Net income for the three months ended September 28, 2003 decreased 7.2%
to $5.9 million from $6.3 million in the prior fiscal year. Diluted earnings per
share were $0.40, down from $0.44 in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The financial condition of the Company remained strong during the three
months ended September 28, 2003. The Company requires liquidity and capital
primarily to provide the working capital and plant and equipment to support its
operations and growth. The Company's primary sources of liquidity are cash
provided by operating activities and external borrowing.
The Company's total of cash, cash equivalents and marketable securities
at September 28, 2003 totaled $15.2 million and total short-term and long-term
debt was $25.5 million. The ratio of debt to total capitalization (total debt
plus stockholders' equity) increased to 12.2% at September 28, 2003 from 11.8%
at June 29, 2003, the end of the previous fiscal year. The increase in debt was
related to normal seasonal working capital requirements. The current ratio
decreased to 1.8 at the end of the quarter compared to 1.9 at the end of the
previous year.
For the quarter ended September 28, 2003 cash of $4.7 million was used
by operating activities. In the prior year cash of $0.6 million was used by
operating activities. Net income declined by $0.5 million and non-cash charges
for depreciation and amortization increased $0.4 million as compared to results
for the prior year. Equity in the earnings of unconsolidated affiliates
increased by $0.2 million. Cash was used to increase working capital by $10.5
million while in the prior year $4.5 million was used to increase working
capital. Other assets increased by $3.5 million in the current year as compared
to an increase of $5.3 million in the prior year.
Cash used in investing activities totaled $2.0 million. Purchases of
property, plant and equipment accounted for $2.3 million, which was $0.3 million
less than last year. Cash inflows related to amounts due from affiliates was
$0.1 million more than the prior year. Proceeds from the sale of property plant
and equipment were $0.2 million more than in the prior year.
Cash used by financing activities totaled $0.7 million for the current
quarter, while in the prior year $1.8 million was used in financing activities.
In the current period, the Company increased debt by $1.3
11
million while in the prior year debt increased $0.1 million. Dividend payments
during the current period were $2.4 million, up $0.1 million from $2.3 million
paid last year.
The board of directors of the Company has authorized the open-market
repurchase, from time to time, of up to 3.0 million shares of the Company's
common stock. The repurchased stock will be used for general corporate purposes
including issuance of stock under employee stock option plans. During the
quarter ended September 28, 2003 the Company did not repurchase any shares. As
of September 28, 2003, the Company has repurchased a total of 2.0 million shares
and 0.5 million shares have been reissued upon exercise of employee stock
options.
The Company's financial position remains strong and the Company
believes that the combination of its working capital, unused and available
short-term credit facilities and cash flow from operations will provide the
capital resources and liquidity to meet its needs.
The Company believes that the combination of its working capital,
unused and available short-term credit lines and cash flow from operations will
provide it with sufficient capital resources and liquidity to meet its
foreseeable needs.
CONTRACTUAL OBLIGATIONS
As of September 28, 2003, there have been no material changes in the
Company's contractual obligations as described in Management's Discussion and
Analysis contained in the Company's Annual Report Form 10-K for the fiscal year
ended June 29, 2003.
OFF BALANCE SHEET ARRANGEMENTS
As of September 28, 2003, the Company co-guaranteed two loans made to Herto N.V.
by foreign banks. A loan made in 2002 contains terms which provide for a maximum
credit available to Herto N.V. of (euro)7.5 million ($8.6 million) reducing over
the term with a final maturity in 2008. The Company has provided the bank with
an unconditional guarantee for an amount not to exceed 50% of the maximum credit
facility of (euro)7.5 million. The Company has an indemnity agreement from one
of the other three shareholders of Herto N.V. that provides the Company would be
reimbursed for 33-1/3% of any payment it was required to make under the terms of
the guarantee. This guarantee was made prior to December 30, 2002, the effective
date of Financial Accounting Standards Board Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." Accordingly, no liability has
been recorded by the Company. A second loan made in May 2003 contains terms
which provide for a maximum credit available to Herto N.V. of (euro)3.0 million
($3.4 million) with repayment beginning in 2005 and a final maturity in 2007.
The Company has provided the bank with an unconditional guarantee for an amount
not to exceed (euro)1.0 million ($1.1 million). The Company has calculated the
fair value of the guarantee and determined it to be immaterial.
Also, the Company and Kennedy Rice Dryers, Inc., a corporation of which
Mr. Elton Kennedy, a director of the Company, is the principal stockholder and a
director and officer, each owns a 50% interest in South LaFourche Farm
Partnership. The Company and Mr. Kennedy are each contingently liable on a $1.9
million promissory note payable by the Partnership. This guarantee was made
prior to December 30, 2002, the effective date of FIN No. 45. Accordingly, no
liability has been recorded by the Company.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of September 28, 2003 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 29, 2003.
FOREIGN EXCHANGE RISK
12
A material amount of the Company's total sales and earnings are exposed
to changes in foreign exchange rates. The Company seeks to manage this risk in
part through operational means, including managing local currency revenues in
relation to local currency costs and local currency assets in relation to local
currency liabilities. The Company does not engage in any type of forward foreign
currency speculation to hedge its investment in foreign subsidiaries and
affiliates.
Forward foreign currency contracts are utilized by our European
operations to cover specific inventory purchases that are denominated in a
foreign currency. See discussion in "Quantitative and Qualitative Disclosure
About Market Risk" above.
INTEREST RATE RISK
The Company's U.S. dollar interest-bearing investments and loans are
subject to interest rate risk. The Company invests and borrows primarily on a
short-term or variable-rate basis and does not employ any techniques to hedge
this risk. At September 28, 2003, the Company had outstanding $23.0 million in
short term debt borrowed for 90 days at a 2.3% rate of interest. The Company
expects to be able to renew this debt at the end of the 90 day term. However,
upon renewal of the debt, the Company is subject to changes in interest rates.
An increase in the interest rate of 1/2 of 1% would increase annual interest
expense by $0.1 million before taxes.
The Company's foreign subsidiaries and affiliates invest and borrow in
their functional currency on both a short-term and long-term basis and are
subject to interest rate risk on these assets and liabilities. The Company does
not employ any techniques to hedge this risk.
LEGAL MATTERS
Various actions and claims, which arose in the ordinary course of
business, are pending against the Company. In the opinion of management, the
ultimate liability, if any, which may result from these actions and claims will
not materially affect the financial position or future results of operations of
the Company.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
For the quarter ended September 28, 2003, the Company, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and Chief Financial Officer, carried out
an evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based upon this evaluation, the Company's
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in ensuring that material
information relating to the Company, including its consolidated subsidiaries, is
made known to them by others within those entities, during the period in which
this quarterly report was being prepared.
(b) Changes in internal controls
There was no change in the Company's internal control over financial
reporting that occurred during the quarter ended September 28, 2003 that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
13
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 15, 2003. The matters voted on were as follows:
(a) Proposal for the election of twelve directors for one year
terms:
Nominee Votes For Votes Withheld
- ------- --------- --------------
Frank A. Godchaux III 11,905,738 1,581,062
Charles R. Godchaux 11,905,738 1,581,062
Joseph A. Hafner, Jr. 11,841,101 1,645,699
W. David Hanks 11,839,451 1,647,349
E. Wayne Ray, Jr. 11,823,851 1,662,949
Charles H. Cotros 13,334,897 151,903
Frank K. Godchaux 13,335,147 151,653
W. Elton Kennedy 11,905,688 1,581,112
E. James Lowrey 13,296,397 190,403
Theresa G. Payne 13,334,797 152,003
Patrick W. Rose 13,297,047 189,753
Thomas B. Walker, Jr. 13,295,897 190,903
(b) Proposal to approve and ratify the appointment of KPMG LLP
as the Company's independent public accountants for the
fiscal year ending June 27, 2004:
Votes for 13,440,404
Votes against 43,450
Abstain 2,946
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
15 Letters from KPMG LLP dated October 13, 2003
and November 4, 2003, regarding unaudited
financial statements.
31.1 Section 302 Certification of Principle
Executive Officer
31.2 Section 302 Certification of Principle
Financial Officer
32.1 Section 906 Certification of Principle
Executive Officer
32.2 Section 906 Certification of Principle
Financial Officer
14
(b) Reports on Form 8-K.
Current Report on Form 8-K dated August 21, 2003,
reporting that the Registrant had issued a press
release announcing operating results for the fourth
quarter ended June 29, 2003, a copy of which was
filed as Exhibit 99.1 in that Form 8-K.
Current Report on Form 8-K dated October 14, 2003,
reporting that the Registrant had issued a press
release announcing operating results for the first
quarter ended September 28, 2003, a copy of which was
filed as Exhibit 99.1 in that Form 8-K.
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)
November 5, 2003 /s/ Joseph A. Hafner, Jr.
---------------------------
Joseph A. Hafner, Jr.
Chief Executive Officer, President and
Director
(Principal Executive Officer)
November 5, 2003 /s/ E. Wayne Ray, Jr.
-----------------------
E. Wayne Ray, Jr.
Vice President, Chief Financial Officer,
Treasurer and Director
(Principal Financial and Accounting Officer)
15
EXHIBIT INDEX
No. Description
- --- -----------
15 Letters from KPMG LLP dated October 13, 2003 and November 4, 2003,
regarding unaudited financial statements
31.1 Section 302 Certification of Principle Executive Officer
31.2 Section 302 Certification of Principle Financial Officer
32.1 Section 906 Certification of Principle Executive Officer
32.2 Section 906 Certification of Principle Financial Officer
16